Maxtor Corporation Form 10-Q (3/29/2003)

Indicate by checkmark 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 þ No o

As of May 6, 2003, 244,956,566 shares of the registrant’s Common Stock, $.01 par value, were issued and outstanding.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Maxtor Corporation (“Maxtor” or the “Company”) and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. The unaudited interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2002 incorporated in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Material differences may result in the amount and timing of the Company’s revenue for any period, if the Company’s management made different judgments or utilized different estimates.

The actual results with regard to warranty expenditures could have a material impact on Maxtor if the actual rate of unit failure or the cost to repair a unit varies significantly from what the Company has used in estimating its warranty expense accrual.

Given the volatility of the market for disk drives and for the Company’s products, the Company makes adjustments to the value of inventories based on estimates of potentially excess and obsolete inventories and negative margin products after considering forecasted demand and forecasted average selling prices. However, forecasts are always subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand and such differences may have a material impact on the financial statements.

The actual results with regard to the useful lives of property, plant and equipment may vary from their estimated useful lives, which could have a material impact on the Company’s results of operations.

The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Saturday closest to December 31. As a result, the three month period ended March 29, 2003 comprised 13 weeks, as did the three month period ended March 30, 2002. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted.

On August 15, 2002, the Company announced its decision to shut down the manufacturing and sales of its MaxAttach^TM branded network attached storage products of the Company’s Network Systems Group (“NSG”). The discontinuance of the NSG operations represents the abandonment of a component of an entity as defined in paragraph 47 of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the Company’s financial statements have

been presented to reflect NSG as a discontinued operation for all periods presented. Its liabilities (no remaining assets) have been segregated from continuing operations in the accompanying consolidated balance sheets and its operating results have been segregated and reported as discontinued operations in the accompanying consolidated statements of operations.

The following is a summary of the liabilities of the NSG discontinued operations as of March 29, 2003 (in millions):

During the year ended December 28, 2002, the Company recorded a restructuring charge of $9.5 million associated with closure of one of its facilities located in California. The amount comprised $8.9 million of future non-cancelable lease payments, which are expected to be paid over several years based on the underlying lease agreement, and the write-off of $0.6 million in leasehold improvements. The restructuring accrual is included on the balance sheet within accrued and other liabilities with the balance of $8.5 million after cash payments of $0.4 million during the three months ended March 29, 2003.

On April 2, 2001, Maxtor acquired the hard disk drive business of Quantum Corporation (“Quantum HDD”). The acquisition was approved by the stockholders of both companies on March 30, 2001 and was accounted for as a purchase. The total purchase price of $1,269.4 million included consideration of 121.0 million shares of our common stock valued at an average of $9.40 per common share.

Under purchase accounting rules, the Company recorded $29.2 million for estimated severance pay associated with termination of approximately 700 employees in the United States. In addition, the Company paid and expensed $30.5 million for severance pay associated with termination of approximately 600 Quantum Corporation (“Quantum”) employees. As a result, total severance related costs amounted to $59.7 million and the total number of terminated employees, including Quantum transitional employees was approximately 1,300. The Company also recorded a $59.1 million liability for estimated facility exit costs for the closure of three Quantum HDD offices and research and development facilities located in Milpitas, California, and two Quantum HDD office facilities located in Singapore. The Company also recorded a $12.7 million liability for certain non-cancelable adverse inventory and other purchase commitments.

The following table summarizes the activity related to the merger-related restructuring costs as of March 29, 2003:

The balance remaining in the facilities exit accrual is expected to be paid over several years based on the underlying lease agreements. The merger-related restructuring accrual is included on the balance sheet within Accrued and other liabilities and Other liabilities.

The Company’s restricted cash balance of $54.0 million at March 29, 2003, is associated with short-term letters of credit (“LOCs”), where the Company has chosen to provide cash security in order to lower the cost of the LOCs.

The Company records an accrual for estimated warranty costs when revenue is recognized. Warranty covers cost of repair of the hard drive and the warranty periods generally range from one to five years. The Company has comprehensive processes that it uses to estimate accruals for warranty exposure. The processes include specific detail on hard drives in the field by product type, estimated failure rates and costs to repair. Although the Company believes it has the continued ability to reasonably estimate warranty expenses, unforeseeable changes in factors used to estimate the accrual for warranty could occur. These unforeseeable changes could cause a material change in the Company’s warranty accrual estimate. Such a change would be recorded in the period in which the change was identified. Changes in the Company’s product warranty liability during the three months ended March 29, 2003 and March 30, 2002 were as follows (in thousands):

The Company accounts for non-cash stock-based employee compensation in accordance with APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees and Related Interpretations,” and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation” and Statement of Financial Accounting Standard No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation, Transition and Disclosures.” The Company adopted FASB Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB 25” as of July 1, 2000. FIN 44 provides guidance on the application of APB 25 for non-cash stock-based compensation to employees. For fixed grants, under APB 25, compensation expense is based on the excess of the fair value of the Company’s stock over the exercise price, if any, on the date of the grant and is recorded on a straight-line basis over the vesting period of the options, which is generally four years. For variable grants, compensation expense is based on changes in the fair value of the Company’s stock and is recorded using the methodology set out in FASB Interpretation No. 28 (“FIN 28”), “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, an Interpretation of APB 15 and APB 25.”

The Company accounts for non-cash stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Investments that are Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

The following pro forma net income (loss) information for Maxtor’s stock options and employee stock purchase plan has been prepared following the provisions of SFAS No. 123 (in thousands, except per share data):

The fair value of option grants has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

The fair value of employee stock purchase plan option grants has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

No dividend yield is assumed as the Company has not paid dividends and has no plans to do so.

In accordance with the disclosure requirements of Statements of Financial Accounting Standards No. 128, “Earnings per Share” a reconciliation of the numerator and denominator of the basic and diluted net loss per share calculations is provided as follows (in thousands, except share and per share amounts):

Common stock options outstanding as of March 29, 2003 were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares and the effect would have been antidilutive. Common stock options and restricted shares

subject to repurchase as of March 30, 2002 were excluded from the computation of diluted net loss per share as their effect would have been antidilutive.

Short-term borrowings and long-term debt consist of the following (in thousands):

The 5.75% Subordinated Debentures due March 1, 2012 require semi-annual interest payments and annual sinking fund payments of $5.0 million, which commenced March 1, 1998. The Debentures are subordinated in right to payment to all senior indebtedness. The Company has fulfilled its sinking fund obligation until March 1, 2006. During the quarter ended March 29, 2003, the Company repurchased $0.5 million of debentures for $0.4 million. Accordingly, a gain of $0.1 million was recognized on the Company’s income statement within the caption of interest and other income.

In September 1999, Maxtor Peripherals (S) Pte Ltd entered into a four-year Singapore dollar denominated loan agreement with the Economic Development Board of Singapore (the “Board”), which is being amortized in seven equal semi-annual installments ending September 2003. As of March 29, 2003, the balance was equivalent to $6.5 million. The Board charges interest at 1% above the prevailing Central Provident Fund lending rate, subject to a minimum of 3.5% per year (3.5% as of March 29, 2003). This loan is supported by a two-year guaranty from a bank. Cash is currently provided as collateral for this guaranty but the Company may, at its option, substitute other assets as security. As part of this arrangement, the Company had been subject to two financial covenants, the maintenance of minimum unrestricted cash and a tangible net worth test. On January 29, 2003, the loan agreement was amended to remove the tangible net worth covenant. As of March 29, 2003, the Company was in compliance with the covenant regarding maintenance of minimum restricted cash.

Maxtor agreed to indemnify Quantum for the Quantum HDD pro rata portion of Quantum’s outstanding $287.5 million 7% convertible subordinated notes due August 1, 2004, and accordingly the principal amount of $95.8 million has been included in the Company’s long term debt. Quantum is required to pay interest semi-annually on February 1 and August 1, and principal is payable on maturity. The Company is required to reimburse Quantum for interest or principal payments relating to the $95.8 million representing Quantum HDD’s pro rata portion of such notes.

In connection with the merger with Quantum HDD, the Company acquired real estate and related mortgage obligations. The term of the mortgages is ten years, at an interest rate of 9.2%, with monthly payments based on a twenty-year amortization schedule, and a balloon payment at the end of the 10-year term, which is September 2006. The outstanding balance at March 29, 2003 was $35.3 million.

As of March 29, 2003, the Company had equipment loans and capital leases totaling $40.9 million. These obligations include certain capital equipment loans and leases assumed in connection with the acquisition of MMC, which as of March 29, 2003 amounted to $30.4 million, having maturity dates through October 2004 and interest rates averaging 9.9%.

In April 2003, the Company secured credit lines with the Bank of China for up to $133 million to be used for the construction and working capital requirements of the manufacturing facility to be set up in Suzhou, China. These lines of credit are U.S.-dollar-denominated and are drawable until April 2007. Borrowings under these lines of credits are collateralized by the facilities to be established in Suzhou, China, bear interest at LIBOR plus 50 basis points (subject to adjustments to 60 basis points) repayable in eight semi-annual installments commencing October 2007, except for $30 million repayable in April 2013.

Cumulative other comprehensive loss on the consolidated balance sheets consists of unrealized loss on investments. Total comprehensive income (loss) for the three months ended March 29, 2003 and March 30, 2002, is presented in the following table (in thousands):

Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographic areas and major customers. The method for determining what information to report is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the Chief Executive Officer (“CEO”). The CEO reviews financial information for purposes of making operational decisions and assessing financial performance.

Subsequent to the decision to shut down its NSG operations, the Company determined that it operates in one reportable segment.

Sales of continuing operations to original equipment manufacturers (“OEMs”) for the three months ended March 29, 2003 represented 42.5% of total revenue, compared to 43.2% of total revenue for the corresponding period in fiscal year 2002. Sales to the distribution and retail channels for the three months ended March 29, 2003 represented 57.5% of total revenue, compared to 56.8% of total revenue in the corresponding period in fiscal year 2002.

The Company has a worldwide sales, service and distribution network. Products are marketed and sold through a direct sales force to computer equipment manufacturers, distributors and retailers in the United States, Europe, Latin America and Asia Pacific. Maxtor operations outside the United States primarily consist of its manufacturing facilities in Singapore that produce subassemblies and final assemblies for the Company’s disk drive products. Revenue from continuing operations by destination for the three months ended March 29, 2003 and March 30, 2002 and long-lived asset information by geographic area as of March 29, 2003 and December 28, 2002 are presented in the following table:

Long-lived assets located within the United States consist primarily of goodwill and other intangible assets, which amounted to $940.3 million and $960.8 million as of March 29, 2003 and December 28, 2002, respectively. Long-lived assets located outside the United States consist primarily of the Company’s manufacturing operations located in Singapore, which amounted to $114.3 million and $127.6 million as of March 29, 2003 and December 28, 2002, respectively.

In 1994, Hyundai Electronics Industries, “HEI,” which subsequently changed its name to Hynix Semiconductor, Inc. (“HSI”) and certain of its affiliates purchased 40% of Maxtor’s outstanding common stock for $150.0 million in cash. In early 1996, Hynix, formerly Hyundai Electronics America, or HEA, acquired all of the remaining shares of common stock of Maxtor in a tender offer and merger for $215.0 million in cash and also acquired all of Maxtor’s common stock held by HEI and its affiliates. Maxtor operated as a wholly-owned subsidiary of Hynix until completion of its initial public offering on July 31, 1998, which reduced the ownership interest of Hynix to below 50%. In April 2001 as a result of Maxtor’s acquisition of the Quantum HDD business, Hynix’s ownership in Maxtor was reduced to approximately 17% of the outstanding common stock. As described below, Hynix sold Maxtor shares to the public and to Maxtor in October 2001, reducing Hynix’s ownership to 5.17% at December 29, 2001, and in February 2002, Hynix distributed the balance of its Maxtor shares to the beneficial owners of a trust and has ceased to be a stockholder of Maxtor.

Maxtor’s cost of revenue includes certain DRAM chip purchases from HSI. HSI is treated identically to its competitors in the process by which commodity electronics, principally DRAMs, are selected, qualified, and purchased; pricing is negotiated with selected suppliers on the basis of suppliers’ bids and market information. Maxtor’s purchases from HSI totaled $15.5 million from January 1, 2002 through February 2002, the month in which Hynix, HSI’s affiliate, ceased to be a stockholder of Maxtor.

Pursuant to a sublicense agreement with HSI, Maxtor is obligated to pay a portion of an IBM license royalty fee otherwise due from HSI. Such payments are due in annual installments through 2007, and are based upon the license fee separately negotiated on an arms’ length basis between HSI and IBM. For the year ended December 28, 2002, Maxtor recorded $1.6 million of expenses in connection with this obligation.

Hynix was an unconditional guarantor of one of Maxtor’s facilities lease in Milpitas, California. The aggregate rent under the lease was $3.24 million per annum in each of the years ended December 30, 2000 and December 29, 2001. The lease rate was established by arms’ length negotiations with the lessor based on applicable market rates. The lease expired on March 31, 2002 and was not extended.

From time to time, the Company has been subject to litigation including the pending litigations described below. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, the Company is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, the Company will assess its potential liability and revise its estimates. Pending or future litigation could be costly, could cause the diversion of management’s attention and could upon resolution, have a material adverse effect on its business, results of operations, financial condition and cash flow.

In addition, the Company is engaged in certain legal and administrative proceedings incidental to our normal business activities and believes that these matters will not have a material adverse effect on our financial position, results of operations or cash flow.

Prior to the Company’s acquisition of the Quantum HDD business, the Company, on the one hand, and Quantum and MKE, on the other hand, were sued by Papst Licensing, GmbH, a German corporation, for infringement of a number of patents that relate to hard disk drives. Papst’s complaint against Quantum and MKE was filed on July 30, 1998, and Papst’s complaint against Maxtor was filed on March 18, 1999. Both lawsuits, filed in the United States District Court for the Northern District of California, were transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Eastern District of Louisiana for coordinated pre-trial proceedings with other pending litigations involving the Papst patents (the “MDL Proceeding”). The matters will be transferred back to the District Court for the Northern District of California for trial. Papst’s infringement allegations are based on spindle motors that Maxtor and Quantum purchased from third party motor vendors, including MKE, and the use of such spindle motors in hard disk drives. The Company purchased the overwhelming majority of the spindle motors used in its hard disk drives from vendors that were licensed under the Papst patents. Quantum purchased many spindle motors used in its hard disk drives from vendors that were not licensed under the Papst patents, including MKE. As a result of the Company’s acquisition of the Quantum HDD business, the Company assumed Quantum’s potential liabilities to Papst arising from the patent infringement allegations Papst asserted against Quantum. The Company filed a motion to substitute the Company for Quantum in this litigation. The motion was denied by the Court presiding over the MDL Proceeding, without prejudice to being filed again in the future.

In February 2002, Papst and MKE entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE which might provide Quantum, and thus the Company, with additional defenses to Papst’s patent infringement claims.

On April 15, 2002, the Judicial Panel on Multidistrict Litigation ordered a separation of claims and remand to the District of Columbia of certain claims between Papst and another party involved in the MDL Proceeding. By order entered June 4, 2002, the court stayed the MDL Proceeding pending resolution by the District of Columbia court of the remanded claims. These separated claims relating to the other party are currently proceeding in the District Court for the District of Columbia.

damages, and because the Company was at an early stage of discovery when the litigation was stayed, the Company is unable to determine the possible loss, if any, that it may incur as a result of an adverse judgment or a negotiated settlement with respect to the claims against Maxtor. Management made an estimate of the potential liabilities which might arise from the Papst claims against Quantum at the time of the acquisition of the Quantum HDD business. This estimate will be revised as additional information becomes available. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against the Company and its products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, the Company also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by the Company’s technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although the Company cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on the Company’s business, financial condition and operating results. Management believes that it has valid defenses to the claims of Papst and is defending this matter vigorously.

Commencing in fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 requires goodwill to be tested for impairment under certain circumstances, written down when impaired, and requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Goodwill and indefinite lived intangible assets will be subject to an impairment test at least annually.

The Company ceased amortizing goodwill totaling $846.0 million as of the adoption date, including $31.1 million, net of accumulated amortization, of acquired workforce intangibles previously classified as purchased intangible assets. Subsequent to the decision to shut down the manufacture and sales of NSG products, the Company wrote off goodwill related to the NSG operations of $32.0 million. As of March 29, 2002, goodwill amounted to $814.0 million.

Purchased intangible assets are carried at cost less accumulated amortization. The Company evaluated its intangible assets and determined that all such assets have determinable lives. Amortization is computed over the estimated useful lives of the respective assets, generally three to five years. The Company expects amortization expense on purchased intangible assets to be $61.7 million in remainder of 2003, $37.0 million in 2004, $21.9 million in 2005, and $5.8 million in 2006, at which time purchased intangible assets will be fully amortized.

In accordance with SFAS No. 142, the Company completed its impairment analysis as of January 1, 2002, upon the adoption of SFAS 142, and as of December 28, 2002 for the purpose of the annual review. The Company found no instances of impairment of the recorded goodwill on both dates and accordingly no impairment was recorded.

In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002.

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). Under that interpretation, certain entities known as “Variable Interest Entities” (“VIE”) must be consolidated by the “primary beneficiary” of the entity. The primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE. For VIE’s in which a significant (but not majority) variable interest is held, certain disclosures are required. FIN 46 requires disclosure of Variable Interest Entities in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the Company will be the primary beneficiary of an existing VIE that will require consolidation or, (2) the Company will hold a significant variable interest in, or have significant involvement with, an existing VIE. Any VIEs created after January 31, 2003, are immediately subject to the consolidation guidance in FIN 46. The measurement principles of this interpretation will be effective for the Company’s 2003 financial statements. The Company does not have any entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46.

On May 7, 2003, the Company sold $230 million in aggregate principal amount of convertible senior notes due 2010 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The amount sold reflects the exercise in full by the initial purchasers of the notes of their option to purchase up to an additional $30 million aggregate principal amount of the notes. The principal amount of convertible senior notes due 2010 will be recorded as long-term debt on the Company’s consolidated balance sheet.

The notes bear interest at a rate of 6.80 percent per annum and are convertible into the Company’s common stock at a conversion rate of 81.5494 shares per $1,000 principal amount of the notes, or an aggregate of 18,756,362 shares, subject to adjustment in certain circumstances (equal to an initial conversion price of $12.2625 per share). The initial conversion price represents a 125 percent premium over the closing price of our common stock on May 1, 2003, which was $5.45 per share. The Company is obligated to file with the Securities and Exchange Commission a registration statement registering the notes and the shares underlying the notes within 90 days after May 7, 2003 and to have that registration statement declared effective within 180 days after May 7, 2003. For so long as the Company has not satisfied its registration obligations and the notes are not tradeable under Rule 144(k), the Company is subject to certain liquidated damages in the form of additional interest on the notes and if the Company fails to register the underlying shares into which the notes are convertible, in the event a holder elects to convert the notes during a period when the notes or the

underlying shares are not registered or tradeable under Rule 144(k) and the Company has not satisfied its registration obligations, the conversion rate will be increased by 3%.

The Company may not redeem the notes prior to May 5, 2008. Thereafter, it may redeem the notes at 100% of their principal amount, plus accrued and unpaid interest, if the closing price of its common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice exceeds 130% of the conversion price on such trading day.

In connection with the sale of the notes, on May 7, 2003, the Company also repurchased from an affiliate of one of the initial purchasers of the notes 8,245,738 shares of its common stock for an aggregate purchase price of $44.9 million, at $5.45 per share, the closing price of its common stock on May 1, 2003, plus commissions. These repurchased shares will be recorded as treasury stock in the three month period ended June 28, 2003.

On May 9, 2003, the Company entered into a two-year asset backed securitization facility of up to $100 million with certain financial institutions. The facility will use a special purpose subsidiary to purchase and hold all of the Company’s U.S. and Canadian accounts receivable and will borrow up to $100 million secured by the purchased receivables. This special purpose subsidiary will be consolidated for financial reporting purposes, and its resulting liabilities will appear on the consolidated balance sheet as short-term debt.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Part I. Financial Information, Item 1. Condensed Consolidated Financial Statements of this report.

This report contains forward-looking statements within the meaning of the U.S. federal securities laws that involve risks and uncertainties. The statements contained in this report that are not purely historical, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future, are forward-looking statements. Examples of forward-looking statements in this report include statements regarding our expectations as to average selling prices, demand for our products, capital expenditures, completion of our manufacturing facility in China, liquidity, litigation, and our relationships with vendors. In this report, the words “anticipates,” “believe,” “expect,” “intend,” “may,” “will,” “should,” “plan,” “estimate,” “predict,” “potential,” “future,” “continue,” or similar expressions also identify forward-looking statements. These statements are only predictions. We make these forward-looking statements based upon information available on the date hereof, and we have no obligation (and expressly disclaim any such obligation) to update or alter any such forward-looking statements, whether as a result of new information, future events, or otherwise. Our actual results could differ materially from those anticipated in this report as a result of certain factors including, but not limited to, those set forth in the following section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Future Performance” and elsewhere in this report.

Maxtor Corporation (“Maxtor” or the “Company”) was founded in 1982 and completed an initial public offering of common stock in 1986. In 1994, we sold 40% of our outstanding common stock to Hyundai Electronics Industries (now Hynix Semiconductors Inc. — “HSI”) and its affiliates. In early 1996, Hyundai Electronics America (now Hynix Semiconductor America Inc. — “Hynix”) acquired all of the remaining publicly held shares of our common stock as well as all of our common stock, then held by Hynix Semiconductor, Inc. and its affiliates. In July 1998, we completed a public offering of 49.7 million shares of our common stock, receiving net proceeds of approximately $328.8 million from the offering. In February 1999, we completed a public offering of 7.8 million shares of our common stock with net proceeds to us of approximately $95.8 million.

On April 2, 2001, we acquired Quantum Corporation’s Hard Disk Drive Group (“Quantum HDD”). The primary reason for our acquisition of Quantum HDD was to create a stronger, more competitive company, with enhanced prospects for continued viability in the storage industry. For additional information regarding the Quantum HDD acquisition, see note 4 of the Notes to Consolidated Financial Statements.

On September 2, 2001, we completed the acquisition of MMC Technology, Inc. (“MMC”), a wholly-owned subsidiary of Hynix. MMC, based in San Jose, California, designs, develops and manufactures media for hard disk drives. Prior to the acquisition, sales to Maxtor comprised 95% of MMC’s annual revenues. The primary reason for our acquisition of MMC was to provide us with a reliable source of supply of media.

On October 9, 2001, Hynix sold 23,329,843 shares (including exercise of the underwriters’ over-allotment) of Maxtor common stock in a registered public offering. Maxtor did not receive any proceeds from Hynix’s sale of Maxtor stock to the public. In addition, at the same time and on the same terms as Hynix’s sale of Maxtor stock to the public, we repurchased 5.0 million shares from Hynix for an aggregate purchase price of $20.0 million. These repurchased shares are being held as treasury shares. In February 2002, Hynix distributed the balance of its Maxtor shares to the beneficial owners of a trust and has ceased to be a stockholder of Maxtor.

On August 15, 2002 we announced our decision to shut down the manufacturing and sale of our MaxAttach^TM branded network attached storage products of our Network Systems Group (“NSG”). We worked with NSG customers for an orderly wind down of the business. The network attached storage market had fragmented since our entrance in 1999, with one segment of the NAS market becoming more

commoditized and the other segment placing us in competition with some of our hard disk drive customers. The shut down of the operations of our NSG business allowed us to focus on our core hard disk drive market and further reduce expenses. The NSG business was accounted for as a discontinued operation and therefore, results of operations and cash flows have been removed from our results of continuing operations for all periods presented in this report. For additional information regarding the NSG discontinued operations, see note 2 of the Notes to Consolidated Financial Statements.

Our discussion and analysis of the company’s financial condition and results of operations are based upon Maxtor’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies represent our significant judgments and estimates used in the preparation of the company’s consolidated financial statements:


	•	revenue recognition;

	•	sales returns, other sales allowances and the allowance for doubtful accounts;

	•	valuation of intangibles, long-lived assets and goodwill;

	•	warranty;

	•	inventory reserves;

	•	income taxes; and

	•	restructuring liabilities, litigation and other contingencies.

For additional information regarding the Company’s critical accounting policies mentioned above, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2002.

Revenue in the three months ended March 29,2003 was $938.9 million, compared to $1,036.1 million in the three months ended March 30, 2002, a decrease of 9.4%. Total shipments for the three months ended March 29, 2003 were 12.4 million units, which was 1.3 million units, or 9.5%, lower as compared to the three months ended March 30, 2002. Although the decrease in unit volume during the three months ended March 29, 2003 primarily reflected the ramp of our 80GB per platter areal density hard disk drives and the transition to the 36GB per platter Atlas SCSI drives, we continue to mature the supply chain for these products. During the three months ended March 29, 2003, we increased shipments of our desktop drives at the 80GB areal density point. This improvement from the three months ended December 28, 2002 was consistent with our expectations. As a result of the reduction in unit shipments, revenues declined during the three months ended March 29, 2003. The decline was offset by a slight increase in average selling price resulting from an increase in average gigabytes shipped.

Revenue from sales to original equipment manufacturers (“OEMs”) represented 42.5% and 43.2% of revenue in the three months ended March 29, 2003 and March 30, 2002, respectively. The decline in the percentage of revenue from OEMs was a result of the ramp of our 80GB per platter areal density hard disk drives and the transition to the 36GB per platter Atlas SCSI drives. Revenue from sales to the distribution channel and retail customers represented 57.5% and 56.8% of revenue in the three months ended March 29, 2003 and March 30, 2002, respectively. The overall increase reflected a 3.4% increase from sales to retail customers due to growth in sales of our personal storage products, offset by a 2.7% decrease from sales to the distribution channel, reflecting the ramp of our 80GB per platter areal density hard disk drives. Sales to the top five customers represented 28.7% and 33.2% of revenue in the three months ended March 29, 2003 and March 30, 2002, respectively.

Domestic revenue represented 34.0% and 37.8% of total sales in the three months ended March 29, 2003 and March 30, 2002, respectively. International revenue represented 66.0% and 62.2% of total sales in the three months ended March 29, 2003 and March 30, 2002, respectively. Revenue from international sales increased compared to the corresponding period in fiscal year 2002, primarily as a result of the growth of sales to the non-branded customers who are primarily located outside the United States and Canada. In absolute terms, international sales decreased 4.0% in the three months ended March 29, 2003, compared to the corresponding period in fiscal year 2002, as a function of the overall reduction in shipment volume during the three months ended March 29, 2003.

Sales to Europe in the three months ended March 29, 2003 and March 30, 2002 represented 35.2% and 32.9% of total revenue, respectively. In absolute terms, European sales decreased 2.9% compared to the corresponding period in fiscal year 2002. Sales to Asia Pacific in the three months ended March 29, 2003 represented 30.2%, or an absolute decrease of 3.7% of total revenue, compared to 28.4% of total revenue for

Gross profit increased to $171.8 million in the three months ended March 29, 2003, compared to $113.8 million for the corresponding period in fiscal year 2002. As a percentage of revenue, gross profit increased to 18.3% in the three months ended March 29, 2003 from 11.0% in the corresponding period of fiscal year 2002. The increase in gross profit as a percentage of revenue and actual terms was primarily due to our progress on the 80GB per platter areal density, manufacturing efficiencies, which resulted in reduced costs associated with drive components and a more favorable product mix. Our cost of goods sold includes depreciation and amortization of property, plan and equipment.

R&D expense in the three months ended March 29, 2003 was $86.7 million, or 9.2% of revenue compared to $103.1 million, or 9.9% of revenue in the corresponding period in fiscal year 2002. The decrease in absolute dollars and as a percentage of revenue was primarily due to reduced compensation expense associated with our reductions in force in 2002. Additionally, in the three months ended March 29, 2003 there was no longer any amortization of deferred stock-based compensation required for DSS restricted shares from our acquisition of the Quantum HDD business as the amortization period had been completed.

As a result our acquisition of the Quantum HDD business, R&D expense includes stock-based compensation charges of $0.2 million and $0.6 million in the three months ended March 29, 2003 and March 30, 2002, respectively, resulting from options we issued to Quantum employees who joined Maxtor in connection with the acquisition on April 2, 2001. R&D expense in the three months ended March 29, 2003 and March 30, 2002 includes $0 and $2.8 million, respectively, of stock-based compensation amortization for Quantum DSS restricted shares issued to Quantum employees who joined Maxtor in connection with the acquisition. The following table summarizes the effect of these acquisition-related charges:

For further information, see discussion below under the section “Stock-based Compensation.”

SG&A expense in the three months ended March 29, 2003 was $31.9 million, or 3.4% of revenue compared to $41.3 million, or 4.0% of revenue in the corresponding period in fiscal year 2002. SG&A expense decreased in absolute dollars and as a percentage of revenue primarily due to reduced compensation expense associated with our reductions in force in 2002 coupled with overall reduced spending on facilities and other services.

As a result of our acquisition of the Quantum HDD business, SG&A expense includes stock-based compensation charges of $0.1 million and $0.2 million in the three months ended March 29, 2003 and March 30, 2002, respectively, resulting from options we issued to Quantum employees who joined Maxtor in connection with the acquisition on April 2, 2001. SG&A expense in the three months ended March 29, 2003 and March 30, 2002 includes $0 and $1.0 million, respectively, of stock-based compensation amortization for Quantum DSS restricted shares issued to Quantum employees who joined Maxtor in connection with the acquisition. The following table summarizes the effect of these acquisition-related charges:

For further information, see discussion below under the section “Stock-based Compensation.”

On April 2, 2001, as part of our acquisition of the Quantum HDD business, we assumed the following options and restricted stock:


	•	All Quantum HDD options and Quantum HDD restricted stock held by employees who accepted offers of employment with Maxtor, or “transferred employees,” whether or not options or restricted stock have vested;

	•	Vested Quantum HDD options and vested Quantum HDD restricted stock held by Quantum employees whose employment is terminated prior to the separation, or “former service providers”; and

	•	Vested Quantum HDD restricted stock held by any other individual.

In addition, Maxtor assumed vested Quantum HDD options held by Quantum employees who continued to provide services during a transitional period, or “transitional employees.” The outstanding options to purchase Quantum HDD common stock held by transferred employees and vested options to purchase Quantum HDD common stock held by former Quantum employees, consultants and transition employees were assumed by Maxtor and converted into options to purchase Maxtor common stock according to the exchange ratio of 1.52 shares of Maxtor common stock for each share of Quantum HDD common stock. Vested and unvested options for Quantum HDD common stock assumed in the acquisition represented options for 7,650,965 shares and 4,655,236 shares of Maxtor common stock, respectively.

Included in R&D expenses and SG&A expenses are charges for amortization of stock-based compensation resulting from both Maxtor options and options issued by Quantum to employees who joined Maxtor in connection with the acquisition on April 2, 2001. Stock compensation charges were as follows:

As of March 29, 2003, $0.9 million of stock-based compensation associated with our acquisition of the Quantum HDD business remains to be amortized, based on vesting schedules, and this amortization is expected to be completed early in fiscal year 2004.

In addition, Quantum Corporation issued restricted DSS shares to Quantum employees who joined Maxtor in connection with the acquisition in exchange for the fair value of DSS options held by such employees. A portion of the acquisition purchase price has been allocated to this deferred stock-based compensation, recorded as prepaid expense, and is amortized to expenses over the vesting period as the vesting of the shares are subject to continued employment with Maxtor. Amortization as of March 29, 2003 was as follows:

Amortization of other intangible assets represents the amortization of existing technology, arising from our acquisitions of the Quantum HDD business in April 2001 and MMC in September 2001. The net book value of these intangibles at March 29, 2003 was $126.3 million. Amortization of other intangible assets was $20.6 million for the three months ended March 29, 2003 and March 30, 2002.

Amortization of other intangible assets is computed over the estimated useful lives of the respective assets, generally three to five years. The Company expects amortization expense on intangible assets to be $61.7 million in the remainder of 2003, $37.0 million in fiscal 2004, $21.9 million in 2005, and $5.8 million in 2006, at which time the intangible assets will be fully amortized.

Interest expense decreased $1.1 million in the three months ended March 29, 2003 compared to the corresponding period in 2002. The decrease was due to the termination of our asset securitization program on December 30, 2002. Total short-term and long-term outstanding borrowings were $238.3 million as of March 29, 2003 compared to $269.2 million as of March 30, 2002.

Interest and other income decreased $1.7 in the three months ended March 29, 2003 compared to the corresponding period in 2002. The decrease was due to reduced interest income from our investment portfolios as a result of lower short-term interest rates and a reduction in the size of our investment portfolios. Total cash and cash equivalents, restricted cash and marketable securities were $466.4 million as of March 29, 2003 compared to $606.0 million as of March 30, 2002. See the “Liquidity and Capital Resources” discussion for further information.

The provision for income taxes consists primarily of state and foreign taxes. Due to our net operating losses (“NOL”), NOL carryforwards and favorable tax status in Singapore and Switzerland, we have not incurred any significant foreign, U.S. federal, state or local income taxes for the current or prior fiscal periods. We have not recorded a tax benefit associated with our loss carry-forward because of the uncertainty of realization.

We were part of the HEA consolidated group for federal income tax returns for periods from early 1996 to August 1998 (the “Affiliation Period”). As a member of the HEA consolidated group, the Company was subject to a tax allocation agreement. During the Affiliation Period, for financial reporting purposes, our tax loss was computed on a separate tax return basis and, as such, we did not record any tax benefit in our financial statements for the amount of the net operating loss included in the HEA consolidated income tax return.

We ceased to be a member of the HEA consolidated group as of August 1998. We remain liable for our share of the total consolidated or combined tax return liability of the HEA consolidated group prior to August

1998. We have agreed to indemnify or reimburse HEA if there is any increase in our share of the HEA consolidated or combined tax return liability resulting from revisions to our taxable income.

Pursuant to a “Tax Sharing and Indemnity Agreement” entered into in connection with the Company’s merger with Quantum HDD, Maxtor, as successor to Quantum HDD, and Quantum are allocated their share of Quantum’s income tax liability for periods before the split-off, consistent with past practices and as if the Quantum HDD and Quantum DSS business divisions had been separate and independent corporations. To the extent that the income tax liability attributable to one business division is reduced by using NOLs and other tax attributes of the other business division, the business division utilizing the attributes must pay the other for the use of those attributes. We must also indemnify Quantum for additional taxes related to the Quantum DSS business for all periods before Quantum’s issuance of tracking stock and additional taxes related to the Quantum HDD business for all periods before the split-off, limited in the aggregate to $142.0 million plus 50% of any excess over $142.0 million, excluding any required gross-up payment. Management has determined that, based on the facts available at this time, the likelihood that the payment will exceed $142.0 million is remote. As of March 29, 2003, the Company has reimbursed $4.8 million to Quantum Corporation leaving a balance of $137.2 million on the original indemnity.

We purchased a $340 million insurance policy covering the risk that the split-off of Quantum HDD from Quantum DSS could be determined to be subject to federal income tax or state income or franchise tax. Under the “Tax Sharing and Indemnity Agreement,” the Company agreed to indemnify Quantum for the amount of any tax payable by Quantum as a result of the split-off to the extent such tax is not covered by such insurance policy, unless imposition of the tax is the result of Quantum’s actions, or acquisitions of Quantum stock, after the split-off. The amount of the tax not covered by insurance could be substantial. In addition, if it is determined that Quantum owes federal or state tax as a result of the split-off and the circumstances giving rise to the tax are covered by our indemnification obligations, the Company will be required to pay Quantum the amount of the tax at that time, whether or not reimbursement may be allowed under our tax insurance policy.

We recorded approximately $196.4 million of deferred tax liabilities in connection with the acquisition of Quantum HDD in April 2001. The deferred taxes were recorded principally to reflect the taxes which would become payable upon the repatriation of the cash which was invested abroad by Quantum HDD as of April 1, 2001.

On August 15, 2002, we announced our decision to shut down the manufacturing and sales of our MaxAttach^TM branded network attached storage products (“NSG”). The discontinuance of our NSG operations represents the disposal of a component of an entity as defined in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, our financial statements have been presented to reflect NSG as a discontinued operations for all periods presented. Our liabilities (no remaining assets) have been segregated from continuing operations in the accompanying consolidated balance sheet as of December 28, 2002 and our operating results have been segregated and reported as discontinued operations in the accompanying consolidated statement of operations.

Operating results of the NSG discontinued operations for the three months ended March 29, 2003 and March 30, 2002 are as follows (in millions):

At March 29, 2003, we had $328.7 million in cash and cash equivalents, $54.0 million in restricted cash and $83.7 million in marketable securities, for a combined total of $466.4 million. In comparison, at December 28, 2002 we had $306.5 million in cash and cash equivalents, $56.7 million in restricted cash and $87.5 million in marketable securities, for a combined total of $450.7 million. The restricted cash balance was pledged as collateral for certain stand-by letters of credit issued by commercial banks. We have a net deferred tax liability amounting to $196.4 million, which could become payable upon repatriation of the earnings invested abroad.

Operating activities provided cash of $39.4 million in the three months ended March 29, 2003, which includes $44.1 million provided from continuing operations and $4.7 million used in the discontinued NSG operations. Sources of cash from operating activities reflect our net income from continuing operations of $27.4 million, non-cash adjustments for depreciation and amortization of $41.9 million, amortization of intangible assets of $20.6 million, and $2.5 million of other non-cash items. Sources of cash from operating activities also included a decrease in accounts receivable of $43.4 million due to a decline in sales activity and increased collections, offset by an increase of inventory of $41.5 million due to an increase in factory volumes in our Singapore manufacturing facility to ramp our high-end products, an increase of prepaid and other assets of $9.0 million, decrease of accounts payable of $18.2 million resulting from the timing of vendor payments for material intake, and a decrease of accrued and other liabilities of $22.9 million.

Cash used in investing activities was $14.3 million for the three months ended March 29, 2003, primarily reflecting investments of property, plant and equipment of $20.6 million, offset by sales (net of purchases) of marketable securities of $3.5 million and a decrease in restricted cash of $2.7 million.

Cash used in financing activities was $2.9 million for the three months ended March 29, 2003, primarily due to the repayment of debt and lease obligations of $11.8 million, offset by proceeds of $8.9 million issuance of common stock through the Company’s employee stock purchase plan and stock option exercises.

We believe that our existing cash and cash equivalents, short term investment and capital resources, together with cash generated from operations and available borrowing capacity will be sufficient to fund our operations through at least the next twelve months. We require substantial working capital to fund our business, particularly to finance accounts receivable and inventory, and to invest in property, plant and equipment. During 2003, capital expenditures are expected to be in the range of $150 million to $175 million, primarily used for manufacturing upgrades and expansion, product development, and updating our information technology systems. We intend to seek financing arrangements to fund our future capacity expansion and working capital, as necessary. Our ability to generate cash will depend on, among other things, demand in the hard disk drive market and pricing conditions. If we need additional capital, there can be no assurance that such additional financing can be obtained, or that it will be available on satisfactory terms. See discussion below under the heading “Certain Factors Affecting Future Performance.”

Future payments due under lease and long-term obligations as of March 29, 2003 are reflected in the following table (in thousands):


(1)	Does not include $103 million which may be borrowed under a facility in a U.S.-dollar-denominated loan, to be secured by our facilities in Suzhou, China, drawable until April 2007, and repayable in eight semi-


	annual installments commencing October 2007; the borrowings under this facility will bear interest at LIBOR plus 50 basis points (subject to adjustment to 60 basis points).

(2)	Does not include $30 million which may be borrowed under a facility in a U.S.-dollar-denominated loan to be secured by our facilities in Suzhou, China, drawable until April 2007, and repayable in April 2013; the borrowings under this facility will bear interest at LIBOR plus 50 basis points (subject to adjustment to 60 basis points).

(3)	Does not include $67 million which we are obligated to contribute to our China subsidiary to allow drawdowns under the facilities described under footnotes (1) and (2).

(4)	Includes future minimum annual rental commitments, including amounts accrued as restructuring liabilities as of March 29, 2003.

We have agreed to invest $200 million over the next five years to establish a manufacturing facility in Suzhou, China, and we have secured credit lines with the Bank of China for up to $133 million to be used for the construction and working capital requirements of this operation. The remainder of our commitment will be satisfied primarily with the transfer of manufacturing assets from Singapore or from our other manufacturing sites.

On May 9, 2003, we entered into a two-year asset backed securitization facility of up to $100 million with certain financial institutions. The facility will use a special purpose subsidiary to purchase and hold all of our U.S. and Canadian accounts receivable. This special purpose subsidiary will borrow up to $100 million secured by the purchased receivables and will use such borrowed funds and collections from the receivables to purchase additional receivables from us and to make other permitted distributions to us. This special purpose subsidiary will be consolidated for financial reporting purposes, and its resulting liabilities will appear on our consolidated balance sheet as short-term debt. The terms of the facility require compliance with operational covenants and financial covenants, including a liquidity covenant and an operating cash flow to long-term debt ratio. A violation of these covenants will result in an early amortization event that will cause a prohibition on further payments and distributions to us from the special purpose subsidiary until the facility has been repaid in full. However, early amortization events under the facility generally will not cause an event of default under the convertible senior notes due 2010. We do not believe that the lack of borrowing availability under the facility would have a material adverse effect on our liquidity.

On May 7, 2003, we sold $230 million in aggregate principal amount of convertible senior notes due 2010 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The amount sold reflects the exercise in full by the initial purchasers of their option to purchase up to an additional $30 million aggregate principal amount of the notes. The notes bear interest at a rate of 6.80 percent per annum and are convertible into our common stock at a conversion rate of 81.5494 shares per $1,000 principal amount of the notes, or an aggregate of 18,756,362 shares, subject to adjustment in certain circumstances (equal to an initial conversion price of $12.2625 per share). The initial conversion price represents a 125 percent premium over the closing price of our common stock on May 1, 2003, which was $5.45 per share. We are obligated to file with the Securities and Exchange Commission a registration statement registering the notes and the shares underlying the notes within 90 days after May 7, 2003 and to have that registration statement declared effective within 180 days after May 7, 2003. For so long as we have not satisfied our registration obligations and the notes are not tradeable under Rule 144(k), we are subject to certain liquidated damages in the form of additional interest on the notes and if we fail to register the underlying shares into which the notes are convertible, in the event a holder elects to convert the notes during a period when the notes or the underlying shares are not registered or tradeable under Rule 144(k) and we have not satisfied our registration obligations, the conversion rate will be increased by 3%. We may not redeem the notes prior to May 5, 2008. Thereafter, we may redeem the notes at 100% of their principal amount, plus accrued and unpaid interest, if the closing price of its common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice exceeds 130% of the conversion price on such trading day. In connection with our sale of the notes, on May 7, 2003, we

also repurchased from an affiliate of one of the initial purchasers of the notes 8,245,738 shares of our common stock for an aggregate purchase price of $44.9 million, or $5.45 per share, the closing price of our common stock on May 1, 2003, plus commissions. The Company will use the balance of the net proceeds of the offering for repayment of indebtedness, investments, acquisitions, general corporate purposes and working capital.

We have a history of significant losses and may not maintain profitability. In the last five fiscal years, we were profitable in only fiscal years 1998 and 2000. For the quarter ended March 29, 2003, we had net income of $27.4 million, including a charge of $20.6 million for the amortization of intangible assets and $0.3 million in stock compensation expense. For the year ended December 28, 2002, our net loss was $334.1 million, which included $82.2 million for the amortization of intangible assets, charges of $5.6 million for stock-based compensation related to our acquisition of the Quantum HDD business, severance charges of $12.3 million, restructuring charges related to facilities closures of $9.5 million and losses of $73.5 million related to the discontinuation of our network attached storage business in the quarter ended September 28, 2002. As of March 29, 2003, we had an accumulated deficit of $1,713.2 million. Although we were profitable in the quarter ended March 29, 2003, we have a history of losses and may not maintain profitability.

The decline of average selling prices in the hard disk drive industry could cause our operating results to suffer and make it difficult for us to achieve profitability.

It is very difficult to achieve and maintain profitability and revenue growth in the hard disk drive industry because the average selling price of a hard disk drive rapidly declines over its commercial life as a result of technological enhancement, productivity improvement and increases in supply. End-user demand for the computer systems that contain our hard disk drives has historically been subject to rapid and unpredictable fluctuations. In addition, intense price competition among personal computer manufacturers and Intel-based server manufacturers may cause the price of hard disk drives to decline. As a result, the hard disk drive market tends to experience periods of excess capacity and intense price competition. Competitors’ attempts to liquidate excess inventories, restructure, or gain market share also tend to cause average selling prices to decline. This excess capacity and intense price competition caused us in the first three quarters of fiscal 2002, and will likely continue to cause us in future quarters, to lower prices, which has the effect of reducing margins, causing operating results to suffer and making it difficult for us to achieve or maintain profitability. If we are unable to lower the cost of producing our hard disk drives to be consistent with the decline of average selling prices, we will not be able to compete effectively and our operating results will suffer.

Intense competition in the hard disk drive market could reduce the demand for our products or the prices of our products, which could adversely affect our operating results.

The desktop computer market segment and the overall hard disk drive market are intensely competitive even during periods when demand is stable. We compete primarily with manufacturers of 3.5 inch hard disk drives, including Fujitsu, Hitachi Global Storage, Samsung, Seagate Technology, and Western Digital. Hitachi and IBM have recently completed the merger of their hard disk drive businesses into a single joint venture, Hitachi Global Storage Technologies. Many of our competitors historically have had a number of significant advantages, including larger market shares, a broader product line, preferred vendor status with customers, extensive name recognition and marketing power, and significantly greater financial, technical and manufacturing resources. Some of our competitors make many of their own components, which may provide them with benefits including lower costs. Our competitors may also:


	•	consolidate or establish strategic relationships to lower their product costs or to otherwise compete more effectively against us;

	•	lower their product prices to gain market share;

	•	bundle their products with other products to increase demand for their products;

	•	develop new technology which would significantly reduce the cost of their products; or

	•	offer more products than we do and therefore enter into agreements with customers to supply hard disk drives as part of a larger supply agreement.

Increasing competition could reduce the demand for our products and/or the prices of our products as a result of the introduction of technologically better and cheaper products, which could reduce our revenues. In addition, new competitors could emerge and rapidly capture market share. If we fail to compete successfully against current or future competitors, our business, financial condition and operating results will suffer.

Our quarterly operating results have fluctuated significantly in the past and are likely to fluctuate in the future.

Our quarterly operating results have fluctuated significantly in the past and may fluctuate significantly in the future. Our future performance will depend on many factors, including:


	•	the average selling price of our products;

	•	fluctuations in the demand for our products as a result of the seasonal nature of the desktop computer industry and the markets for our customers’ products, as well as the overall economic environment;

	•	market acceptance of our products;

	•	our ability to qualify our products successfully with our customers;

	•	changes in purchases by our primary customers, including the cancellation, rescheduling or deferment of orders;

	•	changes in product and customer mix;

	•	actions by our competitors, including announcements of new products or technological innovations;

	•	our ability to execute future product development and production ramps effectively;

	•	the availability, and efficient use, of manufacturing capacity;

	•	our inability to reduce a significant portion of our fixed costs due, in part, to our ongoing capital expenditure requirements; and

	•	our ability to procure and purchase critical components at competitive prices.

Many of our expenses are relatively fixed and difficult to reduce or modify. The fixed nature of our operating expenses will magnify any adverse effect of a decrease in revenue on our operating results. Because of these and other factors, period to period comparisons of our historical results of operations are not a good predictor of our future performance. If our future operating results are below the expectations of stock market analysts, our stock price may decline. Due to current economic conditions and their impact on information technology spending, particularly desktop computer sales, our ability to predict demand for our products and our financial results for current and future periods may be severely diminished. This may adversely affect both our ability to adjust production volumes and expenses and our ability to provide the financial markets with forward-looking information.

If we fail to qualify as a supplier to computer manufacturers or their subcontractors for a future generation of hard disk drives, then these manufacturers or subcontractors may not purchase any units of an entire product line, which will have a significant adverse impact on our sales.

Most of our products are sold to desktop computer and Intel-based server manufacturers or to their subcontractors. These manufacturers select or qualify their hard disk drive suppliers, either directly or through their subcontractors, based on quality, storage capacity, performance and price. Manufacturers typically seek to qualify two or more suppliers for each hard disk drive product generation. To qualify consistently, and thus succeed in the desktop and Intel-based server hard disk drive industry, we must consistently be among the first-to-market introduction and first-to-volume production at leading storage capacities per disk, offering competitive prices and high quality. Once a manufacturer or subcontractor has chosen its hard disk drive suppliers for a given desktop computer or Intel-based server product, it often will purchase hard disk drives from those suppliers for the commercial lifetime of that product line. If we miss a qualification opportunity, we may not have another opportunity to do business with that manufacturer or subcontractor until it introduces its

next generation of products. The effect of missing a product qualification opportunity is magnified by the limited number of high-volume manufacturers of personal computers and Intel-based servers. If we do not reach the market or deliver volume production in a timely manner, we may lose opportunities to qualify our products and may need to deliver lower margin, older products than required in order to meet our customers’ demands. In such case, our business, financial condition and operating results would be adversely affected.

Because we are substantially dependent on desktop computer drive sales, a decrease in the demand for desktop computers could reduce demand for our products.

Our revenue growth and profitability depend significantly on the overall demand for desktop computers and related products and services. In recent quarters, demand for desktop computers has been adversely affected by unfavorable economic conditions. If the economic conditions in the United States and globally do not improve, or if we experience a worsening in the global economic slowdown, we may experience a further decrease in demand for desktop computers. Because we sell a significant portion of our products to the desktop segment of the personal computer industry, we will be affected more by changes in market conditions for desktop computers than a company with a broader range of products. Any decrease in the demand for desktop computers could reduce the demand for our products, harming our business, financial condition and operating results.

The loss of one or more significant customers or a decrease in their orders of products would cause our revenues to decline.

We sell most of our products to a limited number of customers. For the fiscal year ended December 28, 2002, one customer, Dell Computer Corporation, accounted for approximately 11.5% of our total revenue, and our top five customers accounted for approximately 31.8% of our revenue. For the quarter ended March 29, 2003, no customer accounted for more than 10% of our total revenue. We expect that a relatively small number of customers will continue to account for a significant portion of our revenue, and the proportion of our revenue from these customers could continue to increase in the future. These customers have a wide variety of suppliers to choose from and therefore can make substantial demands on us. Even if we successfully qualify a product for a given customer, the customer generally will not be obligated to purchase any minimum volume of product from us and generally will be able to terminate its relationship with us at any time. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If we lose a key customer or if any of our key customers reduce their orders of our products or require us to reduce our prices before we are able to reduce costs, our business, financial condition and operating results could suffer. Mergers, acquisitions, consolidations or other significant transactions involving our significant customers may adversely affect our business and operating results.

If we fail to develop and maintain relationships with our key distributors, if we experience problems associated with distribution channels, or if our key distributors favor our competitors’ products over ours, our operating results could suffer.

We sell a significant amount of our hard disk drive products through a limited number of key distributors. If we fail to develop, cultivate and maintain relationships with our key distributors, or if these distributors are not successful in their sales efforts, sales of our products may decrease and our operating results could suffer. As our sales through these distribution channels continue to increase, we may experience problems typically associated with these distribution channels such as unstable pricing, increased return rates and other logistical difficulties. Our distributors also sell products manufactured by our competitors. If our distributors favor our competitors’ products over our products for any reason, they may fail to market our products effectively or continue to devote the resources necessary to provide us with effective sales and, as a result, our operating results could suffer.

If we do not expand into new hard drive market segments, and maintain our presence in the hard disk drive market, our revenues will suffer.

To remain a significant supplier of hard disk drives to major manufacturers of personal computers and Intel-based servers, we will need to offer a broad range of hard disk drive products to our customers. Although almost all of our current products are designed for the desktop computer and the Intel-based server markets, demand in these segments may shift to products we do not offer or volume demand may shift to other segments. Such segments may include the laptop computer or handheld consumer product segments, which none of our products currently serves. Products using alternative technologies, such as optical storage, semiconductor memory and other storage technologies, may also compete with our hard disk drive products. While we continually develop new products, the success of our new product introductions is dependent on a number of factors, including market acceptance, our ability to manage the risks associated with product transitions, the effective management of inventory levels in line with product demand, and the risk that our new products will have quality problems or other defects in the early stages of introduction that were not anticipated in the design of those products. We will need to successfully develop and manufacture new products that address additional hard disk drive market segments or competitors’ technology or feature development to remain competitive in the hard disk drive industry. We cannot assure you that we will successfully or timely develop and market any new hard disk drives in response to technological changes or evolving industry standards. We also cannot assure you that we will avoid technical or other difficulties that could delay or prevent the successful development, introduction or marketing of new hard disk drives. Any failure to successfully develop and introduce new products for our existing customers or to address additional market segments could result in loss of customer business or require us to deliver product not targeted effectively to customer requirements, which in turn could adversely affect our business, financial condition and operating results.

Our customers have adopted a subcontractor model that increases our credit risk and could result in an increase in our operating costs.

Our significant OEM customers have adopted a subcontractor model that requires us to contract directly with companies that provide manufacturing services for personal computer manufacturers. This exposes us to increased credit risk because these subcontractors are generally not as well capitalized as personal computer manufacturers, and our agreements with our customers may not permit us to increase our prices to compensate for this increased credit risk. Any credit losses would increase our operating costs, which could cause our operating results to suffer.

If we fail to match production with product demand or to manage inventory, our operating results could suffer.

We base our inventory purchases and commitments on forecasts from our customers, who are not obligated to purchase the forecast amounts. If actual orders do not match our forecasts, or if any products become obsolete between order and delivery time, we may have excess or inadequate inventory of our products. In addition, our significant OEM customers have adopted build-to-order manufacturing models or just-in-time inventory management processes that require component suppliers to maintain inventory at or near the customer’s production facility. These policies, combined with continued compression of product life cycles, have complicated inventory management strategies that make it more difficult to match manufacturing plans with projected customer demand and cause us to carry inventory for more time and to incur additional costs to manage inventory which could cause our operating results to suffer. If we fail to manage inventory of older products as we or our competitors introduce new products with higher areal density, we may have excess inventory. Excess inventory could materially adversely affect our operating results and cause our operating results to suffer.

Because we purchase a significant portion of our parts from a limited number of third party suppliers, we are subject to the risk that we may be unable to acquire quality components in a timely manner, or effectively integrate parts from different suppliers, and these component shortages or integration problems could result in delays of product shipments and damage our business and operating results.

Unlike some of our competitors, we do not manufacture any of the parts used in our products, other than media as a result of our acquisition of MMC Technologies Inc., or MMC. Instead, our products incorporate parts and components designed by and purchased from third party suppliers. Both we and Matsushita-Kotobuki Electronics Industries, Ltd., or MKE, depend on a limited number of qualified suppliers for components and subassemblies, including recording heads, media and integrated circuits. Currently, we purchase recording heads from three sources, digital signal processors/ controllers from one source and spin/servo integrated circuits from two sources. Although our acquisition of our primary media supplier, MMC, has reduced our dependence on outside suppliers for this component, MMC cannot supply all of our media needs, and therefore we are still required to purchase media from two outside sources. As we have experienced in the past, some required parts may be periodically in short supply. As a result, we will have to allow for significant ordering lead times for some components. In addition, we may have to pay significant cancellation charges to suppliers if we cancel orders for components because we reduce production due to market oversupply, reduced demand, transition to new products or technologies or for other reasons. We order the majority of our components on a purchase order basis and we have limited long-term volume purchase agreements with only some of our existing suppliers. In the event that these suppliers cannot qualify to new leading-edge technology specifications, our ramp up of production for the new products will be delayed, and our business, operating results and financial condition will be adversely affected.

If we cannot obtain sufficient quantities of high-quality parts when needed, product shipments would be delayed and our business, financial condition and operating results could suffer. We cannot assure you that we will be able to obtain adequate supplies of critical components in a timely and economic manner, or at all.

The success of our products also depends on our ability to effectively integrate parts and components that use leading-edge technology. If we are unable to successfully manage the integration of parts obtained from third party suppliers, our business, financial condition and operating results could suffer.

If we are unable to acquire needed additional manufacturing capacity, or MKE does not meet our manufacturing requirements or a disaster occurs at one of our or MKE’s plants, our growth will be adversely impacted and our business, financial condition and operating results could suffer.

Our Maxtor-owned facilities in Singapore and our relationship with MKE for the manufacture of 10,000 RPM hard disk drives for the enterprise market are currently our only sources of production for our hard disk drive products. MKE manufactures a substantial portion of our enterprise hard disk drives pursuant to a master agreement and a purchase agreement that has been extended through March 31, 2004. If, for any reason, we are unable in some quarters to make purchases in adequate volumes or on terms advantageous to us, our revenue may be lower or our costs may be higher than projected and our operating results would suffer.

We negotiate pricing arrangements with MKE on a quarterly basis. Any failure to reach an agreement on competitive pricing arrangements would also negatively impact our operating results.

If, at the time of termination of our current agreement with MKE we are unable to extend the agreement on mutually acceptable terms, we will need to arrange for alternative manufacturing capacity for our enterprise hard disk drive products. If we fail to make such arrangements in a timely manner, for adequate volumes or on acceptable terms, our revenue might be lower than projected and our business, financial condition and operating results would suffer.

We will need to acquire additional manufacturing capacity in the future. Our inability to add capacity to allow us to meet customers’ demands in a timely manner may limit our future growth and could harm our business, financial condition and operating results. We have begun construction of a manufacturing facility in China that will provide us with a low-cost facility to accommodate anticipated future growth. We anticipate that the facility will become operational in the second half of 2004, however, the recent outbreak of severe

acute respiratory syndrome (SARS) could disrupt the construction of the facility. Any significant disruption in the construction of the facility could delay the time at which the facility could come online, which could harm our business, financial condition and operating results.

In addition, our entire volume manufacturing operations are based in Singapore. Our MKE-manufactured server products are manufactured in Japan. A flood, earthquake, political instability, act of terrorism or other disaster or condition in Singapore or Japan that adversely affects our facilities or ability to manufacture our hard disk drive products could significantly harm our business, financial condition and operating results.

The recent outbreak of SARS may harm our business, financial condition and operating results.

The recent outbreak of SARS in Asia, and particularly in China and Singapore, and concerns over its spread in Asia and elsewhere could have a negative impact on commerce, travel, and general economic and industry conditions. Given the importance of our Asia sales, our manufacturing operations in Singapore, and the manufacturing facility we have under construction in China, our business may be more exposed to this risk than the global economy generally. For example, the SARS outbreak could result in quarantines or closures of our manufacturing facilities in Singapore or delays in the construction of our planned manufacturing facility in China. The SARS outbreak may also adversely impact our ability to purchase goods from suppliers in Asia. As a result of the SARS outbreak, our business, financial condition and operating results could be materially adversely affected.

We are subject to risks related to product defects, which could subject us to warranty claims in excess of our warranty provision or which are greater than anticipated due to the unenforceability of liability limitations.

Our products may contain defects. We generally warrant our products for one to five years and prior to the acquisition, Quantum HDD generally warranted its products for one to five years. We assumed Quantum HDD’s warranty obligations as a result of the acquisition. The standard warranties used by us and Quantum HDD contain limits on damages and exclusions of liability for consequential damages and for negligent or improper use of the products. We generally establish and, prior to the acquisition, Quantum HDD established, a warranty provision at the time of product shipment in an amount equal to estimated warranty expenses. We determined that there were issues with certain Quantum HDD products that we acquired in the acquisition, and which are no longer being manufactured. We have established a warranty provision for these products and have increased goodwill associated with the acquisition to reflect pre-acquisition contingencies related to these issues. We may incur additional operating expenses if these steps do not reflect the actual cost of resolving these issues, and if any resulting expenses are significant, our business, financial condition and results of operations will suffer.

We have asserted claims against Quantum, and Quantum has asserted claims against us, for payment under agreements entered into in connection with our acquisition of the Quantum HDD business. In the event these claims are not resolved favorably in the aggregate, our business, financial condition and operating results could be harmed.

We have asserted multiple claims against Quantum, and Quantum has asserted multiple claims against us, for payment under agreements entered into in connection with our acquisition of the Quantum HDD business, including a tax sharing and indemnity agreement, which provides for the allocation of certain liabilities related to taxes. We disagree with Quantum about the amounts owed by each party under the agreements and we are in negotiations with Quantum to resolve the claims. The parties have commenced dispute resolution procedures under the tax sharing and indemnity agreement. Although we believe that we will be successful in asserting and defending these claims, an unfavorable resolution of these claims in the aggregate could harm our business, financial condition and operating results.

If Quantum incurs non-insured tax as a result of its split-off of Quantum HDD, our financial condition and operating results could be negatively affected.

In connection with our acquisition of the Quantum HDD business, we agreed to indemnify Quantum for the amount of any tax payable by Quantum as a result of the separation of the Quantum HDD business from Quantum Corporation (referred to as a “split-off”) to the extent such tax is not covered by insurance, unless imposition of the tax is the result of Quantum’s actions, or acquisitions of Quantum stock, after the split-off. The amount of the tax not covered by insurance could be substantial. In addition, if it is determined that Quantum owes federal or state tax as a result of the split-off and the circumstances giving rise to the tax are covered by our indemnification obligations, we will be required to pay Quantum the amount of the tax at that time, whether or not reimbursement may be allowed under the insurance policy. Even if a claim is available, made and pending under the tax opinion insurance policy, there may be a substantial period after we pay Quantum for the tax before the outcome of the insurance claim is finally known, particularly if the claim is denied by the insurance company and the denial is disputed by us and/or Quantum. Moreover, the insurance company could prevail in a coverage dispute. In any of these circumstances, we would have to either use our existing cash resources or borrow money to cover our obligations to Quantum. In either case, our payment of the tax, whether covered by insurance or not, could harm our business, financial condition, operating results and cash flows.

Any failure to adequately protect and enforce our intellectual property rights could harm our business.

Our protection of our intellectual property is limited. For example, we have patent protection on only some of our technologies. We may not receive patents for our pending or future patent applications, and any patents that we own or that are issued to us may be invalidated, circumvented or challenged. In the case of products offered in rapidly emerging markets, such as consumer electronics, our competitors may file patents more rapidly or in greater numbers resulting in the issuance of patents that may result in unexpected infringement assertions against us. Moreover, the rights granted under any such patents may not provide us with any competitive advantages. Finally, our competitors may develop or otherwise acquire equivalent or superior technology. We also rely on trade secret, copyright and trademark laws as well as the terms of our contracts to protect our proprietary rights. We may have to litigate to enforce patents issued or licensed to us, to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of our proprietary rights and the proprietary rights of others. Enforcing or defending our proprietary rights could be expensive and might not bring us timely and effective relief. We may have to obtain licenses of other parties’ intellectual property and pay royalties. If we are unable to obtain such licenses, we may have to stop production of our products or alter our products. In addition, the laws of certain countries in which we sell and manufacture our products, including various countries in Asia, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Our remedies in these countries may be inadequate to protect our proprietary rights. Any failure to enforce and protect our intellectual property rights could harm our business, financial condition and operating results.

We are subject to existing infringement claims which are costly to defend and may harm our business.

Prior to our acquisition of the Quantum HDD business, we, on the one hand, and Quantum and MKE, on the other hand, were sued by Papst Licensing, GmbH, a German corporation, for infringement of a number of patents that relate to hard disk drives. Papst’s complaint against Quantum and MKE was filed on July 30, 1998, and Papst’s complaint against Maxtor was filed on March 18, 1999. Both lawsuits, filed in the United States District Court for the Northern District of California, were transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Eastern District of Louisiana for coordinated pre-trial proceedings with other pending litigations involving the Papst patents (the “MDL Proceeding”). The matters will be transferred back to the District Court for the Northern District of California for trial. Papst’s infringement allegations are based on spindle motors that Maxtor and Quantum purchased from third party motor vendors, including MKE, and the use of such spindle motors in hard disk drives. We purchased the overwhelming majority of the spindle motors used in our hard disk drives from vendors that were licensed under the Papst patents. Quantum purchased many spindle motors used in its hard

disk drives from vendors that were not licensed under the Papst patents, including MKE. As a result of our acquisition of the Quantum HDD business, we assumed Quantum’s potential liabilities to Papst arising from the patent infringement allegations Papst asserted against Quantum. We filed a motion to substitute Maxtor for Quantum in this litigation. The motion was denied by the Court presiding over the MDL Proceeding, without prejudice to being filed again in the future.

In February 2002, Papst and MKE entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE, which might provide Quantum, and thus us, with additional defenses to Papst’s patent infringement claims.

The results of any litigation are inherently uncertain and Papst may assert other infringement claims relating to current patents, pending patent applications, and/or future patent applications or issued patents. Additionally, we cannot assure you we will be able to successfully defend ourselves against this or any other Papst lawsuit. Because the Papst complaints assert claims to an unspecified dollar amount of damages, and because we were at an early stage of discovery when the litigation was stayed, we are unable to determine the possible loss, if any, that we may incur as a result of an adverse judgment or a negotiated settlement. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against us and our products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, we also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by our technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although we cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on our business, financial condition and operating results. Management believes that it has valid defenses to the claims of Papst and is defending this matter vigorously.

We conduct most of our manufacturing and testing operations and purchase a substantial portion of our key parts outside the United States. In particular, manufacturing operations for our products are concentrated in Singapore, where our principal manufacturing operations are located, and in Japan, where MKE’s manufacturing operations are located. Such concentration of operations in Singapore and Japan will likely magnify the effects on us of any disruptions or disasters relating to Singapore and Japan. In addition, we also sell a significant portion of our products to foreign distributors and retailers. As a result, we will be dependent on revenue from international sales. Inherent risks relating to our overseas operations include:


	•	difficulties with staffing and managing international operations;

	•	transportation and supply chain disruptions as a result of epidemics, terrorist activity, acts of war or hostility;

	•	economic slowdown and/or downturn in foreign markets;

	•	international currency fluctuations;

	•	political and economic uncertainty caused by epidemics, terrorism or acts of war or hostility;

	•	legislative and regulatory responses to terrorist activity such as increased restrictions on cross-border movement of products and technology;

	•	legislative, regulatory, police, or civil responses to epidemics or other outbreaks of infectious diseases such as quarantines, factory closures, or increased restrictions on transportation or travel;

	•	general strikes or other disruptions in working conditions;


	•	labor shortages;

	•	political instability;

	•	changes in tariffs;

	•	generally longer periods to collect receivables;

	•	unexpected legislative or regulatory requirements;

	•	reduced protection for intellectual property rights in some countries;

	•	significant unexpected duties or taxes or other adverse tax consequences;

	•	difficulty in obtaining export licenses and other trade barriers;

	•	seasonality;

	•	increased transportation/shipping costs; and

	•	credit and access to capital issues faced by our international customers.

The specific economic conditions in each country impact our international sales. For example, our international contracts are denominated primarily in U.S. dollars. Significant downward fluctuations in currency exchange rates against the U.S. dollar could result in higher product prices and/or declining margins and increased manufacturing costs. In addition, we attempt to manage the impact of foreign currency exchange rate changes by entering into short-term, foreign exchange contracts. If we do not effectively manage the risks associated with international operations and sales, our business, financial condition and operating results could suffer.

We significantly increased our leverage as a result of the sale of convertible senior notes.

In connection with our sale of convertible senior notes on May 7 2003, we incurred $230 million of indebtedness, set to mature in April 2010. We will require substantial amounts of cash to fund semi-annual interest payments on the notes, payment of the principal amount of the notes upon maturity (or earlier upon a mandatory or voluntary redemption or if we elect to satisfy a conversion of the notes, in whole or in part, with cash rather than shares of our common stock), as well as future capital expenditures, investments and acquisitions, payments on our leases and loans, and any increased working capital requirements. If we are unable to meet our cash requirements out of available funds, we may need be to obtain alternative financing, which may not be available on favorable terms or at all. The degree to which we are financially leveraged could materially and adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In the absence of such financing, our ability to respond to changing business and economic conditions, to make future acquisitions, to absorb adverse operating results or to fund capital expenditures or increased working capital requirements would be significantly reduced. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, some of which are beyond our control. If we do not generate sufficient cash flow from operations to repay the notes at maturity, we could attempt to refinance the notes; however, no assurance can be given that such a refinancing would be available on terms acceptable to us, if at all. Any failure by us to satisfy our obligations under the notes or the indenture could cause a default under agreements governing our other indebtedness.

We entered into a new asset securitization facility of up to $100 million which has certain financial covenants with which we will have to comply to use the facility.

On May 9, 2003, we entered into a two-year asset backed securitization facility for up to $100 million with certain financial institutions. The facility will use a special purpose subsidiary to purchase and hold all of our U.S. and Canadian accounts receivable. This special purpose subsidiary will borrow up to $100 million secured by the purchased receivables and will use such borrowed funds and collections from the receivables to

purchase additional receivables from us and to make other permitted distributions to us. This special purpose subsidiary will be consolidated for financial reporting purposes, and its resulting liabilities will appear on our consolidated balance sheet as short-term debt. The terms of the facility require compliance with operational covenants and financial covenants, including a liquidity covenant and an operating cash flow to long-term debt ratio. A violation of these covenants will result in an early amortization event that will cause a prohibition on further payments and distributions to us from the special purpose subsidiary until the facility has been repaid in full. However, early amortization events under the facility generally will not cause an event of default under the convertible senior notes due 2010. We do not believe that the lack of borrowing availability under the facility would have a material adverse effect on our liquidity.

Our success depends upon the continued contributions of key employees, many of whom would be extremely difficult to replace. Like many other technology companies, we have implemented workforce reductions that have in some cases resulted in the termination of key employees who have substantial knowledge of our business. These and any future workforce reductions may also adversely affect the morale of, and our ability to retain, employees who have not been terminated, which may result in the further loss of key employees. We do not have key person life insurance on any of our personnel. Worldwide competition for skilled employees in the hard disk drive industry is extremely intense. If we are unable to retain existing employees or to hire and integrate new employees, our business, financial condition and operating results could suffer. In addition, companies in the hard disk drive industry whose employees accept positions with competitors often claim that the competitors have engaged in unfair hiring practices. We may be the subject of such claims in the future as we seek to hire qualified personnel and we could incur substantial costs defending ourselves against those claims.

We could be subject to environmental liabilities which could increase our expenses and harm our business, financial condition and results of operations.

Because of the chemicals we use in our manufacturing and research operations, we are subject to a wide range of environmental protection regulations in the United States and Singapore. While we do not believe our operations to date have been harmed as a result of such laws, future regulations may increase our expenses and harm our business, financial condition and results of operations. Even if we are in compliance in all material respects with all present environmental regulations, in the United States environmental regulations often require parties to fund remedial action regardless of fault. As a consequence, it is often difficult to estimate the future impact of environmental matters, including potential liabilities. Moreover, we may be subject to liability in connection with our acquisition of the Quantum HDD and MMC businesses to the extent that contamination requiring remediation at our expense is present on properties currently or formerly occupied by those businesses, or those businesses sent wastes to sites at which remediation is required. If we have to make significant capital expenditures or pay significant expense in connection with future remedial actions or to continue to comply with applicable environmental laws, our business, financial condition and operating results could suffer.

The market price of our common stock fluctuated substantially in the past and is likely to fluctuate in the future as a result of a number of factors, including the release of new products by us or our competitors, the loss or gain of significant customers or changes in stock market analysts’ estimates.

The market price of our common stock and the number of shares traded each day have varied greatly. Such fluctuations may continue due to numerous factors, including:


	•	quarterly fluctuations in operating results;

	•	announcements of new products by us or our competitors such as products that address additional hard disk drive segments;

	•	gains or losses of significant customers;


	•	changes in stock market analysts’ estimates;

	•	the presence of short-selling of our common stock;

	•	sales of a high volume of shares of our common stock by our large stockholders;

	•	events affecting other companies that the market deems comparable to us;

	•	general conditions in the semiconductor and electronic systems industries; and

	•	general economic conditions in the United States and abroad.

Anti-takeover provisions in our certificate of incorporation could discourage potential acquisition proposals or delay or prevent a change of control.

We have a number of protective provisions in place designed to provide our board of directors with time to consider whether a hostile takeover is in our best interests and that of our stockholders. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of the company and also could diminish the opportunities for a holder of our common stock to participate in tender offers, including offers at a price above the then-current market price for our common stock. These provisions also may inhibit fluctuations in our stock price that could result from takeover attempts.

We enter into foreign exchange forward contracts to manage foreign currency exchange risk associated with our operations primarily in Singapore, Switzerland and Japan. The foreign exchange forward contracts we enter into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results.

We maintain an investment portfolio of various holdings, types and maturities. These marketable securities are generally classified as available for sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Part of this portfolio includes investments in bank issues, corporate bonds and commercial papers. For additional information regarding our impairment policy, see note 1 of the Notes to Consolidated Financial Statements.

The following table presents the hypothetical changes in fair values in the financial instruments held at March 29, 2003 that are sensitive to changes in interest rates. These instruments are not leveraged and are held for purposes other than trading. The hypothetical changes assume immediate shifts in the U.S. Treasury yield curve of plus or minus 50 basis points (“bps”), 100 bps, and 150 bps.

We are exposed to certain equity price risks on our investments in common stock. These equity securities are held for purposes other than trading. The following table presents the hypothetical changes in fair values of the public equity investments that are sensitive to changes in the stock market. The modeling technique used measures the hypothetical change in fair value arising from selected hypothetical changes in the stock price. Stock price fluctuations of plus or minus 15 percent, plus or minus 25 percent, and plus or minus 50 percent were selected based on the probability of their occurrence.

(a) Under the supervision and with the participation of our management, including our principal President, Chief Executive Officer and Acting Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within the 90 day period prior to the filing date of this report. Based on this evaluation, our President, Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date.

(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

In February 2002, Papst and MKE recently entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE which might provide Quantum, and thus us, with additional defenses to Papst’s patent infringement claims.

The results of any litigation are inherently uncertain and Papst may assert other infringement claims relating to current patents, pending patent applications, and/or future patent applications or issued patents. Additionally, we cannot assure you we will be able to successfully defend ourselves against this or any other Papst lawsuit. Because the Papst complaints assert claims to an unspecified dollar amount of damages, and because we were at an early stage of discovery when the litigation was stayed, we are unable to determine the possible loss, if any, that we may incur as a result of an adverse judgment or a negotiated settlement with respect to the claims against Maxtor. We made an estimate of the potential liabilities, which might arise from the Papst claims against Quantum at the time of our acquisition of the Quantum HDD business. Our estimate will be revised as additional information becomes available. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against us and our products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, we also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by our technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although we cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on our business, financial condition and operating results. Management believes that it has valid defenses to the claims of Papst and is defending this matter vigorously.

In addition to the Papst lawsuit, on June 13, 2002, we filed suit against Koninklijke Philips Electronics N.V. and several other Philips-related companies in the Superior Court of California, County of Santa Clara. On June 26, 2002, we filed a First Amended Complaint. The lawsuit alleges that an integrated circuit chip supplied by Philips was defective and caused significant levels of failure of the Quantum HDD Corona Plus, Eagle, and Eagle Plus products, each of which is a product line we acquired as part of our acquisition of the Quantum HDD business. Philips’ subsequent motions to dismiss were withdrawn or denied. Philips answered

the complaint on March 13, 2003. Discovery is ongoing. On April 25, 2003, the Philips-related companies brought cross-complaints against a number of Sumitomo-related companies and a number of Amkor-related companies. In the lawsuit, we are claiming damages of at least $77 million, however, the results of litigation are inherently uncertain and we cannot assure you that we will achieve a favorable outcome.

The notes bear interest at a rate of 6.80 percent per annum and are convertible into our common stock at a conversion rate of 81.5494 shares per $1,000 principal amount of the notes, or an aggregate of 18,756,362 shares subject to adjustment in certain circumstances (equal to an initial conversion price of $12.2625 per share). The initial conversion price represents a 125 percent premium over the closing price of our common stock on May 1, 2003, which was $5.45 per share. We are obligated to file with the Securities and Exchange Commission a registration statement registering the notes and the shares underlying the notes within 90 days after May 7, 2003 or that registration statement declared effective within 180 days after May 7, 2003. For so long as we have not satisfied our registration obligations and the notes are not tradeable under Rule 144(k), we are subject to certain liquidated damages in the form of additional interest on the notes and if we fail to register the underlying shares into which the notes are convertible, in the event a holder elects to convert the notes during a period when the notes or the underlying shares are not registered or tradeable under Rule 144(k), and we have not satisfied our registration obligations, the conversion rate will be increased by 3%.

We may not redeem the notes prior to May 5, 2008. Thereafter, we may redeem the notes at 100% of their principal amount, plus accrued and unpaid interest, if the closing price of its common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice exceeds 130% of the conversion price on such trading day.

In connection with our sale of the notes, on May 7, 2003, we also repurchased from an affiliate of one of the initial purchasers of the notes 8,245,738 shares of our common stock for an aggregate purchase price of $44.9 million, at $5.45 per share, the closing price of our common stock on May 1, 2003, plus commissions.

The Company will use the balance of the net proceeds of the offering for repayment of indebtedness, investments, acquisitions, general corporate purposes and working capital.

Maxtor filed a Current Report on Form 8-K on January 8, 2003, in which it reported that Michael Cannon had resigned as President and Chief Executive Officer and that Paul Tufano had been named as Acting President and Chief Executive Officer.

Maxtor filed a Current Report on Form 8-K on January 14, 2003, in which it reported that Charles M. Boesenberg had been appointed to the Board of Directors.

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.


	By	/s/ PAUL J. TUFANO



	Paul J. Tufano
	President, Chief Executive Officer
	and Acting Chief Financial Officer

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	/s/ PAUL J. TUFANO

	Paul J. Tufano
	President, Chief Executive Officer
	and Acting Chief Financial Officer


(1)	Incorporated by reference to exhibits of Form 8-K filed April 17, 2001.

EX-4.1 3 f89812exv4w1.txt EXHIBIT 4.1 EXHIBIT 4.1 MAXTOR CORPORATION 6.80% Convertible Senior Notes Due 2010 ---------------------------------------------------------- INDENTURE Dated as of May 7, 2003 ---------------------------------------------------------- U.S. BANK NATIONAL ASSOCIATION TRUSTEE ---------------------------------------------------------- TABLE OF CONTENTS

Section 3.11. Taxes.......................................................... 31 Section 3.12. Effect Of Change Of Control Purchase Notice.................... 31 Section 3.13. Deposit Of Change Of Control Purchase Price.................... 33 Section 3.14. Securities Purchased In Part................................... 33 Section 3.15. Covenant To Comply With Securities Laws Upon Purchase Of Securities..................................................... 33 Section 3.16. Repayment To The Company....................................... 34 ARTICLE 4 COVENANTS Section 4.01. Payment of Securities.......................................... 34 Section 4.02. SEC And Other Reports.......................................... 34 Section 4.03. Compliance Certificate......................................... 35 Section 4.04. Further Instruments And Acts................................... 35 Section 4.05. Maintenance Of Office Or Agency................................ 35 Section 4.06. Delivery Of Certain Information................................ 36 Section 4.07. Registration Rights............................................ 36 Section 4.08. Liquidated Damages Notice...................................... 36 ARTICLE 5 SUCCESSOR PERSON Section 5.01. When Company May Merge Or Transfer Assets...................... 37 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events Of Default.............................................. 38 Section 6.02. Acceleration................................................... 40 Section 6.03. Other Remedies................................................. 41 Section 6.04. Waiver Of Past Defaults........................................ 41 Section 6.05. Control By Majority............................................ 42 Section 6.06. Limitation On Suits............................................ 42 Section 6.07. Rights Of Holders To Receive Payment........................... 42 Section 6.08. Collection Suit By Trustee..................................... 43 Section 6.09. Trustee May File Proofs Of Claim............................... 43 Section 6.10. Priorities..................................................... 44 Section 6.11. Undertaking For Costs.......................................... 44 Section 6.12. Waiver Of Stay, Extension Or Usury Laws........................ 44 ARTICLE 7 TRUSTEE Section 7.01. Duties Of Trustee.............................................. 45 Section 7.02. Rights Of Trustee.............................................. 46 Section 7.03. Individual Rights Of Trustee................................... 47

ii Section 7.04. Trustee's Disclaimer........................................... 47 Section 7.05. Notice Of Defaults............................................. 48 Section 7.06. Reports By Trustee To Holders.................................. 48 Section 7.07. Compensation And Indemnity..................................... 48 Section 7.08. Replacement Of Trustee......................................... 49 Section 7.09. Successor Trustee By Merger.................................... 50 Section 7.10. Eligibility; Disqualification.................................. 50 Section 7.11. Preferential Collection Of Claims Against Company.............. 50 ARTICLE 8 DISCHARGE OF INDENTURE Section 8.01. Discharge Of Liability On Securities........................... 50 Section 8.02. Repayment To The Company....................................... 51 ARTICLE 9 AMENDMENTS Section 9.01. Without Consent Of Holders..................................... 51 Section 9.02. With Consent Of Holders........................................ 52 Section 9.03. Compliance With Trust Indenture Act............................ 54 Section 9.04. Revocation And Effect Of Consents, Waivers And Actions......... 54 Section 9.05. Notation On Or Exchange Of Securities.......................... 54 Section 9.06. Trustee To Sign Supplemental Indentures........................ 54 Section 9.07. Effect Of Supplemental Indentures.............................. 54 ARTICLE 10 CONVERSIONS Section 10.01. Conversion Privilege.......................................... 55 Section 10.02. Conversion Procedure; Conversion Price; Fractional Shares..... 55 Section 10.03. Payment Of Cash In Lieu Of Common Stock....................... 57 Section 10.04. Adjustment of Conversion Rate................................. 59 Section 10.05. Effect of Reclassification, Consolidation, Merger or Sale..... 69 Section 10.06. Taxes on Shares Issued........................................ 70 Section 10.07. Reservation of Shares, Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock....... 70 Section 10.08. Responsibility of Trustee..................................... 71 Section 10.09. Notice To Holders Prior To Certain Actions.................... 72 Section 10.10. Rights Issued in Respect of Common Stock Issued upon Conversion.................................................... 73 Section 10.11. Unconditional Right Of Holders To Convert..................... 73

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ARTICLE 11 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls.................................. 73 Section 11.02. Notices....................................................... 73 Section 11.03. Communication By Holders With Other Holders................... 74 Section 11.04. Certificate And Opinion As To Conditions Precedent............ 74 Section 11.05. Statements Required In Certificate Or Opinion................. 74 Section 11.06. Separability Clause........................................... 75 Section 11.07. Rules By Trustee, Paying Agent, Conversion Agent and Registrar 75 Section 11.08. Legal Holidays................................................ 75 Section 11.09. GOVERNING LAW................................................. 75 Section 11.10. No Recourse Against Others.................................... 75 Section 11.11. Successors.................................................... 75 Section 11.12. Multiple Originals............................................ 76
EXHIBIT A Form of Global Security EXHIBIT B Form of Certificated Security EXHIBIT C Transfer Certificate iv INDENTURE dated as of May 7, 2003 between MAXTOR CORPORATION, a Delaware corporation ("COMPANY"), and U.S. BANK NATIONAL ASSOCIATION ("TRUSTEE"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 6.80% Convertible Senior Notes Due 2010: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A GLOBAL SECURITY" means a permanent Global Security in the form of the Security attached hereto as Exhibit A, and that is a Restricted Security. "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "APPLICABLE PROCEDURES" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. "APPLICABLE STOCK" means (i) the Common Stock and (ii) in the event of a merger, consolidation or any other transaction of the type described in Section 10.05 involving the Company that is otherwise permitted hereunder in which the Company is not the surviving corporation, the common stock of such surviving corporation or its direct or indirect parent corporation. "BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of such board. "BOARD RESOLUTION" means a resolution of the Board of Directors. "BUSINESS DAY" means, with respect to any Security, a day that in the City of New York, is not a day on which banking institutions are authorized by law or regulation to close. 1 "CALCULATION AGENT" means initially the Trustee and its successors and assigns. "CAPITAL STOCK" for any corporation means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that corporation. "CERTIFICATED SECURITIES" means Securities that are in the form of the Securities attached hereto as Exhibit B. "CHANGE OF CONTROL" means any transaction or event in connection with which all or substantially all of the Common Stock is exchanged for, converted into, acquired for or constitutes solely the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) that is not all common stock (other than cash payments for fractional shares and cash payments made in respect of dissenters' appraisal rights) that is (or, upon consummation of or immediately following such transaction or event, which will be) listed on a United States national securities exchange or approved (or, upon consummation of or immediately following such transaction or event, which will be approved) for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices. "COMMON STOCK" means the common stock, $0.01 par value per share, of the Company of the type authorized on the date of this Indenture or any other shares of Capital Stock of the Company into which such Common Stock shall be reclassified or changed. "COMPANY" means the party named as the "Company" in the first Section of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by any two Officers. "CONVERSION PRICE" as of any date means $1,000 divided by the Conversion Rate as of such date. "CONVERSION RATE" has the meaning set forth in Section 10.02(a) hereof. "CONVERSION SETTLEMENT DATE" means (i) the Conversion Date or (ii) if the Company elects to pay cash in lieu of Common Stock pursuant to Section 10.03, the Business Day following the final day of the Cash Settlement Averaging Period. 2 "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at U.S. Bank National Association, 550 South Hope Street, 5th Floor, Los Angeles, CA 90071, Attention: Corporate Trust Services, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Company). "DESIGNATED SUBSIDIARY" shall mean any existing or future, direct or indirect, Subsidiary of the Company whose assets constitute 15% or more of the total assets of the Company on a consolidated basis. "GLOBAL SECURITIES" means Securities that are in the form of the Securities attached hereto as Exhibit A, and that are registered in the register of Securities in the name of a Depositary or a nominee thereof, and to the extent that such Securities are Restricted Securities, such Securities will be in the form of a 144A Global Security. "HOLDER" or "SECURITYHOLDER" means a person in whose name a Security is registered on the Registrar's books. "INDENTURE" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "INTEREST" means interest payable on each Security pursuant to Section 1 of the Securities. "INTEREST PAYMENT DATE" means April 30 and October 30 of each year, commencing October 30, 2003. "INTEREST RECORD DATE" means April 15 and October 15 of each year. "ISSUE DATE" of any Security means the date on which the Security was originally issued or deemed issued as set forth on the face of the Security. "LIQUIDATED DAMAGES" means the interest that is payable by the Company pursuant to the Registration Rights Agreement upon a Registration Default. "MARKET PRICE" means, with respect to shares of Applicable Stock, the average of the Sale Prices of the shares of Applicable Stock for the 20 Trading Days immediately preceding and including the third Trading Day prior to the applicable Change of Control Purchase Date, appropriately adjusted to take into account the occurrence, during the 20 Trading Days ending on the Change of Control Purchase Date, of any event described in Sections 10.04 or 10.05. 3 "NYSE" means The New York Stock Exchange, Inc. "OFFICER" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer, the Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. "OFFICERS' CERTIFICATE" means a written certificate containing the information specified in Sections 11.04 and 11.05, signed in the name of the Company by any two Officers, and delivered to the Trustee. An Officers' Certificate given pursuant to Section 4.03 shall be signed by an authorized financial or accounting Officer of the Company but need not contain the information specified in Sections 11.04 and 11.05. "OPINION OF COUNSEL" means a written opinion containing the information specified in Sections 11.04 and 11.05, from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of, or counsel to, the Company or the Trustee. "PERSON" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "PURCHASE AGREEMENT" means the Purchase Agreement dated as of May 2, 2003 between the Company and Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. "REDEMPTION DATE" means the date specified in a notice of redemption on which the Securities will be redeemed in accordance with the terms of the Securities and this Indenture. "REDEMPTION PRICE" or "REDEMPTION PRICE" shall have the meaning set forth in Section 3.01. "REGISTRATION DEFAULT" has the meaning specified in the Registration Rights Agreement. "REGISTRATION RIGHTS AGREEMENT" means the Resale Registration Rights Agreement, dated as of the date hereof, between the Company and Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee, any officer in the Corporate Trust Office of the Trustee or any other officer associated with the corporate trust services department of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular 4 subject and who shall have direct responsibility for the administration of this Indenture. "RESTRICTED SECURITY" means a Security required to bear the restrictive legend set forth in the form of Security set forth in Exhibits A and B of this Indenture. "RULE 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "SALE PRICE" means, with respect to any security on any day, (1) the closing sale price per share on such day (or if no closing sale price is reported, the average of the reported closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) as reported in composite transactions for the principal United States national or regional securities exchange on which such security is traded, or (2) if such security is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System, or (3) if not so reported, the average of the closing bid and ask prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or (4) a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. "SEC" means the Securities and Exchange Commission. "SECURITIES" means any of the Company's 6.80% Convertible Senior Notes Due 2010, as amended or supplemented from time to time, issued under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITYHOLDER" or "HOLDER" means a person in whose name a Security is registered on the Registrar's books. "STATED MATURITY", when used with respect to any Security, means April 30, 2010. "SUBSIDIARY" means (i) a corporation, a majority of whose outstanding Voting Stock is, at the date of determination, directly or indirectly owned by the Company, by one or more Subsidiaries or by the Company and one or more Subsidiaries, (ii) a partnership in which the Company or a Subsidiary holds a majority interest in the equity capital or profits of such partnership, or (iii) any other Person (other than a corporation) in which the Company, a Subsidiary or the Company and one or more Subsidiaries, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to 5 elect or direct the election of a majority of the directors or other governing body of such Person. "TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture; provided, however, that in the event the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. "TRADING DAY" means a day during which trading in securities generally occurs on the NYSE or, if the Common Stock is not listed for trading on the NYSE, on the principal other national or regional securities exchange on which the Common Stock then is listed or, if the Common Stock is not listed for trading on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Common Stock is then traded. "TRANSFER RESTRICTED SECURITIES" has the meaning specified in the Registration Rights Agreement. "TRUSTEE" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors. "VOTING STOCK" of a Person means Capital Stock of such person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). Section 1.02. Other Definitions.
DEFINED IN TERMS: SECTION: "Accepted Purchased Shares"........................ Section 10.04(g) "Adjustment Event"................................. 10.04(l) "Agent Members".................................... 2.12(e) "cash"............................................. 3.09(a) "Cash Amount"...................................... 10.03(a) "Cash Settlement Averaging Period"................. 10.03(a) "Cash Settlement Notice Period".................... 10.03(a) "Change of Control Purchase Date".................. 3.08(a) "Change of Control Purchase Notice"................ 3.08(c)
6
DEFINED IN TERMS: SECTION: "Change of Control Purchase Price"................. 3.08(a) "Company Notice"................................... 3.08(b) "Company Notice Date".............................. 3.08(b) "Conversion Agent"................................. 2.03 "Conversion Date".................................. 10.02(c) "Conversion Obligation"............................ 10.01(a) "Conversion Retraction Period"..................... 10.03(a) "Conversion Settlement Distribution"............... 10.03(a) "Current Market Price"............................. 10.04(h) "DTC" ............................................. 2.01(a) "Depositary"....................................... 2.01(a) "Determination Date"............................... 10.04(l) "Distributed Assets"............................... 10.04(d) "Event of Default"................................. 6.01 "Exchange Act"..................................... 2.12(e) "Expiration Time".................................. 10.04(f) "Extraordinary Cash Dividend" ..................... 10.04(e) "Fair Market Value"................................ 10.04(h) "Final Notice Date"................................ 10.03(a) "Indebtedness"..................................... 2.14 "Legal Holiday".................................... 11.08 "Legend"........................................... 2.06(f) "Liquidated Damages Notice" ....................... 4.08 "non-electing share"............................... 10.05 "Notice of Conversion"............................. 10.02(b) "Notice of Default"................................ 6.01 "Offer Expiration Time"............................ 10.04(g) "Paying Agent"..................................... 2.03 "Purchased Shares"................................. 10.04(f) "QIB".............................................. 2.01(a) "Record Date"...................................... 10.04(h) "Registrar"........................................ 2.03 "Rights"........................................... 10.10 "Rule 144A Information"............................ 4.06 "Trigger Event".................................... 10.04(d) "Securitization Subsidiary"........................ 6.01
Section 1.03. Incorporation By Reference Of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "COMMISSION" means the SEC. 7 "INDENTURE SECURITIES" means the Securities. "INDENTURE SECURITY HOLDER" means a Securityholder. "INDENTURE TO BE QUALIFIED" means this Indenture. "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee. "OBLIGOR" on the indenture securities means the Company. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. Section 1.04. Rules Of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (3) "or" is not exclusive; (4) "INCLUDING" means including, without limitation; and (5) words in the singular include the plural, and words in the plural include the singular. Section 1.05. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company, as described in Section 11.02. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any person of any such instrument or writing may be proved by the affidavit of a witness of such 8 execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to such officer the execution thereof. Where such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The principal amount and serial number of any Security and the ownership of Securities shall be proved by the register for the Securities. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. ARTICLE 2 THE SECURITIES Section 2.01. Form And Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A and B, which are a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage (provided that any such notation, legend or endorsement required by usage is in a form acceptable to the Company). The Company shall provide any such notations, legends or 9 endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication. (a) 144A Global Securities. Securities offered and sold within the United States to qualified institutional buyers as defined in Rule 144A ("QIBS") in reliance on Rule 144A shall be issued, initially in the form of a 144A Global Security, which shall be deposited with the Trustee at its Corporate Trust Office, as custodian for the Depositary (as defined below) and registered in the name of The Depository Trust Company ("DTC") or the nominee thereof (DTC, or any successor thereto, and any such nominee being hereinafter referred to as the "DEPOSITARY"), duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the 144A Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary as hereinafter provided. (b) Global Securities in General. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions, repurchases and conversions. Any adjustment of the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.12 hereof and shall be made on the records of the Trustee and the Depositary. (c) Book-Entry Provisions. This Section 2.01(c) shall apply only to Global Securities deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary, (b) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instructions and (c) shall be substantially in the form of Exhibit A attached hereto. (d) Certificated Securities. Securities not issued as interests in the Global Securities will be issued in certificated form substantially in the form of Exhibit B attached hereto. Section 2.02. Execution And Authentication. The Securities shall be executed on behalf of the Company by any Officer. The signature of the Officer on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at the time of the execution of the Securities Officers shall bind the 10 Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of authentication of such Securities. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. The Trustee shall authenticate and deliver the Securities for original issue in an aggregate principal amount of up to $230,000,000 aggregate principal amount upon one or more Company Orders without any further action by the Company (other than as contemplated in Section 11.04 and Section 11.05 hereof). The aggregate principal amount of the Securities due at the Stated Maturity thereof outstanding at any time may not exceed the amount set forth in the foregoing sentence. The Securities shall be issued only in registered form without coupons and only in denominations of $1,000 of principal amount and any integral multiple of $1,000. Section 2.03. Registrar, Paying Agent, Conversion Agent And Calculation Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("REGISTRAR"), an office or agency where Securities may be presented for purchase or payment ("PAYING Agent") and an office or agency where Securities may be presented for conversion ("CONVERSION AGENT"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional paying agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agent, including any named pursuant to Section 4.05. The term Conversion Agent includes any additional conversion agent, including any named pursuant to Section 4.05. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent, Calculation Agent or co-registrar (in each case, if such Registrar, agent or co-registrar is a Person other than the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar, Conversion Agent or co-registrar. 11 The Company initially appoints the Trustee as Registrar, Conversion Agent, Calculation Agent and Paying Agent in connection with the Securities. Section 2.04. Paying Agent To Hold Money And Securities In Trust. Except as otherwise provided herein, on or prior to each due date of payments in respect of any Security, the Company shall deposit with the Paying Agent a sum of money (in immediately available funds if deposited on the due date) or shares of Common Stock sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money and shares of Common Stock held by the Paying Agent for the making of payments in respect of the Securities and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money and shares of Common Stock so held in trust. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money and shares of Common Stock held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money and shares of Common Stock held by it to the Trustee and to account for any funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money or shares of Common Stock. Section 2.05. Securityholder Lists. The Trustee shall preserve the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee at least semiannually on March 15 and September 15 a listing of Securityholders dated within 15 days of the date on which the list is furnished and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.06. Transfer And Exchange. (a) Subject to Section 2.12 hereof, upon surrender for registration of transfer of any Security, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at the office or agency of the Company designated as Registrar or co-registrar pursuant to Section 2.03, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate principal amount. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Securities from the Securityholder requesting such transfer or exchange. 12 At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount upon surrender of the Securities to be exchanged, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities in respect of which a Change of Control Purchase Notice has been given and not withdrawn by the Holder thereof in accordance with the terms of Section 3.12(b) (except, in the case of Securities to be purchased in part, the portion thereof not to be purchased) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed; provided, however, that a Change of Control Purchase Notice subject to a conditional withdrawal pursuant to Section 3.12(c) shall not be considered validly withdrawal for the purposes of this Section 2.06 until the conditions for such withdrawal are satisfied. (b) Notwithstanding any provision to the contrary herein, so long as a Global Security remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Security, in whole or in part, shall be made only in accordance with Section 2.12 and this Section 2.06(b). Transfers of a Global Security shall be limited to transfers of such Global Security in whole or in part, to the Depositary, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (c) Successive registrations and registrations of transfers and exchanges as aforesaid may be made from time to time as desired, and each such registration shall be noted on the register for the Securities. (d) Any Registrar appointed pursuant to Section 2.03 hereof shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon transfer or exchange of Securities. (e) No Registrar shall be required to make registrations of transfer or exchange of Securities during any periods designated in the text of the Securities or in this Indenture as periods during which such registration of transfers and exchanges need not be made. (f) If Securities are issued upon the transfer, exchange or replacement of Securities subject to restrictions on transfer and bearing the legends set forth on 13 the forms of Security attached hereto as Exhibits A and B setting forth such restrictions (collectively, the "LEGEND"), or if a request is made to remove the Legend on a Security, the Securities so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar such satisfactory evidence, which shall include an opinion of counsel, as may be reasonably required by the Company and the Registrar (if not the same Person as the Trustee) and the Trustee, that neither the Legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 under the Securities Act or that such Securities are not "restricted" within the meaning of Rule 144 under the Securities Act. Upon (i) provision of such satisfactory evidence, or (ii) notification by the Company to the Trustee and Registrar of the sale of such Security pursuant to a registration statement that is effective at the time of such sale, the Trustee, at the written direction of the Company, shall authenticate and deliver a Security that does not bear the Legend. If the Legend is removed from the face of a Security and the Security is subsequently held by the Company or an Affiliate of the Company, the Legend shall be reinstated. Section 2.07. Replacement Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a certificate number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be. Upon the issuance of any new Securities under this Section 2.07, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 2.07 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. 14 The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 2.08. Outstanding Securities; Determinations Of Holders' Action. Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those paid pursuant to Section 2.07, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the Holders of the requisite principal amount of Securities have given or concurred in any request, demand, authorization, direction, notice, consent, waiver, or other Act hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other act, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including, without limitation, determinations pursuant to Articles 6 and 9). If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent holds, in accordance with this Indenture, on a Redemption Date, or on the Business Day following a Change of Control Purchase Date, or on Stated Maturity, money or securities, if permitted hereunder, sufficient to pay Securities payable on that date, then immediately after such Redemption Date, Change of Control Purchase Date or Stated Maturity, as the case may be, such Securities shall cease to be outstanding and Interest and Liquidated Damages, if any, on such Securities shall cease to accrue; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made. If a Security is converted in accordance with Article 10, then from and after the time of conversion on the date of conversion, such Security shall cease to be outstanding and Interest and Liquidated Damages, if any, shall cease to accrue on such Security. Section 2.09. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized 15 denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.03, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 2.10. Cancellation. All Securities surrendered for payment, purchase by the Company pursuant to Article 3, conversion, redemption or registration of transfer or exchange shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article 10. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with the Trustee's customary procedure. Section 2.11. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of the principal amount of the Security or any portion thereof, or the payment of any Redemption Price or Change of Control Purchase Price in respect thereof, and Interest or Liquidated Damages thereon, for the purpose of conversion and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 2.12. Global Securities. (a) Notwithstanding any other provisions of this Indenture or the Securities, (A) transfers of a Global Security, in whole or in part, shall be made only in accordance with Section 2.06 and Section 16 2.12(a)(i) below, (B) transfers of a beneficial interest in a Global Security for a Certificated Security shall comply with Section 2.06, Section 2.12(a)(ii) below and Section 2.12(e)(1) below, and (C) transfers of a Certificated Security shall comply with Section 2.06 and Sections 2.12(a)(iii) and 2.12(a)(iv) below. (i) Transfer of Global Security. A Global Security may not be transferred, in whole or in part, to any person other than the Depositary or a nominee or any successor thereof, and no such transfer to any such other person may be registered; provided that this clause 2.12(a)(i) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such person. Nothing in this Section 2.12(a)(i) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.12(a). (ii) Restrictions on Transfer of a Beneficial Interest in a Global Security for a Certificated Security. A beneficial interest in a Global Security may not be exchanged for a Certificated Security except upon satisfaction of the requirements set forth below and in Section 2.12(e)(1) below. Upon receipt by the Trustee of a transfer of a beneficial interest in a Global Security in accordance with Applicable Procedures for a Certificated Security in the form satisfactory to the Trustee, together with: (A) so long as the Securities are Restricted Securities, certification in the form set forth in Exhibit C; (B) written instructions to the Trustee to make, or direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect a decrease in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such decrease; and (C) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the Legend, then the Trustee shall cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate principal amount of the Securities represented by the Global Security to be decreased by the aggregate principal amount of the Certificated Security to be issued, shall issue such Certificated Security and shall debit or cause to be debited to the account of the person specified in such 17 instructions a beneficial interest in the Global Security equal to the principal amount of the Certificated Security so issued. (iii) Transfer and Exchange of Certificated Securities. When Certificated Securities are presented to the Registrar with a request: (y) to register the transfer of such Certificated Securities; or (z) to exchange such Certificated Securities for an equal principal amount of Certificated Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Securities surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (2) so long as such Securities are Restricted Securities, such Securities are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Certificated Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or (B) if such Certificated Securities are being transferred to the Company, a certification to that effect; or (C) if such Certificated Securities are being transferred pursuant to an exemption from registration, (i) a certification to that effect (in the form set forth in Exhibit C, if applicable) and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the Legend. (iv) Restrictions on Transfer of a Certificated Security for a Beneficial Interest in a Global Security. A Certificated Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. 18 Upon receipt by the Trustee of a Certificated Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (I) so long as the Securities are Restricted Securities, certification, in the form set forth in Exhibit C, that such Certificated Security (A) is being transferred to a QIB in accordance with Rule 144A under the Securities Act or (B) is being transferred pursuant to and in compliance with Rule 144 under the Securities Act; and (II) written instructions directing the Trustee to make, or to direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Certificated Security and cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Certificated Security to be exchanged, and shall credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Certificated Security so cancelled. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (b) Subject to the succeeding Section 2.12(c), every Security shall be subject to the restrictions on transfer provided in the Legend including the delivery of an opinion of counsel, if so provided. Whenever any Restricted Security is presented or surrendered for registration of transfer or for exchange for a Security registered in a name other than that of the Holder, such Security must be accompanied by a certificate in substantially the form set forth in Exhibit C, dated the date of such surrender and signed by the Holder of such Security, as to compliance with such restrictions on transfer. The Registrar shall not be required to accept for such registration of transfer or exchange any Security not so accompanied by a properly completed certificate. (c) The restrictions imposed by the Legend upon the transferability of any Security shall cease and terminate when such Security has been sold pursuant to an effective registration statement under the Securities Act or transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto) or, if earlier, upon the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision). Any Security as to which such restrictions on transfer shall have expired in 19 accordance with their terms or shall have terminated may, upon a surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.12 (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144 or any successor provision, by an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144 or such successor provision), be exchanged for a new Security, of like tenor and aggregate principal amount, which shall not bear the Legend. The Company shall inform the Trustee of the effective date of any registration statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement. (d) As used in the preceding two paragraphs of this Section 2.12, the term "transfer" encompasses any sale, pledge, transfer, loan, hypothecation, or other disposition of any Security. (e) The provisions of this clause (e) shall apply only to Global Securities: (1) Notwithstanding any other provisions of this Indenture or the Securities, a Global Security shall not be exchanged in whole or in part for a Security registered in the name of any person other than the Depositary or one or more nominees thereof, provided that a Global Security may be exchanged for Securities registered in the names of any person designated by the Depositary in the event that (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a "clearing agency" registered under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and a successor Depositary is not appointed by the Company within 90 days or (ii) an Event of Default has occurred and is continuing with respect to the Securities. Any Global Security exchanged pursuant to clause (i) above shall be so exchanged in whole and not in part, and any Global Security exchanged pursuant to clause (ii) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security; provided that any such Security so issued that is registered in the name of a person other than the Depositary or a nominee thereof shall not be a Global Security. (2) Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without 20 interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. (3) Subject to the provisions of clause (5) below, the registered Holder may grant proxies and otherwise authorize any person, including Agent Members (as defined below) and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Securities. (4) In the event of the occurrence of any of the events specified in clause (1) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons. (5) Neither any members of, or participants in, the Depositary (collectively, the "AGENT MEMBERS") nor any other persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security. 21 Section 2.13. CUSIP Numbers. The Company may issue the Securities with one or more "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. Section 2.14. Ranking. The indebtedness of the Company arising under or in connection with this Indenture and every outstanding Security issued under this Indenture from time to time constitutes and will constitute a senior unsecured general obligation of the Company, ranking equally with other existing and future senior unsecured Indebtedness of the Company and ranking senior in right of payment to any future Indebtedness of the Company that is expressly made subordinate to the Securities by the terms of such Indebtedness. For purposes of this Section 2.14 only, "INDEBTEDNESS" means, without duplication, the principal or face amount of (i) all obligations for borrowed money, (ii) all obligations evidenced by debentures, notes or other similar instruments, (iii) all obligations in respect of letters of credit or bankers acceptances or similar instruments (or reimbursement obligations with respect thereto), (iv) all obligations to pay the deferred purchase price of property or services, (v) all obligations as lessee that are capitalized in accordance with generally accepted accounting principles, and (vi) all Indebtedness of others guaranteed by the Company or any of its Subsidiaries or for which the Company or any of its Subsidiaries is legally responsible or liable (whether by agreement to purchase indebtedness of, or to supply funds or to invest in, others). ARTICLE 3 REDEMPTION AND PURCHASES Section 3.01. Company's Right To Redeem; Notices To Trustee. Prior to May 5, 2008, the Securities will not be redeemable at the Company's option. Beginning on May 5, 2008, if, for at least 20 Trading Days in the period of 30 consecutive Trading Days ending on the Trading Day immediately preceding the date of mailing of the notice of redemption pursuant to Section 3.03, the Sale Price of the Common Stock shall have exceeded 130% of the Conversion Price in effect on the last Trading Day of such period, the Company, at its option, may redeem the Securities in accordance with the provisions of this Section 3.01 and Section 5 of the Securities for cash at any time as a whole, or from time to time in part, at a redemption price (the "REDEMPTION PRICE") equal to the principal amount of the Securities to be redeemed together in each case with accrued and unpaid Interest, and accrued and unpaid Liquidated Damages, if any, on the 22 Securities redeemed to (but excluding) the Redemption Date. If the Company elects to redeem Securities pursuant to this Section 3.01 and Section 5 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the principal amount of Securities to be redeemed and the Redemption Price. The Company shall give the notice to the Trustee provided for in this Section 3.01 by a Company Order at least 30 days (if the Securities are to be redeemed in full) or at least 40 days (if the Securities are to be redeemed in part), but not more than 60 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). Section 3.02. Selection Of Securities To Be Redeemed. If less than all of the Securities are to be redeemed, unless the procedures of the Depositary provide otherwise, the Trustee shall select the Securities to be redeemed from the outstanding Securities not previously called for redemption, by lot, on a pro rata basis or by another method the Trustee considers fair and appropriate (so long as such method is not prohibited by the rules of any stock exchange on which the Securities are then listed). The Trustee shall make the selection of the Securities or portions of the Securities to be redeemed and shall notify the Company of such selection within three Business Days after it receives the notice provided for in Section 3.01 from outstanding Securities not previously called for redemption. Securities and portions of Securities that the Trustee selects shall be in principal amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of the Securities to be redeemed. Securities and portions of Securities that are to be redeemed are convertible, pursuant to Section 10.01(a), by the Holder until the close of business on the Business Day prior to the Redemption Date. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities that have been converted during a selection of Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection. Section 3.03. Notice Of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; 23 (2) the Redemption Price; (3) the Conversion Rate on the date of such notice; (4) the name and address of the Paying Agent and Conversion Agent; (5) that Securities called for redemption may be converted at any time before the close of business on the Business Day prior to the Redemption Date; (6) that Holders who want to convert their Securities must satisfy the requirements set forth in Article 10 hereof; (7) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (8) if fewer than all of the outstanding Securities are to be redeemed, the certificate numbers, if any, and principal amounts of the particular Securities to be redeemed; (9) that, unless the Company defaults in making payment of such Redemption Price, Interest and Liquidated Damages, if any, on Securities called for redemption will cease to accrue on and after the Redemption Date; and (10) the CUSIP number(s) of the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense, provided that the Company makes such request at least seven Business Days prior to the date by which such notice of redemption must be given to Holders in accordance with this Section 3.03. Section 3.04. Effect Of Notice Of Redemption. Once notice of redemption is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice except for Securities that are converted in accordance with the terms of this Indenture. If the Company has complied with the deposit requirement of Section 3.05, from and after the Redemption Date, Securities called for redemption shall cease to be outstanding and shall no longer accrue Interest or Liquidated Damages, if any, and the Holders thereof shall only be entitled to receive the Redemption Price with respect to such Securities. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price stated in the notice. Section 3.05. Deposit Of Redemption Price. Prior to 11:00 a.m. (New York City time), on the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them 24 is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which on or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall as promptly as practicable return to the Company any money not required for that purpose because of conversion of Securities pursuant to Article 10. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust. Section 3.06. Securities Redeemed In Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security in an authorized denomination equal in principal amount to the unredeemed portion of the Security surrendered. Section 3.07. [Reserved] Section 3.08. Purchase Of Securities At Option Of The Holder Upon Change Of Control. (a) If a Change of Control has occurred, all or any portion of the outstanding Securities of any Holder equal to $1,000 or an integral multiple of $1,000, not previously called for redemption, shall be purchased by the Company, at the option of the Holder thereof, at a purchase price equal to the principal amount of those Securities, plus accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, on those Securities (the "CHANGE OF CONTROL PURCHASE PRICE"), to but not including the purchase date selected by the Company (the "CHANGE OF CONTROL PURCHASE DATE") that is a Business Day not less than 25 nor more than 40 Business Days after the Company Notice Date (as defined in Section 3.08(b)), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 3.08(c). (b) No later than 30 days after the occurrence of a Change of Control, the Company shall mail a written notice of the Change of Control by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law), which notice shall comply with the requirements of Section 3.09(d) (the "COMPANY NOTICE"). As used in this Indenture, the "COMPANY NOTICE DATE" means the date on which the Company sends the Company Notice. (c) A Holder may exercise its rights specified in Section 3.08(a) upon delivery of a written notice of purchase (a "CHANGE OF CONTROL PURCHASE NOTICE") to the Paying Agent at any time on or prior to the close of business on the second Business Day immediately preceding the Change of Control Purchase Date stating: (i) the certificate number of the Security which the Holder will deliver to be purchased or the appropriate Depositary procedures if Certificated Securities have not been issued; 25 (ii) the portion of the principal amount of the Security which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple of $1,000; (iii) that such Security shall be purchased pursuant to the terms and conditions specified in Section 6 of the Securities and in this Indenture; and (iv) that, in the event the Company elects, pursuant to Section 3.09, to pay the Change of Control Purchase Price, in whole or in part, in shares of Applicable Stock but such portion of the Change of Control Purchase Price shall ultimately be paid to such Holder entirely in cash because any of the conditions to payment of the Change of Control Purchase Price in shares of Applicable Stock are not satisfied prior to the close of business on the last day prior to the relevant Change of Control Purchase Date, as set forth in Section 3.09, whether such Holder elects (i) to withdraw such Change of Control Purchase Notice as to some or all of the Securities to which such Change of Control Purchase Notice relates (stating the principal amount and certificate numbers, if any, of the Securities as to which such withdrawal shall relate), or (ii) to receive cash in respect of the entire Change of Control Purchase Price for all Securities (or portions thereof) to which such Change of Control Purchase Notice relates. (d) The delivery of such Security to the Paying Agent with the Change of Control Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be so paid pursuant to this Section 3.08 and Section 3.09 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Change of Control Purchase Notice. (e) If a Holder, in such Holder's Change of Control Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 3.12, fails to indicate such Holder's choice with respect to the election set forth in Section 3.08(c)(iv), such Holder shall be deemed to have elected to receive cash in respect of the entire Change of Control Purchase Price for all Securities subject to such Change of Control Purchase Notice in the circumstances set forth in such Section 3.08(c)(iv). (f) The Company shall purchase from the Holder thereof, pursuant to this Section 3.08 and Section 3.09, a portion of a Security if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security. 26 Section 3.09. Company's Right To Elect Manner Of Payment Change Of Control Purchase Price For Payment. (a) The Securities to be purchased on any Change of Control Purchase Date pursuant to Section 3.08 may be paid for, in whole or in part, at the election of the Company, in U.S. legal tender ("CASH") or shares of Applicable Stock, or in any combination of cash and shares of Applicable Stock, subject to the conditions set forth in Sections 3.09(c) and Section 3.09(d). Each Holder whose Securities are purchased pursuant to Section 3.08 shall receive the same percentage of cash or shares of Applicable Stock in payment of the Change of Control Purchase Price for such Securities, except as provided in Section 3.09(c)(i) with regard to the payment of cash in lieu of fractional shares of Applicable Stock. The Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid once the Company has given its Company Notice to Holders, unless, as set forth in Section 3.09(c)(ii), the Company fails to satisfy any condition to the payment of the Change of Control Purchase Price in whole or in part, in shares of Applicable Stock, in which case the Change of Control Purchase Price shall be paid in cash. (b) Purchase with Cash. If the Company does not elect to pay with Applicable Stock pursuant to Section 3.09(c), the Change of Control Purchase Price of Securities in respect of which a Change of Control Purchase Notice pursuant to Section 3.08(c) has been given shall be paid in cash. (c) Payment by Delivery of Shares of Applicable Stock. At the option of the Company, the Change of Control Purchase Price of Securities in respect of which a Change of Control Purchase Notice pursuant to Section 3.08(c) has been given, or a specified percentage thereof, may be paid by the Company by the delivery of a number of shares of Applicable Stock equal to the quotient obtained by dividing (x) the portion of the Change of Control Purchase Price to be paid in shares of Applicable Stock by (y) the Market Price determined by the Company, subject to clause (ii) below. (i) No Fractional Shares. The Company will not issue fractional shares of Applicable Stock in payment of the Change of Control Purchase Price. Instead, the Company will pay cash for all fractional shares based on the Market Price of the Applicable Stock. For purposes of determining the existence of potential fractional shares, all Securities subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are presented). (ii) Conditions to Delivery of Applicable Stock. The Company's right to satisfy the Change of Control Purchase Price through the delivery of shares of Applicable Stock shall be conditioned upon: (1) the Company's not having given its Company Notice of an election to pay entirely in cash and 27 its giving of timely Company Notice of an election to purchase all or a specified percentage of the Securities with shares of Applicable Stock as provided herein; (2) the registration of such shares of Applicable Stock under the Securities Act and the Exchange Act, in each case if required; (3) the approval for listing of such shares of Applicable Stock on a United States national securities exchange or the approval for quotation of such shares of Applicable Stock in an inter-dealer quotation system of any registered United States national securities association; (4) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and (5) the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the shares of Applicable Stock are in conformity with this Indenture and (B) the shares of Applicable Stock to be issued by the Company in payment of the Change of Control Purchase Price in respect of Securities have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Change of Control Purchase Price in respect of the Securities, will be validly issued, fully paid and non-assessable and, to the best of such counsel's knowledge, free from preemptive rights, and stating that the conditions in clauses (1) through (4) above have been satisfied. Such Officers' Certificate shall also set forth the number of shares of Applicable Stock to be issued for each $1,000 principal amount of Securities and the Sale Price of a share of Applicable Stock on each Trading Day during the period commencing on the first Trading Day of the period during which the Market Price is calculated and ending on the third Trading Day prior to the applicable Change of Control Purchase Date. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the last day prior to the Change of Control Purchase Date and the Company has elected to purchase the Securities pursuant to this Section 3.09 through the issuance of shares of Applicable Stock, 28 the Company shall pay the entire Change of Control Purchase Price of the Securities of such Holder or Holders in cash. Upon determination of the actual number of shares of Applicable Stock to be issued upon repurchase of Securities, the Company shall disseminate a press release through Dow Jones & Company, Inc. or Bloomberg Business News containing this information or publish the information on the Company's Web site or through such other public medium as the Company may use at that time. (d) Company Notice Requirements. The "COMPANY NOTICE" shall contain the following, as applicable: (i) In all cases: (1) A brief statement of the events causing the Change of Control and the date of such Change of Control; (2) A designation of whether the Company will purchase the Securities for cash or shares of Applicable Stock, or, if a combination thereof, the percentages of the Change of Control Purchase Price that it will pay in cash or shares of Applicable Stock; (3) A form of Change of Control Purchase Notice; (4) The date by which the Change of Control Purchase Notice pursuant to this Section 3.08 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights, which shall be the second Business Day prior to the Change of Control Purchase Date; (5) The Change of Control Purchase Date; (6) The Change of Control Purchase Price and the Conversion Rate as of the date of the Company Notice; (7) The name and address of the Paying Agent and the Conversion Agent; (8) A statement that Securities as to which a Change of Control Purchase Notice has been given may be converted if they are otherwise convertible only in accordance with Article 10 hereof and Section 8 of the 29 Securities if the applicable Change of Control Purchase Notice has been irrevocably withdrawn prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date in accordance with the terms of this Indenture; (9) A statement that Securities must be surrendered to the Paying Agent to collect payment; (10) A statement that the Change of Control Purchase Price for any Security as to which a Change of Control Purchase Notice has been given and not withdrawn will be paid promptly following the later of the Change of Control Purchase Date and the time of surrender of such Security as described in (9) above; (11) A brief statement of the procedures the Holder must follow to exercise its rights under Section 3.08; (12) A brief statement of the conversion rights with respect to the Securities, which may be by reference to Article 10 of this Indenture; (13) A brief statement of the timing for withdrawing a Change of Control Purchase Notice or submitting a conditional withdrawal pursuant to the terms of Section 3.08(c)(iv) or Section 3.12; (14) A statement that, unless the Company defaults in making payment on Securities for which a Change of Control Purchase Notice has been submitted, Interest or Liquidated Damages, if any, on such Securities will cease to accrue on and after the Change of Control Purchase Date; and (15) the CUSIP number of the Securities. (ii) In the event the Company has elected to pay the Change of Control Purchase Price (or a specified percentage thereof) with shares of Applicable Stock, the Company Notice shall state, in addition to the items specified in 3.09(d)(i): (1) that each Holder will receive a number of shares of Applicable Stock equal to the quotient obtained by dividing (i) the portion of the Change of Control Purchase Price to be paid in shares of Applicable 30 Stock, by (ii) the Market Price (except any cash amount to be paid in lieu of fractional shares); (2) briefly, the definition of Market Price under this Indenture as it relates to the shares of Applicable Stock; and (3) state that because the Market Price of shares of Applicable Stock will be determined prior to the Change of Control Purchase Date, Holders of the Securities will bear the market risk with respect to the value of the shares of Applicable Stock to be received from the date such Market Price is determined to the Change of Control Purchase Date. (iii) At the Company's request, the Trustee shall give such Company Notice in the Company's name and at the Company's expense, if, at least three Business Days before the applicable Company Notice Date, the Company shall have delivered an Officers' Certificate to the Trustee specifying the information required by Section 3.9(d) in the Company Notice. Section 3.10. Covenants of the Company. All shares of Common Stock delivered upon purchase of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim. Section 3.11. Taxes. If a Holder of a purchased Security is paid in shares of Applicable Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of Applicable Stock; provided that the Holder shall pay any such tax which is due because the Holder requests the Applicable Stock to be issued in a name other than the Holder's name. The Paying Agent may refuse to deliver the certificates representing the shares of Applicable Stock being issued in a name other than the Holder's name until the Paying Agent receives a sum sufficient to pay any tax that will be due because the shares of Applicable Stock are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations. Section 3.12. Effect Of Change Of Control Purchase Notice. (a) Upon receipt by the Paying Agent of the Change of Control Purchase Notice specified in Section 3.08(c), and regardless of whether the Security in respect of which the Change of Control Purchase Notice was given is delivered to the Paying Agent, the Holder of the Security in respect of which such Change of Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled 31 solely to receive the Change of Control Purchase Price with respect to such Security. Such Change of Control Purchase Price shall be paid to such Holder, subject to receipts of funds and/or securities by the Paying Agent, promptly following the later of (x) the Change of Control Purchase Date with respect to such Security and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.08. Securities in respect of which a Change of Control Purchase Notice has been given by the Holder thereof may not be converted pursuant to Article 10 hereof on or after the date of the delivery of such Change of Control Purchase Notice unless such Change of Control Purchase Notice has first been validly and irrevocably withdrawn as specified in the following two paragraphs. (b) A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Change of Control Purchase Notice at any time prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date specifying: (1) the certificate number, if any, of the Security in respect of which such notice of withdrawal is being submitted, (2) the principal amount of the Security with respect to which such notice of withdrawal is being submitted, and (3) the principal amount, if any, of such Security which remains subject to the original Change of Control Purchase Notice and which has been or will be delivered for purchase by the Company. (c) A written notice of withdrawal of a Change of Control Purchase Notice may be in the form (i) set forth in Section 3.12(b), (ii) of a conditional withdrawal contained in a Change of Control Purchase Notice pursuant to the terms of Section 3.08(c)(iv) or (iii) a conditional withdrawal in a written notice of withdrawal delivered to the Paying Agent as set forth in Section 3.12(b) that also contains the information set forth in Section 3.08(c)(iv). (d) There shall be no purchase of any Securities pursuant to Section 3.08 if there has occurred (prior to, on or after the giving, by the Holders of such Securities, of the required Change of Control Purchase Notice) and is continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Change of Control Purchase Notice has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities) in which case, upon such return, the Change of Control Purchase Notice with respect thereto shall be deemed to have been withdrawn. 32 (e) The Paying Agent shall promptly notify the Company of the receipt by it of any Change of Control Purchase Notice or written withdrawal thereof. Section 3.13. Deposit Of Change Of Control Purchase Price. Prior to 11:00 a.m. (local time in the City of New York) on the Business Day following the Change of Control Purchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.04) an amount of cash (in immediately available funds if deposited on such Business Day) or Applicable Stock, if permitted hereunder, sufficient to pay the aggregate Change of Control Purchase Price of all the Securities or portions thereof that are to be purchased as of the Change of Control Purchase Date. Upon such deposit, Securities being purchased shall cease to be outstanding and shall no longer accrue interest or Liquidated Damages, if any, and the Holders thereof shall only be entitled to receive the Change of Control Purchase Price with respect to such Securities. Upon surrender to the Paying Agent, such Securities shall be paid at the Change of Control Purchase Price. If the Company has elected to pay the Change of Control Purchase Price in Applicable Stock, as soon as practicable after the Change of Control Purchase Date the Company shall deliver to each Holder entitled to receive shares of Applicable Stock through the Paying Agent, a certificate for the number of full shares of Applicable Stock issuable in payment of the Change of Control Purchase Price and cash in lieu of any fractional interests. The person in whose name the certificate for the shares of Applicable Stock is registered shall be treated as a holder of record of Applicable Stock on the Business Day following the Change of Control Purchase Date. No payment or adjustment will be made for dividends on the shares of Applicable Stock the record date for which occurred on or prior to the Change of Control Purchase Date. Section 3.14. Securities Purchased In Part. Any Certificated Security which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not purchased. Section 3.15. Covenant To Comply With Securities Laws Upon Purchase Of Securities. When complying with the provisions of Section 3.08 hereof (provided that such offer or purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), 33 and subject to any exemptions available under applicable law, the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 (or any successor provision) under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 3.08 to be exercised in the time and in the manner specified in Sections 3.08. Section 3.16. Repayment To The Company. The Trustee and the Paying Agent shall return to the Company any cash or shares of Applicable Stock that remain unclaimed as provided in Section 8.02 hereof, together with interest or dividends, if any, thereon, held by them for the payment of the Change of Control Purchase Price; provided, however, that to the extent that the aggregate amount of cash or shares of Applicable Stock deposited by the Company pursuant to Section 3.13 exceeds the aggregate Change of Control Purchase Price of the Securities or portions thereof which the Company is obligated to purchase as of the Change of Control Purchase Date, then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Change of Control Purchase Date, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon. ARTICLE 4 COVENANTS Section 4.01. Payment of Securities. The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities or pursuant to this Indenture. Any amounts of cash in immediately available funds or shares of Applicable Stock to be given to the Trustee or Paying Agent, shall be deposited with the Trustee or Paying Agent by 11:00 a.m., New York City time, by the Company. The principal amount of, and Interest and Liquidated Damages, if any, on the Securities, and the Redemption Price and the Change of Control Purchase Price shall be considered paid on the applicable date due if on such date (or, in the case of Change of Control Purchase Price, on the Business Day following the applicable Change of Control Purchase Date) the Trustee or the Paying Agent holds, in accordance with this Indenture, cash or securities, if permitted hereunder, sufficient to pay all such amounts then due. Section 4.02. SEC And Other Reports. The Company shall file with the Trustee, within 15 days after it files such annual and quarterly reports, information, documents and other reports with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company is at any time no longer subject to the reporting requirements of Section 13 or 15(d) of the 34 Exchange Act, it shall continue to provide the Trustee with reports containing substantially the same information as would have been required to be filed with the SEC had the Company continued to have been subject to such reporting requirements. In such event, such reports shall be provided at the times the Company would have been required to provide reports had it continued to have been subject to such reporting requirements. The Company also shall comply with the other provisions of TIA Section 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely conclusively on Officers' Certificates). Section 4.03. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending in December, 2003) an Officers' Certificate, stating whether or not to the knowledge of the signers thereof, the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Section 4.04. Further Instruments And Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. Section 4.05. Maintenance Of Office Or Agency. The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency of the Trustee, Registrar, Paying Agent and Conversion Agent where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange, purchase, redemption or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of U.S. Bank National Association located at c/o U.S. Bank Trust National Association, 100 Wall Street, Suite 1600, New York, NY 10005, Attention: Corporate Trust Services, shall initially be such office or agency for all of the aforesaid purposes. The Company shall give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency (other than a change in the location of the office of the Trustee). If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. 35 The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. Section 4.06. Delivery Of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder or any beneficial owner of Securities or holder or beneficial owner of shares of Common Stock issued upon conversion thereof, or in accordance with Section 3.08(c), the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder or any beneficial owner of Securities or holder or beneficial owner of shares of Common Stock, or to a prospective purchaser of any such security designated by any such holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act in connection with the resale of any such security. "RULE 144A INFORMATION" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act. Whether a person is a beneficial owner shall be determined by the Company to the Company's reasonable satisfaction. Section 4.07. Registration Rights. The Company shall use its best efforts to effect the registration with the SEC of the Securities and the Common Stock issuable upon conversion of the Securities in the manner and pursuant to the terms of the Registration Rights Agreement. Section 4.08. Liquidated Damages Notice. In the event that the Company is required to pay Liquidated Damages to holders of Securities pursuant to the Registration Rights Agreement, the Company will provide written notice ("LIQUIDATED DAMAGES NOTICE") to the Trustee of its obligation to pay Liquidated Damages no later than fifteen days prior to the payment date for the Liquidated Damages, and the Liquidated Damages Notice shall set forth the amount of Liquidated Damages to be paid by the Company on such payment date. The Trustee shall not at any time be under any duty to any holder of Securities to determine the Liquidated Damages, or with respect to the nature, extent or calculation of the amount of Liquidated Damages when made, or with respect to the method employed in such calculation of the Liquidated Damages. Unless and until the Trustee shall receive a Liquidated Damages Notice, the Trustee may assume without inquiry that no Liquidated Damages are payable. 36 ARTICLE 5 SUCCESSOR PERSON Section 5.01. When Company May Merge Or Transfer Assets. The Company shall not consolidate with or merge with or into any other Person or convey, transfer, sell, lease or otherwise dispose of all or substantially all of its properties and assets to any Person, unless: (a) either (1) the Company shall be the continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, transfer or lease all or substantially all of the properties and assets of the Company (i) shall be organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture; (b) immediately after giving effect to such transaction, no Event of Default, and no event that, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; and (c) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 5 and that all conditions precedent herein provided for relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and assets of one or more Subsidiaries (other than to the Company or another Subsidiary), which, if such assets were owned by the Company, would constitute substantially all of the properties and assets of the Company, shall be deemed to be the transfer of substantially all of the properties and assets of the Company. The successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein; and thereafter, except in the case of a lease and obligations the Company may have under a supplemental indenture, the Company shall be discharged from all obligations and covenants 37 under this Indenture and the Securities. Subject to Section 9.06, the Company, the Trustee and the successor Person shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and such discharge and release of the Company. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events Of Default. So long as any Securities are outstanding, each of the following shall be an "EVENT OF DEFAULT": (1) following the exercise by the Holder of the right to convert a Security in accordance with Article 10 hereof, the Company (x) fails to deliver the cash, if any, required to be delivered as part of the applicable Conversion Settlement Distribution on the applicable Conversion Settlement Date and such failure continues for ten days or (y) fails to deliver the Common Stock required to be delivered as part of the applicable Conversion Settlement Distribution as required pursuant to Section 10.02(d)(ii); (2) the Company defaults in its obligation to repurchase any Security, or any portion thereof, upon the exercise by the Holder of such Holder's right to require the Company to purchase such Securities pursuant to and in accordance with Section 3.08 hereof; (3) the Company defaults in its obligation to redeem any Security, or any portion thereof, called for redemption by the Company pursuant to and in accordance with Section 3.01 hereof. (4) the Company defaults in the payment of the principal amount of any Security when the same becomes due and payable at its Stated Maturity or the payment of any portion of the principal amount of any Security, when the same becomes due and payable; (5) the Company defaults in the payment of any Interest or Liquidated Damages when due and payable, and continuance of such default for a period of 30 days; (6) the Company fails to comply with any of its agreements or covenants in the Securities or this Indenture (other than those referred to in clause (1) through clause (5) above) and such failure continues for 60 days after receipt by the Company of a Notice of Default; (7) a failure to pay when due at maturity or a default, event of default or other similar condition or event (however described) that results in the acceleration of maturity of any indebtedness for borrowed money of the Company or any Designated Subsidiary (other than Maxtor Technology 38 (Suzhou) Co., Ltd., to the extent it would otherwise qualify as a Designated Subsidiary under this Indenture) in an aggregate amount of $25 million or more, unless the acceleration is rescinded, stayed or annulled within 30 days after receipt by the Company of a Notice of Default; provided, however, that the occurrence of an early amortization event (and any resulting events) under any receivables securitization program entered into from time to time among the Company, it wholly-owned special purpose Subsidiaries (a "SECURITIZATION SUBSIDIARY") and financial institutions will not constitute an Event of Default; provided further that notwithstanding the foregoing, any early amortization event that requires the Company to repurchase for cash in an aggregate amount of $25 million or more receivables from a Securitization Subsidiary that arises as a result of an intentional misrepresentation by the Company at the time of the initial sale of such receivables by the Company to such Securitization Subsidiary shall be an Event of Default, unless such repurchase is rescinded or annulled within 30 days after receipt by the Company of a Notice of Default; (8) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, under any applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; and (9) the commencement by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, of a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, to the entry of a decree or order for relief in respect of the 39 Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by the Company to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, of an assignment for the benefit of creditors, or the admission by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any of its Subsidiaries that is a Designated Subsidiary or any group of two or more Subsidiaries that, taken as a whole, would constitute a Designated Subsidiary, expressly in furtherance of any such action. For the avoidance of doubt, clauses (6) and (7) above shall not constitute an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding notify the Company and the Trustee, of such default and the Company does not cure such default (and such default is not waived) within the time specified in clauses (6) and (7) above after actual receipt of such notice. Any such notice must specify the default, demand that it be remedied and state that such notice is a "NOTICE OF DEFAULT." The Trustee shall, within 90 days of the occurrence of an Event of Default, give to the Holders of the Securities notice of all uncured Events of Defaults known to it and written notice of any event which with the giving of notice or the lapse of time, or both, would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto; provided, however, the Trustee shall be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such Holders, except in the case of an Event of Default specified in clauses (1) through (5) of this Section 6.01. Section 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(8) or 6.01(9)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate 40 principal amount of the Securities at the time outstanding by notice to the Company and the Trustee, may declare the principal amount of the Securities together with any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any on all the Securities to be immediately due and payable. Upon such a declaration, such accelerated amount shall be due and payable immediately. If an Event of Default specified in Section 6.01(8) or 6.01(9) occurs and is continuing, the principal amount of the Securities together with any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, on all the Securities shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder) may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of the principal amount of the Securities and any accrued and unpaid Interest, and accrued and unpaid Liquidated Damages, if any, that have become due solely as a result of acceleration and if all amounts due to the Trustee under Section 7.07 have been paid. No such rescission shall affect any subsequent Event of Default or impair any right consequent thereto. For the avoidance of doubt, nothing in this Indenture is intended to provide creditor rights for amounts in excess of the principal amount of any Security, plus accrued and unpaid Interest and Liquidated Damages, if any. Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of the principal amount of the Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.04. Waiver Of Past Defaults. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing or past Event of Default and its consequences except (1) an Event of Default described in Section 6.01 clauses (1) through (5) or (2) an Event of Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When an Event of Default is 41 waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Event of Default or impair any consequent right. This Section 6.04 shall be in lieu of Section 316(a)1(B) of the TIA and such Section 316(a)1(B) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 6.05. Control By Majority. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability unless the Trustee is offered indemnity reasonably satisfactory to it. This Section 6.05 shall be in lieu of Section 316(a)1(A) of the TIA and such Section 316(a)1(A) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 6.06. Limitation On Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of such notice, request and offer of security or indemnity; and (5) the Holders of a majority in aggregate principal amount of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder. Section 6.07. Rights Of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the principal amount of the Securities and any accrued and unpaid Interest, accrued and unpaid Liquidated Damages, if any, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities or any Redemption Date or Change of Control Purchase Date, and to convert the 42 Securities in accordance with Article 10, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of such Holder. Section 6.08. Collection Suit By Trustee. If an Event of Default described in Section 6.01(2), 6.01(3) or 6.01(4) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount owing with respect to the Securities and the amounts provided for in Section 7.07. Section 6.09. Trustee May File Proofs Of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal amount of the Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, in respect of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole principal amount of the Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel or any other amounts due the Trustee under Section 7.07) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 43 Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to Securityholders for amounts due and unpaid on the Securities for the principal amount of the Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and THIRD: the balance, if any, to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Trustee shall mail to each Securityholder and the Company a notice that states the record date, the payment date and the amount to be paid. Section 6.11 . Undertaking For Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the Securities at the time outstanding. This Section 6.11 shall be in lieu of Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 6.12. Waiver Of Stay, Extension Or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal amount of the Securities and any accrued and unpaid Interest and accrued and unpaid Liquidated Damages, if any, on Securities, as contemplated herein, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 44 ARTICLE 7 TRUSTEE Section 7.01. Duties Of Trustee. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture, but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein. This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and such Section 315(a) is hereby expressly excluded from this Indenture, as permitted by the TIA. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this Section (c) does not limit the effect of Section 7.01(b); (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. Subparagraphs (c)(1), (2) and (3) shall be in lieu of Sections 315(d)(1), 315(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1), 315(d)(2) and 45 315(d)(3) are hereby expressly excluded from this Indenture, as permitted by the TIA. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01. (e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee (acting in any capacity hereunder) shall be under no liability for interest on any money received by it hereunder unless otherwise agreed in writing with the Company. Section 7.02 . Rights Of Trustee. Subject to its duties and responsibilities under the TIA. (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (c) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (d) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith which it believes to be authorized or within its rights or powers conferred under this Indenture; (e) the Trustee may consult with counsel selected by it and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (f) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of 46 the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; (g) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (h) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (i) the Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other person employed to act hereunder; and (k) the Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 7.03. Individual Rights Of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be 47 accountable for the Company's use or application of the proceeds from the Securities, it shall not be responsible for any statement in the registration statement for the Securities under the Securities Act or in any offering document for the Securities, the Indenture or the Securities (other than its certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. Section 7.05. Notice Of Defaults. If an Event of Default occurs and if it is known to the Trustee, the Trustee shall give to each Securityholder notice of the Event of Default within 90 days after it occurs or, if later, within 15 days after it is known to the Trustee, unless such Event of Default shall have been cured or waived before the giving of such notice. Notwithstanding the preceding sentence, except in the case of an Event of Default described in Section 6.01(1) and 6.01(2), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interest of the Securityholders. The preceding sentence shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. The Trustee shall not be deemed to have knowledge of a Event of Default unless a Responsible Officer of the Trustee has received written notice of such Event of Default, which notice specifically references this Indenture and the Securities. Section 7.06. Reports By Trustee To Holders. Within 75 days after each December 31 beginning with the December 31 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such December 31 that complies with TIA Section 313(a), if required by such Section 313(a). The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each securities exchange, if any, on which the Securities are listed. The Company agrees to notify the Trustee promptly whenever the Securities become listed on any securities exchange and of any delisting thereof. Section 7.07. Compensation And Indemnity. The Company agrees: (a) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited (to the extent permitted by law) by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and 48 counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee or any predecessor Trustee and their agents for, and to hold them harmless against, any loss, damage, claim, liability, cost or expense (including attorney's fees and expenses, and taxes (other than taxes based upon, measured by or determined by the income of the Trustee)) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal amount of, or the Redemption Price, Change of Control Purchase Price, Interest, or Liquidated Damages, if any, as the case may be, on particular Securities. The Company's payment obligations pursuant to this Section 7.07 shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee incurs expenses after the occurrence of an Event of Default specified in Section 6.01(8) or 6.01(9), the expenses, including the reasonable charges and expenses of its counsel, are intended to constitute expenses of administration under any bankruptcy law. Section 7.08. Replacement Of Trustee. The Trustee may resign by so notifying the Company; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may remove the Trustee by so notifying the Trustee and the Company. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee. 49 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company satisfactory in form and substance to the retiring Trustee and the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Securities at the time outstanding may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Section 7.09. Successor Trustee By Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets (including the administration of the trust created by this Indenture) to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Sections 310(a)(1) and 310(b). The Trustee (or its parent holding company) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. Nothing herein contained shall prevent the Trustee from filing with the Commission the application referred to in the penultimate paragraph of TIA Section 310(b). Section 7.11. Preferential Collection Of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 DISCHARGE OF INDENTURE Section 8.01. Discharge Of Liability On Securities. When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced or repaid pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable or subject to redemption and the 50 Company deposits with the Trustee or the Paying Agent cash and/or, in the case of a redemption, Applicable Stock, sufficient to pay all amounts due and owing on all outstanding Securities (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 7.07, cease to be of further effect. The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company. Section 8.02. Repayment To The Company. The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person and the Trustee and the Paying Agent shall have no further liability to the Securityholders with respect to such money or securities for that period commencing after the return thereof. ARTICLE 9 AMENDMENTS Section 9.01. Without Consent Of Holders. The Company and the Trustee may amend this Indenture or the Securities without the consent of any Securityholder to: (a) add to the covenants of the Company for the benefit of the Holders of Securities; (b) surrender any right or power herein conferred upon the Company; (c) provide for conversion rights of Holders of Securities if any reclassification or change of the Common Stock or any consolidation, merger or sale of all or substantially all of the Company's assets occurs; (d) provide for the assumption of the Company's obligations to the Holders of Securities in the case of a merger, consolidation, conveyance, transfer or lease pursuant to Article 5 hereof; (e) increase the Conversion Rate; provided, however, that such increase in the Conversion Rate shall not adversely affect the interests of the Holders of Securities (after taking into account tax and other consequences of such increase); 51 (f) comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (g) make any changes or modifications necessary in connection with the registration of the Securities under the Securities Act as contemplated in the Registration Rights Agreement; provided, however, that such action pursuant to this clause (g) does not, in the good faith opinion of the Board of Directors of the Company (as evidenced by a Board Resolution) and the Trustee, adversely affect the interests of the Holders of Securities in any material respect; (h) cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Indenture; provided, however, that such action pursuant to this clause (h) does not, in the good faith opinion of the Board of Directors of the Company (as evidenced by a Board Resolution) and the Trustee, adversely affect the interests of the Holders of Securities in any material respect; (i) add or modify any other provisions herein with respect to matters or questions arising hereunder which the Company and the Trustee may deem necessary or desirable and which will not adversely affect the interests of the Holders of Securities. Section 9.02. With Consent Of Holders. Except as provided below in this Section 9.02, this Indenture or the Securities may be amended, modified or supplemented, and noncompliance in any particular instance with any provision of this Indenture or the Securities may be waived, in each case with the written consent of the Holders of at least a majority of the principal amount of the Securities at the time outstanding, or by the adoption of a resolution at a meeting of Holders at which a quorum is present by at least a majority in aggregate principal amount of the Notes represented at the meeting, the Company may modify and amend this Indenture or the Notes and waive noncompliance by the Company. Without the written consent or the affirmative vote of each Holder of Securities affected thereby, an amendment, supplement or waiver under this Section 9.02 may not: (a) change the maturity of any Security, or the payment date of any installment of Interest or Liquidated Damages payable on any Security; 52 (b) reduce the principal amount of, or the Interest or Liquidated Damages payable on, or the Redemption Price or Change of Control Purchase Price of, any Security; (c) impair or adversely affect the conversion rights of any Holder of Securities; (d) change the currency of any amount owed or owing under the Security or any Interest or Liquidated Damages thereon from U.S. Dollars; (e) alter the manner of calculation or otherwise modify the rate of accrual of Interest and Liquidated Damages on, or Redemption Price or Change of Control Purchase Price of, any Security, or extend time for payment of any amounts due and payable to the Holders of the Securities; (f) impair the right of any Holder to institute suit for the enforcement of any payment or with respect to, or conversion of, any Security; (g) modify the Company's obligation to maintain an office or agency in New York pursuant to Section 4.05; (h) adversely affect the purchase right of the Holders of the Securities as provided in Article 3 or the right of the Holders of the Securities to convert any Security as provided in Article 10, except as otherwise permitted pursuant to Article 5 or Section 10.05 hereof; (i) modify the provisions of Sections 3.01 through 3.06 in a manner adverse to the Holders of the Securities; (j) modify any of the provisions of this Section, or reduce the percentage of the aggregate principal amount of outstanding Securities required to amend, modify or supplement the Indenture or the Securities or waive an Event of Default, except to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby; or (k) reduce the percentage of the aggregate principal amount of the outstanding Securities the consent of whose Holders is required for any waiver provided for in this Indenture. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. 53 After an amendment under this Section 9.02 becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment. Nothing in this Section 9.02 shall impair the ability of the Company and the Trustee to amend this Indenture or the Securities without the consent of any Securityholder to provide for the assumption of the Company's obligations to the Holders of Securities in the case of a merger, consolidation, conveyance, transfer or lease pursuant to Article 5 hereof. Section 9.03. Compliance With Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall comply with the TIA. Section 9.04. Revocation And Effect Of Consents, Waivers And Actions. Until an amendment, waiver or other action by Holders becomes effective, a consent thereto by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the consent, waiver or action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment, waiver or action becomes effective. After an amendment, waiver or action becomes effective, it shall bind every Securityholder. Section 9.05. Notation On Or Exchange Of Securities. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities. Section 9.06. Trustee To Sign Supplemental Indentures. The Trustee shall sign any supplemental indenture authorized pursuant to this Article 9 if the amendment contained therein does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign such supplemental indenture. In signing such supplemental indenture the Trustee shall receive, and (subject to the provisions of Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. Section 9.07. Effect Of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this 54 Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. ARTICLE 10 CONVERSIONS Section 10.01. Conversion Privilege. Subject to and upon compliance with the provisions of this Article 10, a Holder of a Security shall have the right, at such Holder's option, to convert all or any portion (if the portion to be converted is $1,000 principal amount or an integral multiple thereof) of such Security into shares of Common Stock at the Conversion Rate in effect on the Conversion Date at any time prior to the earlier of, as applicable: (a) the close of business on the date of the Stated Maturity, and (b) if such Security has been called for redemption pursuant to Section 3.01, the close of business on the Business Day preceding the applicable Redemption Date. Notwithstanding the foregoing, a Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising such Holder's option to require the Company to repurchase such Security may be converted only if such notice is withdrawn in accordance with Section 3.12 hereof. Notwithstanding any other provision of the Securities or this Indenture, all Securityholders' rights with respect to conversion of the Securities and the Company's obligation to deliver shares of Common Stock upon such conversion (the "CONVERSION OBLIGATION"), are subject, in their entirety, to the Company's right, in its sole and absolute discretion, to elect to satisfy such Conversion Obligation in any manner permitted pursuant to Section 10.03. Section 10.02. Conversion Procedure; Conversion Price; Fractional Shares. (a) Subject to the Company's rights under Section 10.03, each Security shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock. The rate at which shares of Common Stock shall be delivered upon conversion (the "CONVERSION RATE") shall be initially 81.5494 shares of Common Stock for each $1,000 principal amount of Securities. The Conversion Rate shall be adjusted in certain instances as provided in Section 10.04 hereof, but shall not be adjusted for any accrued and unpaid Interest, or Liquidated Damages, if any. Upon conversion, no payment shall be made by the Company with respect to any accrued and unpaid Interest, if any. Instead, such amount shall be deemed paid by the applicable Conversion Settlement Distribution delivered upon conversion of any Security. In addition, no payment or adjustment shall be made in respect of dividends on the Common Stock with a record date prior to the date of conversion. The Company shall not issue any fraction of a share of Common Stock in connection with any conversion of Securities, but instead shall, subject to Section 10.04(i) hereof, make a cash payment (calculated to the nearest cent) 55 equal to such fraction multiplied by the average of the Sale Price of the Common Stock on the last five Trading Days prior to the Conversion Settlement Date. (b) Before any Holder of a Security shall be entitled to convert the same into Common Stock, such Holder shall (1) in the case of Global Securities, comply with the procedures of the Depositary in effect at that time, and in the case of Certificated Securities, surrender such Securities, duly endorsed to the Company or in blank, at the office of the Conversion Agent, and (2) give written notice to the Company in form on reverse of such Certificated Security (a "NOTICE OF CONVERSION") at said office or place that such Holder elects to convert the same and shall state in writing therein the principal amount of Securities to be converted and the name or names (with addresses) in which such Holder wishes the certificate or certificates for Common Stock included in the Conversion Settlement Distribution, if any, to be registered. Before any such conversion, a Holder also shall pay all taxes or duties, if any, as provided in Section 10.06 and any amount payable pursuant to Section 10.02(g). If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock, if any, that shall be deliverable upon conversion as part of the Conversion Settlement Distribution shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted thereby) so surrendered. (c) A Security shall be deemed to have been converted as of the close of business on the date (the "CONVERSION DATE") that is the latest of (i) the date the Holder has complied with Section 10.02(b), (ii) the expiration of the Cash Settlement Notice Period or (iii) if the Company elects to pay cash in lieu of Common Stock pursuant to Section 10.03, the expiration of the Conversion Retraction Period. (d) Subject to the next succeeding sentence, the Company will, as soon as practicable following the Conversion Settlement Date, (i) pay the cash component (including cash in lieu of any fraction of a share to which such Holder would otherwise be entitled), if any, of the Conversion Settlement Distribution determined pursuant to Section 10.03 to the Holder of a Security surrendered for conversion, or such Holder's nominee or nominees, and (ii) issue, or cause to be issued, and deliver to the Conversion Agent or to such Holder, or such Holder's nominee or nominees, certificates for the number of full shares of Common Stock, if any, to which such Holder shall be entitled as part of such Conversion Settlement Distribution. The Company shall not be required to deliver certificates for shares of Common Stock while the stock transfer books for such stock or the security register are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as soon as practicable after the opening of such books or security register, and the Person or Persons entitled to 56 receive the Common Stock as part of the applicable Conversion Settlement Distribution upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock, as of the close of business on the applicable Conversion Settlement Date. (e) In case any Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Security so surrendered, without charge to such Holder (subject to the provisions of Section 10.06 hereof), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Securities. (f) By delivering the applicable Conversion Settlement Distribution upon conversion of any Security to the Conversion Agent or to the Holder or such Holder's nominee or nominees, the Company will have satisfied in full its Conversion Obligation with respect to such Security, and upon such delivery accrued and unpaid Interest with respect to such Security will be deemed to be paid in full rather than canceled, extinguished or forfeited. (g) If a Securityholder delivers a Notice of Conversion after the Interest Record Date for a payment of Interest but prior to the corresponding Interest Payment Date, such Securityholder must pay to the Company, at the time such Securityholder surrenders Securities for conversion, an amount equal to the Interest, that has accrued and will be paid on the related Interest Payment Date. This Section 10.02(g) shall not apply to a Securityholder that converts Securities after an Interest Record Date for a payment of Interest but prior to the corresponding Interest Payment Date if (1) the Company has specified a Redemption Date during such period, (2) the Company has specified a Change of Control Purchase Date during such period or (3) any overdue Interest exists at the time of conversion with respect to the Securities converted. Notwithstanding the foregoing, the Company shall refund any amount paid by a Securityholder pursuant to this section 10.02(f) if the Cash Settlement Notice Period or, if the Company elects to pay cash in lieu of Common Stock pursuant to Section 10.03, the Cash Settlement Averaging Period, ends on or subsequent to the Interest Payment Date immediately following the date such Securityholder delivered a Notice of Conversion. Such refunded amount shall be paid at the time of delivery of the Conversion Settlement Distribution following conversion of any Securities. Section 10.03. Payment Of Cash In Lieu Of Common Stock. (a) If a Holder elects to convert all or any portion of a Security into shares of Common Stock as set forth in Section 10.01 and the Company receives such Holder's Notice of Conversion on or prior to the day that is 20 days prior to the Stated Maturity, or with respect to Securities call for redemption pursuant to Section 3.01, the applicable Redemption Date (the "FINAL NOTICE DATE"), the Company may choose to satisfy all or any portion of its Conversion Obligation in 57 cash. Upon such election, the Company will notify such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as 100% of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is two Business Days following the Company's receipt of the Notice of Conversion as specified in Section 10.02 (such period, the "CASH SETTLEMENT NOTICE PERIOD"). If the Company elects to pay cash for any portion of the shares otherwise issuable to the Holder, the Holder may retract the Notice of Conversion at any time during the two Business Day period beginning on the day after the final day of the Cash Settlement Notice Period (the "CONVERSION RETRACTION PERIOD"); no such retraction can be made (and a Notice of Conversion shall be irrevocable) if the Company does not elect to deliver cash in lieu of shares of Common Stock (other than cash in lieu of fractional shares). With respect to any Notice of Conversion received by the Company prior to the Final Notice Date, the "CONVERSION SETTLEMENT DISTRIBUTION" for any Security subject to such Notice of Conversion shall consist of cash, Common Stock or a combination thereof, as selected by the Company as set forth below: (i) if the Company elects to satisfy the entire Conversion Obligation in shares of Common Stock, the Conversion Settlement Distribution shall be a number of shares equal to (1) the aggregate original principal amount at maturity of the Securities to be converted divided by 1,000, multiplied by (2) the Conversion Rate; provided that if on the date a Holder submits the Notice of Conversion such Holder with respect to Transfer Restricted Securities and there exists a Registration Default affecting the Common Stock, for purposes of this Section 10.03(a)(i) and Section 10.03(a)(iii), the Conversion Rate shall be multiplied by 1.03; (ii) if the Company elects to satisfy the entire Conversion Obligation in cash, the Conversion Settlement Distribution shall be cash in an amount equal to the product of: (1) a number equal to the product of (x) the aggregate principal amount of Securities to be converted divided by 1,000 multiplied by (y) the Conversion Rate, and (2) the average Sale Price of the Common Stock during the 20 Trading Days beginning on the Trading Day immediately following the final day of the Conversion Retraction Period (the "CASH SETTLEMENT AVERAGING PERIOD"); and (iii) if the Company elects to satisfy a fixed portion (other than 100%) of the Conversion Obligation in cash, the Conversion Settlement Distribution shall consist of such cash amount ("CASH AMOUNT") and a number of shares equal to the greater of (1) zero and (2) the excess, if any, of the number of shares calculated as set forth in clause (i) above over the number of shares equal to the sum, for each day of the Cash Settlement 58 Averaging Period, of (x) 5% of the Cash Amount, divided by (y) the Sale Price of the Common Stock on such day. (b) At any time on or before any Final Notice Date, the Company will notify the Trustee whether it intends to satisfy all or any portion of the Conversion Obligation with respect to conversions of Securities for which the Company receives a Notice of Conversion after such Final Notice Date and the dollar amount to be satisfied in cash (which must be expressed either as 100% or as a fixed dollar amount). In such case, the applicable Conversion Settlement Distribution will be computed in the same manner as set forth in clause (a) above except that the Cash Settlement Averaging Period shall be the 20 Trading Days beginning on the first Trading Day following the Company's receipt of the Notice of Conversion. SECTION 10.04. Adjustment of Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Rate shall be increased so that the same shall equal the rate determined by dividing the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution by a fraction, (i) the numerator of which shall be the number of shares of the Common Stock outstanding at the close of business on the date fixed for such determination; and (ii) the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purpose of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 10.04(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights (excluding any Rights pursuant to the Rights Agreement) or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a 59 price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction, (i) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the total number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes 60 effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of Capital Stock of the Company (other than dividends or distributions to which Section 10.04(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 10.04(b) and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 10.04(a)) (any of the foregoing hereinafter in this Section 10.04(d) called the "DISTRIBUTED ASSETS"), then, in each such case (unless the Company elects to reserve such Distributed Assets for distribution to the Holders upon the conversion of the Securities so that any such holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Distributed Assets which such holder would have received if such holder had converted its Securities into Common Stock immediately prior to the Record Date (as defined in Section 10.04(h)(iii)) for such distribution of the Distributed Assets), the Conversion Rate shall be adjusted so that the same shall be equal to the rate determined by dividing the Conversion Rate in effect on the Record Date with respect to such distribution by a fraction, (i) the numerator of which shall be the Current Market Price per share of the Common Stock on such Record Date less the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Distributed Assets so distributed applicable to one share of Common Stock; and (ii) the denominator of which shall be the Current Market Price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event (1) the then Fair Market Value (as so determined) of the portion of the Distributed Assets so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date or (2) the Current Market Price of Common Stock on the Record Date exceeds the then Fair Market Value (as so determined) of the portion of the Distributed Assets so distributed applicable to one share of Common Stock by less than $1.00, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Distributed Assets such holder would have received had such holder converted each Security on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that 61 would then be in effect if such dividend or distribution had not been declared. If the Fair Market Value of any distribution requiring an adjustment pursuant to this Section 10.04(d) can be determined by reference to the actual or when issued trading market for any securities, the Board of Directors must determine the Fair Market Value of such distribution by reference to the prices in such market over the same period used in computing the Current Market Price of the Common Stock. Rights or warrants distributed by the Company to all holders of Common Stock (including any Rights pursuant to the Rights Agreement) entitling the holders thereof to subscribe for or purchase shares of the Company's Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("TRIGGER EVENT"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 10.04 (and no adjustment to the Conversion Rate under this Section 10.04 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this Section 10.04(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section 10.04 was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights and warrants had not been issued. No adjustment of the Conversion Rate shall be made pursuant to this Section 10.04(d) in respect of rights or warrants distributed or deemed distributed 62 on any Trigger Event to the extent that such rights or warrants are actually distributed, or reserved by the Company for distribution to holders of Securities upon conversion by such holders of Securities to Common Stock. For purposes of this Section 10.04(d) and Sections 10.04(a) and (b), any dividend or distribution to which this Section 10.04(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Rate adjustment required by this Section 10.04(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Rate adjustment required by Sections 10.04(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "the date fixed for the determination of stockholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of Sections 10.04(a) and (b), and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 10.04(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (an "EXTRAORDINARY CASH DIVIDEND") (excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), which Extraordinary Cash Dividend, together with any cash and the Fair Market Value of any other consideration payable in respect of any tender or exchange offer for shares of Common Stock by the Company or one of the Subsidiaries of the Company made within the preceding 12 months for which no adjustment has been made in the Conversion Rate, shall exceed the greater of (A) the annualized amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Rate pursuant to this Section 10.04(e) (as adjusted to reflect subdivisions, or combinations of the Common Stock), and (B) 5.00% of the arithmetic average of the Sale Price of the Common Stock during the ten Trading Days immediately prior to the date of declaration of the Extraordinary Cash Dividend, then, in such case, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Record Date by a fraction, (i) the numerator of which shall be the Current Market Price of the Common Stock on the Record Date less the amount of cash so 63 distributed (and not excluded as provided above) applicable to one share of Common Stock, and (ii) the denominator of which shall be such Current Market Price of the Common Stock, such adjustment to be effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Security on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If an adjustment to the Conversion Rate is required to be made pursuant to this Section 10.04(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based on the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant to this Section 10.04(e). If an adjustment to the Conversion Rate is required to be made pursuant to this Section 10.04(e) as a result of a distribution that is not a quarterly dividend, such adjustment shall be based on the full amount of such distribution. (f) In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the last reported Sale Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "PURCHASED SHARES") and (y) the product of the number of shares of 64 Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the last reported Sale Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by last reported Sale Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such adjustment to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount that increases the offeror's ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the "OFFER EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the last reported Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Offer Expiration Time by a fraction (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "ACCEPTED PURCHASED SHARES") and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Offer Expiration Time and the last reported Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and 65 (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Offer Expiration Time multiplied by the last reported Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such adjustment to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 10.04(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Section 10.05. (h) For purposes of this Section 10.04, the following terms shall have the meaning indicated: (i) "CURRENT MARKET PRICE" shall mean the average of the daily Sale Prices per share of Common Stock for the ten consecutive Trading Days selected by the Company commencing no more than 30 Trading Days before and ending not later than the earlier of such date of determination and the day before the "ex" date with respect to the issuance, distribution, subdivision or combination requiring such computation immediately prior to the date in question. For purpose of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades, regular way, on the relevant exchange or in the relevant market from which the Sale Price was obtained without the right to receive such issuance or distribution, and (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the time at which such subdivision or combination becomes effective. In the event that another issuance, distribution, subdivision, combination or tender or exchange offer to which Section 10.04 applies occurs during the period applicable for calculating "Current Market Price" pursuant to the definition in the preceding paragraph, "Current Market Price" shall be calculated for such period in a manner determined by the Board of Directors to reflect the impact of such issuance, distribution, subdivision, combination or tender or exchange offer on the Sale Price of the Common Stock during such period. 66 (ii) "FAIR MARKET VALUE" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. (iii) "RECORD DATE" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (i) The Company may make such increases in the Conversion Rate, in addition to those required by Sections 10.04(a), (b), (c), (d), (e) or (f) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock resulting from any distribution; provided, however, that such increase in the Conversion Rate shall not adversely affect the interests of the Holders of Securities (after taking into account tax and other consequences of such increase). To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least twenty (20) days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall mail to holders of record of the Securities a notice of the increase at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. (j) No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such rate; provided, however, that any adjustments that by reason of this Section 10.04 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 10 shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be, with one half-cent and 0.005 of a share, respectively, being rounded upward. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Securities become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. 67 (k) Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume that the last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to the holder of each Security at his last address appearing on the Security register provided for in Section 2.03 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) In any case in which this Section 10.04 provides that an adjustment shall become effective immediately after (1) a record date or Record Date for an event, (2) the date fixed for the determination of stockholders entitled to receive a dividend or distribution pursuant to Section 10.04(a), (3) a date fixed for the determination of stockholders entitled to receive rights or warrants pursuant to Section 10.04(b), (4) the Expiration Time for any tender offer pursuant to Section 10.04(f), or (5) the Offer Expiration Time for a tender or exchange offer pursuant to Section 10.03(g) (each a "DETERMINATION DATE"), the Company may elect to defer until the occurrence of the relevant Adjustment Event (as hereinafter defined) (x) issuing to the holder of any Security converted after such Determination Date and before the occurrence of such Adjustment Event, the additional shares of Common Stock or other securities issuable upon such conversion by reason of the adjustment required by such Adjustment Event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 10.04(a). For purposes of this Section 10.04(k), the term "ADJUSTMENT EVENT" shall mean: (i) in any case referred to in clause (1) hereof, the occurrence of such event, (ii) in any case referred to in clause (2) hereof, the date any such dividend or distribution is paid or made, (iii) in any case referred to in clause (3) hereof, the date of expiration of such rights or warrants, and (iv) in any case referred to in clause (4) or clause (5) hereof, the date a sale or exchange of Common Stock pursuant to such tender or exchange offer is consummated and becomes irrevocable. 68 (m) For purposes of this Section 10.04, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. SECTION 10.05. Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 10.04(c) applies or a change in par value, or from par value to no par value, or from no par value to par value), (ii) any consolidation, merger, statutory share exchange or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company substantially as an entirety to any other Person, in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such supplemental indenture) providing that each Security shall be convertible, subject to the provisions of Section 10.03, into the kind and amount of shares of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, statutory share exchange, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities (assuming, for such purposes, a sufficient number of authorized shares of Common Stock are available to convert all such Securities) immediately prior to such reclassification, change, consolidation, merger, statutory share exchange, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, statutory share exchange, combination, sale or conveyance (provided that, if the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, statutory share exchange, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("NONELECTING SHARE"), then for the purposes of this Section 10.05 the kind and amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, statutory share exchange, combination, sale or conveyance for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). Such supplemental indenture shall provide for adjustments 69 which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 10. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Securities, at its address appearing on the Security register provided for in Section 2.03 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, statutory share exchanges, combinations, sales and conveyances. If this Section 10.05 applies to any event or occurrence, Section 10.04 shall not apply. SECTION 10.06. Taxes on Shares Issued. The issue of stock certificates on conversions of Securities shall be made without charge to the converting Holder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Securities converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 10.07. Reservation of Shares, Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. (a) The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Securities from time to time as such Securities are presented for conversion. (b) Before taking any action which would cause an adjustment increasing the Conversion Rate to an amount that would cause the Conversion Price to be reduced below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Securities, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Rate. (c) (i) The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities or in payment of the Change of Control Purchase Price will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. 70 (ii) The Company covenants that, if any shares of Common Stock to be provided for the purpose of conversion of Securities hereunder or for payment of the Change of Control Purchase Price require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible, to the extent then permitted by the rules and interpretations of the Securities and Exchange Commission (or any successor thereto), endeavor to secure such registration or approval, as the case may be. (iii) The Company further covenants that, if at any time the Common Stock shall be listed on the NYSE or any other national securities exchange or automated quotation system, the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Security or in payment of the Change of Control Purchase Price; provided, however, that, if the rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Securities into Common Stock or the first payment of the Change of Control Purchase Price in Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Securities or in payment of the Change of Control Purchase Price in accordance with the requirements of such exchange or automated quotation system at such time. SECTION 10.08. Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Securities to determine the Conversion Rate or whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Security; and the Trustee and any other conversion agent make no representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article 10. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to 71 Section 10.05 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Holders upon the conversion of their Securities after any event referred to in such Section 10.05 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.01, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 10.09. Notice To Holders Prior To Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Rate pursuant to Section 10.04; or (b) the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation, merger or statutory share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each Holder of Securities at his address appearing on the register provided for in Section 2.03 of this Indenture, as promptly as possible but in any event at least ten (10) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, or statutory share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, or statutory share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, or statutory share 72 exchange, sale, transfer, dissolution, liquidation or winding up. Unless and until the Trustee shall receive such notice, the Trustee may assume that no event required to be disclosed in a notice delivered pursuant to this Section 10.09 has occurred. Section 10.10. Rights Issued in Respect of Common Stock Issued upon Conversion. If the Company hereafter adopts any stockholder rights plan involving the issuance of preference share purchase rights or other similar rights (the "RIGHTS") to all holders of the Common Stock, a Securityholder shall be entitled to receive upon conversion of its Securities in addition to the shares of Common Stock issuable upon conversion the related Rights for the Common Stock, unless such Rights under the future stockholder rights plan have separated from the Common Stock at the time of conversion, in which case the Conversion Rate shall be adjusted as provided in Section 10.04(d) on the date such Rights separate from the Common Stock. Section 10.11. Unconditional Right Of Holders To Convert. (a) Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to convert its Security in accordance with this Article 10 and to bring an action for the enforcement of any such right to convert, and such rights shall not be impaired or affected without the consent of such Holder. ARTICLE 11 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 11.02. Notices. Any request, demand, authorization, notice, waiver, consent or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by guaranteed overnight courier) to the following facsimile numbers: if to the Company: Maxtor Corporation 500 McCarthy Boulevard, Milpitas, CA 95035 Attn: General Counsel Fax: 303-678-3111 if to the Trustee: 73 U.S. Bank National Association 550 S. Hope Street, 5th Floor Los Angeles, CA 90071 Attn: Corporate Trust Services (Maxtor Corporation 6.80% Convertible Senior Notes due 2010) Fax: 213-533-8729 The Company or the Trustee by notice given to the other in the manner provided above may designate additional or different addresses for subsequent notices or communications. Any notice or communication given to a Securityholder shall be mailed to the Securityholder, by first-class mail, postage prepaid, at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion Agent or co-registrar. Section 11.03. Communication By Holders With Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar, the Paying Agent, the Conversion Agent and anyone else shall have the protection of TIA Section 312(c). Section 11.04. Certificate And Opinion As To Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 11.05. Statements Required In Certificate Or Opinion. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: 74 (1) a statement that each person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such person, such covenant or condition has been complied with. Section 11.06. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.07. Rules By Trustee, Paying Agent, Conversion Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar, the Conversion Agent and the Paying Agent may make reasonable rules for their functions. Section 11.08. Legal Holidays. A "LEGAL HOLIDAY" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and, if the action to be taken on such date is a payment in respect of the Securities, no interest shall accrue with respect to such payment for the intervening period. Section 11.09. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 11.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. Section 11.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. 75 Section 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. 76 IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. MAXTOR CORPORATION By:/s/ Paul J. Tufano ------------------------------------ Name: Paul J. Tufano Title: President, Chief Executive Officer and Acting Chief Financial Officer U.S. BANK NATIONAL ASSOCIATION, As Trustee By: /s/ Paula Oswald ------------------------------------ Name: Paula Oswald Title: Vice President 77 EXHIBIT A [FORM OF FACE OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A ADOPTED UNDER THE SECURITIES ACT); (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY, OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY, EXCEPT (A) TO THE ISSUER; (B) UNDER A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (C) TO A PERSON THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, ALL IN COMPLIANCE WITH RULE 144A (IF AVAILABLE); OR (D) UNDER AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS A-1 OF THE SECURITIES ACT PROVIDED BY RULE 144 UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL, PRIOR TO ANY TRANSFER OF THIS SECURITY WITHIN THE LATER OF (X) TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY AND (Y) THREE MONTHS AFTER IT CEASES TO BE AN AFFILIATE (WITHIN THE MEANING OF RULE 144 ADOPTED UNDER THE SECURITIES ACT) OF THE ISSUER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS MAY BE REQUIRED PURSUANT TO THE INDENTURE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IN ADDITION, THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTIONS WITH REGARD TO THE SECURITIES EXCEPT AS PERMITTED UNDER THE SECURITIES ACT. The foregoing legend may be removed from this Security on satisfaction of the conditions specified in the Indenture. A-2 MAXTOR CORPORATION 6.80% Convertible Senior Notes Due 2010 CUSIP: 577729AB2 ISSUE DATE: _____________ [Principal Amount: ____________] No. ____ MAXTOR CORPORATION, a Delaware corporation, promises to pay to Cede & Co. or registered assigns, the principal amount of [_____________] dollars ($_____________), on April 30, 2010. Interest Rate: 6.80% per year. Interest Payment Dates: April 30 and October 30 of each year, commencing October 30, 2003. Interest Record Date: April 15 and October 15 of each year. Reference is hereby made to the further provisions of this Security set forth on the reverse side of this Security, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: ______________ MAXTOR CORPORATION By:___________________________ Name: Title: A-3 TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. BANK NATIONAL ASSOCIATION, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By__________________________________ Authorized Signatory Dated: ________________ A-4 [FORM OF REVERSE OF GLOBAL SECURITY] 6.80% Convertible Senior Notes Due 2010 This Security is one of a duly authorized issue of 6.80% Convertible Senior Notes Due 2010 (the "SECURITIES") of Maxtor Corporation, a Delaware corporation (including any successor corporation under the Indenture hereinafter referred to, the "COMPANY"), issued under an Indenture, dated as of May 7, 2003 (the "INDENTURE"), between the Company and U.S. Bank National Association, as trustee (the "TRUSTEE"). The terms of the Security include those stated in the Indenture, those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA"), and those set forth in this Security. This Security is subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. Capitalized terms used but not defined herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. The Securities shall bear interest on the principal amount thereof at a rate of 6.80% per year. The Company shall also pay Liquidated Damages as set forth in the Registration Rights Agreement. Interest will be payable semi-annually on each Interest Payment Date to Holders at the close of business on the preceding Interest Record Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30 day months. The Company will pay Interest to a person other than the Securityholder of record on the Interest Record Date if the Company elects to redeem, or Securityholders elect to require the Company to repurchase, the Securities on a date that is after a Interest Record Date but on or prior to the corresponding Interest Payment Date. In that instance, the Company will pay accrued and unpaid Interest on the Securities being redeemed or purchased to, but not including, the Redemption Date or the Change of Control Purchase Date, as the case may be, to the same person to whom it will pay the principal of those Securities. If the principal amount of any Security, or any accrued and unpaid Interest or Liquidated Damages, if any, are not paid when due (whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the date set for payment of the Redemption Price pursuant to Section 3.01 of the Indenture and Section 5 hereof, upon the date set for payment of the Change in Control Purchase Price pursuant to Section 3.08 of the Indenture and Section 6 hereof, upon the Stated Maturity of A-5 the Securities, upon the Interest Payment Dates or upon the Liquidated Damages Payment Dates (as defined in the Registration Rights Agreement), then in each such case the overdue amount shall, to the extent permitted by law, bear cash interest at the rate of 6.80% per annum, compounded semiannually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable in cash on each Interest Payment Date, or, if earlier, the date such overdue amount is paid. 2. METHOD OF PAYMENT. Except as provided below, the Company shall pay Interest on (i) Global Securities, to DTC in immediately available funds, (ii) any Certificated Security having an aggregate principal amount of $5,000,000 or less, by check mailed to the Holder of such Security and (iii) any Certificated Security having an aggregate principal amount of more than $5,000,000, by wire transfer in immediately available funds at the election of the Holder of any such Security. At Stated Maturity, the Company will pay Interest on Certificated Securities at the Company's office or agency in New York City. Subject to the terms and conditions of the Indenture, the Company will make payments in respect of Redemption Prices, Change of Control Purchase Prices and at Stated Maturity on (i) Global Securities, to DTC in immediately available funds and (ii) any Certificated Security, to the Holder who surrenders such Security at the office or agency of the Company in New York City. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check payable in such money. 3. [Reserved] 4. INDENTURE. The Securities are general unsecured obligations of the Company limited to $230,000,000 aggregate principal amount. The Indenture does not limit other indebtedness of the Company, secured or unsecured. 5. REDEMPTION AT THE OPTION OF THE COMPANY. No sinking fund is provided for the Securities. Beginning on May 5, 2008, if, for at least 20 Trading Days in the period of 30 consecutive Trading Days period ending on the Trading Day before the date of mailing of the notice of redemption pursuant to Section 3.03 of the Indenture, the Sale Price of the Common Stock shall have exceeded 130% of the Conversion Price in effect on the last Trading Day of such period, the Company, at its option, may redeem the Securities in accordance with the Article 3 of the Indenture for cash at any time as A-6 a whole, or from time to time in part, at a redemption price (the "REDEMPTION PRICE") equal to the principal amount of the Securities to be redeemed together in each case with accrued and unpaid Interest, and accrued and unpaid Liquidated Damages, if any, on the Securities redeemed to (but excluding) the Redemption Date. In no event will any Security be redeemable at the option of the Company before May 5, 2008. 6. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER. At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to offer to purchase all or any portion of the Securities held by such Holder within 30 days (which purchase shall occur on a Business Day specified by the Company that is not less than 25 nor more than 40 Business Days after the date the Company gives notice of the Change of Control pursuant to the Indenture) after the occurrence of a Change of Control of the Company for a Change of Control Purchase Price equal to the principal amount of those Securities plus accrued and unpaid Interest, and Liquidated Damages, if any, on those Securities up to (but excluding) the Change of Control Purchase Date. The Change of Control Purchase Price may be paid, at the option of the Company, in cash or by the delivery of shares of Applicable Stock, or in any combination thereof, subject to the terms and conditions of the Indenture. Holders have the right to withdraw any Change of Control Purchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture. If cash (and/or Applicable Stock if permitted under the Indenture) sufficient to pay the Change of Control Purchase Price of all Securities or portions thereof to be purchased as of the Change of Control Purchase Date is deposited with the Paying Agent, on the Business Day following the Change of Control Purchase Date, Interest and Liquidated Damages, if any, will cease to accrue on such Securities (or portions thereof) immediately after such Change of Control Purchase Date, and the Holder thereof shall have no other rights as such other than the right to receive the Change of Control Purchase Price upon surrender of such Security. 7. NOTICE OF REDEMPTION. Notice of redemption pursuant to Section 3.01 of the Indenture and Section 5 of this Security will be mailed, as provided in the Indenture, at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at the Holder's registered address. If money sufficient to pay the Redemption Price of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the A-7 Redemption Date, immediately on and after such Redemption Date Interest, and Liquidated Damages, if any, will cease to accrue on such Securities or portions thereof. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in integral multiples of $1,000 of principal amount. 8. CONVERSION. Subject to and in compliance with the provisions of the Indenture, a Holder is entitled, at such Holder's option, to convert the Holder's Security (or any portion of the principal amount thereof that is $1,000 or an integral multiple $1,000), into fully paid and nonassessable shares of Common Stock at the Conversion Rate in effect at the time of conversion; provided, however, the Company may satisfy its obligation with respect to any demand for conversion by delivering Common Stock, cash or a combination of cash and Common Stock. A Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such Change of Control Purchase Notice is withdrawn in accordance with the terms of the Indenture. The initial Conversion Rate is 81.5494 shares of Common Stock per $1,000 principal amount, subject to adjustment in certain events described in the Indenture. The Conversion Rate shall not be adjusted for any accrued and unpaid Interest. Upon conversion, no payment shall be made by the Company with respect to accrued and unpaid Interest, if any. Instead, such amount shall be deemed paid by the cash or shares of Common Stock delivered upon conversion of any Security. In addition, no payment or adjustment shall be made in respect of dividends on the Common Stock the record date for which is prior to the date of conversion, except as set forth in the Indenture. No fractional shares of Common Stock shall be issued upon conversion of any Security. Instead of any fractional share of Common Stock that would otherwise be issued upon conversion of such Security, the Company shall pay a cash adjustment as provided in the Indenture. If the Company (i) is a party to a consolidation, merger, statutory share exchange or combination, (ii) reclassifies the Common Stock, or (iii) sells or conveys its properties and assets substantially as an entirety to any Person, the right to convert a Security into shares of Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or such other Person, in each case in accordance with the Indenture. 9. [Reserved] 10. PAYING AGENT, CONVERSION AGENT, REGISTRAR AND CALCULATION AGENT. A-8 Initially, the Trustee will act as Paying Agent, Conversion Agent, Registrar and Calculation Agent. The Company may appoint and change any Paying Agent, Conversion Agent, Registrar or Calculation Agent without notice, other than notice to the Trustee; provided that the Company will maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent, Registrar or Calculation Agent. 11. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in fully registered form, without coupons, in denominations of $1,000 of principal amount and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities in respect of which a Change of Control Purchase Notice has been given and not withdrawn (except, in the case of a Security to be purchased in part, the portion of the Security not to be purchased) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed. 12. PERSONS DEEMED OWNERS. The registered Holder of this Security may be treated as the owner of this Security for all purposes. 13. UNCLAIMED MONEY OR SECURITIES. The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. 14. AMENDMENT; WAIVER. Subject to certain exceptions set forth in Section 9.02 of the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and (ii) certain Events of Defaults may be waived with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities. The Company and the Trustee may amend the Indenture A-9 or the Securities without the consent of the Holders in the circumstances specified in Section 9.01 of the Indenture. 15. DEFAULTS AND REMEDIES. If any Event of Default with respect to Securities shall occur and be continuing, the principal amount of the Securities and any accrued and unpaid Interest, and accrued and unpaid Liquidated Damages, if any, on all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. 16. TRUSTEE DEALINGS WITH THE COMPANY. Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. CALCULATIONS IN RESPECT OF SECURITIES. The Company or its agents will be responsible for making all calculations called for under the Securities including, but not limited to, determination of the market prices for the Securities and of the Common Stock and the amounts of Liquidated Damages, if any, accrued on the Securities. Any calculations made in good faith and without manifest error will be final and binding on Holders of the Securities. The Company or its agents will be required to deliver to the Trustee a schedule of its calculations and the Trustee will be entitled to conclusively rely upon the accuracy of such calculations without independent verification. 19. NO RECOURSE AGAINST OTHERS. A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 20. AUTHENTICATION. This Security shall not be valid until an authorize signatory of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security. 21. ABBREVIATIONS. A-10 Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 22. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS SECURITY. 23. COPY OF INDENTURE. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: MAXTOR CORPORATION 500 McCarthy Blvd., Milpitas, CA 95035 Attn: General Counsel 24. REGISTRATION RIGHTS. The Holders of the Securities are entitled to the benefits of a Resale Registration Rights Agreement, dated as of May 7, 2003, between the Company and Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial purchasers, including the receipt of Liquidated Damages upon a Registration Default (as defined in such agreement). The Company shall make payments of Liquidated Damages on the Liquidated Damages Payment Dates (as defined in the Registration Rights Agreement), but otherwise in accordance with the provisions set forth herein for the payment of Interest. A-11
ASSIGNMENT FORM CONVERSION NOTICE - -------------------------------------- ------------------------------------ To assign this Security, fill in the To convert this Security into form below: Common Stock of the Company, check the box | | - -------------------------------------- ------------------------------------ I or we assign and transfer this To convert only part of this Security to Security, state the principal ______________________________________ amount to be converted (which must ______________________________________ be $1,000 or an integral multiple (Insert assignee's soc. sec. or tax ID of $1,000): no.) _____________________________ _____________________________ If you want the stock certificate _____________________________ made out in another person's name (Print or type assignee's name, fill in the form below: address and zip code) ____________________________________ ____________________________________ (Insert the other person's soc. and irrevocably appoint sec. tax ID no.) ____________________________________ ____________________ agent to transfer (Print or type other person's this Security on the books of the name, address and zip code) Company. The agent may substitute ____________________________________ another to act for him. ____________________________________ ____________________________________ ____________________________________ ____________________________________ (Print or type other person's name, address and zip code)
Date: __________ Your Signature: _________________________________ ____________________________________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranteed __________________________________ Participant in a Recognized Signature Guarantee Medallion Program By:_____________________________ Authorized Signatory A-12 SCHEDULE OF INCREASES AND DECREASES OF GLOBAL SECURITY Initial Principal Amount of Global Security: ____________________________
Amount of Amount of Principal Increase in Decrease in Amount of Principal Principal Global Notation by Amount of Amount of Security After Registrar or Global Global Increase or Security Date Security Security Decrease Custodian - ---- -------- -------- -------- --------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------
A-13 EXHIBIT B [FORM OF FACE OF CERTIFICATED SECURITY] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY, OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO MAXTOR CORPORATION (THE "ISSUER"), (B) UNDER A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, ALL IN COMPLIANCE WITH RULE 144A (IF AVAILABLE), OR (D) UNDER AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OF 1933, AND (3) AGREES THAT IT WILL, PRIOR TO ANY TRANSFER OF THIS SECURITY WITHIN THE LATER OF (X) TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY AND (Y) THREE MONTHS AFTER IT CEASES TO BE AN AFFILIATE (WITHIN THE MEANING OF RULE 144 ADOPTED UNDER THE SECURITIES ACT) OF THE ISSUER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS MAY BE REQUIRED PURSUANT TO THE INDENTURE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IN ADDITION, THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTIONS WITH REGARD TO THE SECURITIES EXCEPT AS PERMITTED UNDER THE SECURITIES ACT. The foregoing legend may be removed from this Security on satisfaction of the conditions specified in the Indenture. B-1 MAXTOR CORPORATION 6.80% Convertible Senior Notes Due 2010 CUSIP: ISSUE DATE: ___________ Principal Amount: $___________ No. R- Maxtor Corporation, a Delaware corporation, promises to pay to [_____________] or registered assigns, the principal amount of __________________ dollars ($__________), on ____________, 2010. Interest Rate: 6.80% per year. Interest Payment Dates: April 30 and October 30 of each year, commencing October 30, 2003. Interest Record Date: April 15 and October 15 of each year. Reference is hereby made to the further provisions of this Security set forth on the reverse side of this Security, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: _____________ MAXTOR CORPORATION By: __________________________ Title: _________________________ B-2 TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. BANK NATIONAL ASSOCIATION, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By__________________________________ Authorized Signatory Dated: _____________, 20__ B-3 [FORM OF REVERSE OF CERTIFICATED SECURITY IS IDENTICAL TO EXHIBIT A] B-4 EXHIBIT C MAXTOR CORPORATION 6.80% Convertible Senior Notes Due 2010 Transfer Certificate In connection with any transfer of any of the Securities within the period prior to the expiration of the holding period applicable to the sales thereof under Rule 144(k) under the Securities Act of 1933, as amended (the "SECURITIES ACT") (or any successor provision), the undersigned registered owner of this Security hereby certifies with respect to $____________ principal amount of the above-captioned Securities presented or surrendered on the date hereof (the "SURRENDERED SECURITIES") for registration of transfer, or for exchange or conversion where the securities issuable upon such exchange or conversion are to be registered in a name other than that of the undersigned registered owner (each such transaction being a "TRANSFER"), that such transfer complies with the restrictive legend set forth on the face of the Surrendered Securities for the reason checked below: | | A transfer of the Surrendered Securities is made to the Company or any subsidiaries; or | | The transfer of the Surrendered Securities is pursuant to an effective registration statement under the Securities Act; or | | The transfer of the Surrendered Securities complies with Rule 144A under the Securities Act; or | | The transfer of the Surrendered Securities is pursuant to Rule 144 under the Securities Act and each of the conditions set forth in such rule have been met; and unless the box below is checked, the undersigned confirms that, to the undersigned's knowledge, such Securities are not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "AFFILIATE"). C-1 | | The transferee is an Affiliate of the Company. DATE: __________________________________ Signature(s) (If the registered owner is a corporation, partnership or fiduciary, the title of the person signing on behalf of such registered owner must be stated.) Signature Guaranteed - -------------------------------- Participant in a Recognized Signature C-2 EX-4.2 4 f89812exv4w2.txt EXHIBIT 4.2 EXHIBIT 4.2 BANC OF AMERICA SECURITIES LLC $200,000,000 AGGREGATE PRINCIPAL AMOUNT MAXTOR CORPORATION 6.80% CONVERTIBLE SENIOR NOTES DUE 2010 RESALE REGISTRATION RIGHTS AGREEMENT DATED MAY 7, 2003 1 RESALE REGISTRATION RIGHTS AGREEMENT, dated as of May 7, 2003, between Maxtor Corporation, a Delaware corporation (together with any successor entity, herein referred to as the "COMPANY") and Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "INITIAL PURCHASERS") under the Purchase Agreement (as defined below). Pursuant to the Purchase Agreement, dated as of May 2, 2003, among the Company and the Initial Purchasers (the "PURCHASE AGREEMENT"), the Initial Purchasers have agreed to purchase from the Company $200,000,000 ($230,000,000 if the Initial Purchasers exercise their option in full) in aggregate principal amount of 6.80% Convertible Senior Notes due 2010 (the "NOTES"). The Notes will be convertible into fully paid, nonassessable shares of common stock, par value $0.01 per share, of the Company (the "COMMON Stock"). The Notes will be convertible on the terms, and subject to the conditions, set forth in the Indenture (as defined herein). To induce the Initial Purchasers to purchase the Notes, the Company has agreed to provide the registration rights set forth in this Agreement pursuant to Section 1 of the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. Capitalized terms used in this Agreement without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings: "AFFILIATE" of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGREEMENT": This Resale Registration Rights Agreement. "AMENDMENT EFFECTIVENESS DEADLINE DATE": As defined in Section 2(e) hereof. "BLUE SKY APPLICATION": As defined in Section 6(a)(i) hereof. "BUSINESS DAY": The definition of "Business Day" in the Indenture. "COMMISSION": Securities and Exchange Commission. "COMMON STOCK": As defined in the preamble hereto. "COMPANY": As defined in the preamble hereto. "EFFECTIVENESS PERIOD": As defined in Section 2(a)(iii) hereof. 2 "EFFECTIVENESS TARGET DATE": As defined in Section 2(a)(ii) hereof. "EXCHANGE ACT": Securities Exchange Act of 1934, as amended. "HOLDER": A Person who owns, beneficially or otherwise, Transfer Restricted Securities. "INDEMNIFIED HOLDER": As defined in Section 6(a) hereof. "INDENTURE": The Indenture, dated as of May 7, 2003 between the Company and U.S. Bank National Association, as trustee (the "TRUSTEE"), pursuant to which the Securities are to be issued, as such Indenture is amended, modified or supplemented from time to time in accordance with the terms thereof. "INITIAL PURCHASERS": As defined in the preamble hereto. "LIQUIDATED DAMAGES": As defined in Section 3(b) hereof. "LIQUIDATED DAMAGES PAYMENT DATE": Each April 30 and October 30. "MAJORITY OF HOLDERS": Holders holding over 50% of the aggregate principal amount of Notes outstanding; provided that, for the purposes of this definition, a holder of shares of Common Stock which constitute Transfer Restricted Securities issued upon conversion of the Notes shall be deemed to hold an aggregate principal amount of Notes (in addition to the principal amount of Notes held by such holder) equal to the quotient of (x) the number of such shares of Common Stock held by such holder and (y) the conversion rate in effect at the time of such conversion as determined in accordance with the Indenture. "NASD": National Association of Securities Dealers, Inc. "NOTES": As defined in the preamble hereto. "NOTICE AND QUESTIONNAIRE": A written notice executed by the respective Holder and delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Appendix A to the Offering Memorandum of the Company issued May 2, 2003 relating to the Notes. "NOTICE HOLDER": On any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date. "PERSON": An individual, partnership, corporation, company, unincorporated organization, trust, joint venture or a government or agency or political subdivision thereof. "PURCHASE AGREEMENT": As defined in the preamble hereto. 3 "PROSPECTUS": The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such prospectus. "RECORD HOLDER": With respect to any Liquidated Damages Payment Date, each Person who is a Holder of Notes which are Transfer Restricted Securities on the 15th day preceding the relevant Liquidated Damages Payment Date. "REGISTRATION DEFAULT": As defined in Section 3(a) hereof. "SECURITIES ACT": Securities Act of 1933, as amended. "SHELF FILING DEADLINE": As defined in Section 2(a)(i) hereof. "SHELF REGISTRATION STATEMENT": As defined in Section 2(a)(i) hereof. "SUBSEQUENT SHELF REGISTRATION STATEMENT": As defined in Section 2(c) hereof. "SUSPENSION NOTICE": As defined in Section 4(c) hereof. "SUSPENSION PERIOD": As defined in Section 4(b)(i) hereof. "TIA": Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder, in each case, as in effect on the date the Indenture is qualified under the TIA. "TRANSFER RESTRICTED SECURITIES": Each Note and each share of Common Stock issued upon conversion of Notes until the earlier of: (i) the date on which such Note or such share of Common Stock issued upon conversion has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; (ii) the date on which such Note or such share of Common Stock issued upon conversion is transferred in compliance with Rule 144 under the Securities Act or may be sold or transferred by a person who is not an affiliate of the Company pursuant to Rule 144(k) under the Securities Act (or any other similar provision then in force); or (iii) the date on which such Note or such share of Common Stock issued upon conversion ceases to be outstanding (whether as a result of redemption, repurchase and cancellation, conversion or otherwise). 4 "UNDERWRITTEN REGISTRATION": A registration in which Notes of the Company are sold to an underwriter for reoffering to the public. Unless the context otherwise requires, the singular includes the plural, and words in the plural include the singular. 2. Shelf Registration. (a) The Company shall: (i) not later than 90 days after the date hereof (the "SHELF FILING DEADLINE"), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by Holders that have provided the information required pursuant to the terms of Section 2(e) hereof; (ii) use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission not later than 180 days after the date hereof (the "EFFECTIVENESS TARGET DATE"); and (iii) use its best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 4(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled, to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced from time to time, for a period (the "EFFECTIVENESS PERIOD") until the earliest of: (1) two years after the last date of original issuance of any of the Notes; or (2) the date when the Holders of Transfer Restricted Securities are able to sell all such Transfer Restricted Securities immediately pursuant to Rule 144(k) under the Securities Act; or (3) the date when all of the Transfer Restricted Securities are disposed of pursuant to the Shelf Registration Statement or Rule 144 under the Securities Act or any similar provision then in effect. 5 (b) None of the Company's security holders (other than the Holders of Transfer Restricted Securities) shall have the right to include any of the Company's securities in the Shelf Registration Statement. (c) If the Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Transfer Restricted Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Transfer Restricted Securities), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Transfer Restricted Securities (a "SUBSEQUENT SHELF REGISTRATION STATEMENT"). If a Subsequent Shelf Registration Statement is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Registration Statement (or subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period. (d) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as reasonably requested by the Initial Purchasers or by the Trustee on behalf of the Holders of the Transfer Restricted Securities covered by such Shelf Registration Statement. (e) Each Holder agrees that if such Holder wishes to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(e) and Section 4(b). Each Holder wishing to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus must deliver a Notice and Questionnaire to the Company. In order to be named as a selling securityholder in the Prospectus at the time of effectiveness of the Shelf Registration Statement, the Notice and Questionnaire must be delivered at least ten (10) Business Days prior to the effectiveness of the Shelf Registration Statement. From and after the date the Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered, and in any event upon the later of (x) ten (10) Business Days after such date or (y) ten (10) Business Days after the expiration of any Suspension Period in effect when the Notice and Questionnaire is delivered: 6 (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Transfer Restricted Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the "AMENDMENT EFFECTIVENESS DEADLINE DATE") that is forty-five (45) days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder upon its request copies of any documents filed pursuant to Section 2(e)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(e)(i); provided that if such Notice and Questionnaire is delivered during a Suspension Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Suspension Period in accordance with Section 4(b). Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to ten (10) Business Days after the expiration of a Suspension Period (and the Company shall incur no obligation to pay Liquidated Damages during such extension) if such Suspension Period shall be in effect on the Amendment Effectiveness Deadline Date. 3. Liquidated Damages. (a) Each event referred to in the following clauses (i) through (vi), is a "REGISTRATION DEFAULT": (i) the Shelf Registration Statement is not filed with the Commission prior to or on the Shelf Filing Deadline; 7 (ii) the Shelf Registration Statement has not been declared effective by the Commission prior to or on the Effectiveness Target Date; (iii) the Company has failed to perform its obligations set forth in Section 2(e) within the time period required therein; (iv) any post-effective amendment to a Shelf Registration filed pursuant to Section 2(e)(i) has not become effective under the Securities Act on or prior to the Amendment Effectiveness Deadline Date; (v) except as provided in Section 4(b)(i) hereof, the Shelf Registration Statement is filed and declared effective but, during the Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within five Business Days by a post-effective amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure and, in the case of a post-effective amendment, is itself immediately declared effective; or (vi) (A) prior to or on the 45th or 60th day, as the case may be, of any Suspension Period, such suspension has not been terminated or (B) a Suspension Period when aggregated with other Suspension Periods during the prior 360-day period exceeds 90 days, For purposes of this Agreement, each Registration Default set forth above shall begin and be cured on the dates set forth in the table below:
Type of Registration Default Beginning Cure by Clause Date Date --------- ---- ---- (i) Shelf Filing Deadline the date the Shelf Registration Statement is filed (ii) Effectiveness Target Date the date the Shelf Registration Statement is declared effective by the Commission
8
Type of Registration Default Beginning Cure by Clause Date Date --------- ---- ---- (iii) the date by which the the date the Company Company is required to performs its obligations perform its obligations set forth in Section 2(e) under Section 2(e) (iv) the Amendment the date the applicable Effectiveness Deadline Date post-effective amendment to a Shelf Registration Statement becomes effective under the Securities Act (v) the date five Business the date any Days following the date post-effective amendment that the Shelf is declared effective by Registration Statement the Commission or any ceases to be effective or supplement to the fails to be usable Prospectus or report is filed that makes the Shelf Registration Statement usable (vi) the date on which a termination of the Suspension Period, or the applicable Suspension aggregate duration of Period Suspension Periods in any period, exceeds the permitted number of days
(b) If a Registration Default occurs, other than a Registration Default relating to a failure to file or have an effective Shelf Registration Statement with respect to shares of Common Stock issuable upon conversion of the Notes that are Transfer Restricted Securities, the Company hereby agrees to pay interest ("LIQUIDATED DAMAGES") with respect to the Notes that are Transfer Restricted Securities from and including the day following beginning of the Registration Default to but excluding the earlier of (1) the day on which the Registration Default has been cured and (2) the date the Shelf Registration Statement is no longer required to be kept effective, accruing at a rate (x) with respect to the first 90-day period during which a Registration Default shall have occurred and be continuing, equal to 0.25% per annum of the aggregate principal amount of the Notes, and (y) with respect to the period commencing on the 91st day following the day the Registration Default shall have 9 occurred and be continuing, equal to 0.50% per annum of the aggregate principal amount of the Notes; provided that in no event shall Liquidated Damages accrue at a rate per year exceeding 0.50% of the aggregate principal amount of the Notes. (c) All accrued Liquidated Damages shall be paid in arrears to Record Holders by the Company on each Liquidated Damages Payment Date. Upon the cure of all Registration Defaults relating to any particular Note, the accrual of Liquidated Damages with respect to such Note will cease. (d) All obligations of the Company set forth in this Section 3 that are outstanding with respect to any Note that is a Transfer Restricted Security at the time such Note ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Note that is a Transfer Restricted Security shall have been satisfied in full. (e) The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders of Notes that are Transfer Restricted Securities for each Registration Default. 4. Registration Procedures. (a) In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 4(b) hereof and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities, and pursuant thereto, shall as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act. (b) In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Company shall: (i) Subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D), use its best efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause the Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Company shall file promptly an appropriate amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to 10 Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its best efforts to cause such amendment to be declared effective and the Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter. Notwithstanding the foregoing, the Company may suspend the effectiveness of the Shelf Registration Statement by written notice to the Holders for a period not to exceed an aggregate of 45 days in any 90-day period (each such period, a "SUSPENSION PERIOD") if: (x) an event occurs and is continuing as a result of which the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein would, in the Company's judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (y) the Company determines in good faith that the disclosure of such event at such time could be seriously detrimental to the Company and its subsidiaries; provided that, in the event the disclosure relates to a previously undisclosed proposed or pending material business transaction, the disclosure of which the Company determines in good faith would be reasonably likely to impede the Company's ability to consummate such transaction, the Company may extend a Suspension Period from 45 days to 60 days; provided, however, that Suspension Periods shall not exceed an aggregate of 90 days in any 360-day period. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Suspension Period. (ii) Prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all Transfer Restrict Securities covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth 11 in the Shelf Registration Statement or supplement to the Prospectus. (iii) Advise the selling Holders promptly and, if requested by such selling Holders, to confirm such advice in writing, except as provided in clause (D) below: (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, or (D) of the existence of any fact or the happening of any event, during the Effectiveness Period, that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to each Holder who is named in the Shelf Registration Statement prompt notice of the withdrawal of any such order. 12 (iv) Make available at reasonable times for inspection by one or more representatives of the selling Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities are included in the Shelf Registration Statement, and any attorney or accountant retained by such selling Holders, all financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act, and cause the Company's officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, attorney or accountant in connection therewith; provided, however, that the Company shall have no obligation to deliver information to any selling Holder or representative pursuant to this Section 4(b)(iv) unless such selling Holder or representative shall have executed and delivered a confidentiality agreement in a form acceptable to the Company relating to such information. (v) If requested by any selling Holders, promptly incorporate in the Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the "PLAN OF DISTRIBUTION" of the Transfer Restricted Securities. (vi) Furnish to each selling Holder upon their request, without charge, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto (and any documents incorporated by reference therein or exhibits thereto (or exhibits incorporated in such exhibits by reference) as such Person may request). (vii) Deliver to each selling Holder, without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D), the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto. 13 (viii) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject or (B) to subject itself to general or unlimited service of process or to taxation in any such jurisdiction if they are not now so subject. (ix) Cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two Business Days before any sale of Transfer Restricted Securities. (x) Use its best efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities. (xi) Subject to Section 4(b)(i) hereof, if any fact or event contemplated by Section 4(b)(iii)(D) hereof shall exist or have occurred, use its best efforts to prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. (xii) Provide a CUSIP number for the Notes that are not Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Trustee under 14 the Indenture with certificates for the Notes and shares of Common Stock that are not Transfer Restricted Securities that are in a form eligible for deposit with The Depository Trust Company. (xiii) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be retained in accordance with the rules and regulations of the NASD. (xiv) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act. (xv) Cause the Indenture to be qualified under the TIA not later than the effective date of the Shelf Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the holders of Securities to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee thereunder to execute all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. (xvi) Cause all Common Stock covered by the Shelf Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which Common Stock is then listed or quoted. (xvii) Provide to each Holder upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the Shelf Registration Statement, unless such document is available through the Commission's EDGAR system. (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company of the existence of any fact of the kind described in Section 4(b)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until: 15 (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 4(b)(xi) hereof; or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such Suspension Notice. (d) Each Holder agrees, by acquisition of the Transfer Restricted Securities, that no Holder shall be entitled to sell any of such Transfer Restricted Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(e) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably request in writing. Any sale of any Transfer Restricted Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. 5. Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company regardless of whether a Shelf Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made with the NASD); 16 (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing of Prospectuses and certificates for the Common Stock to be issued upon conversion of the Notes) and the Company's expenses for messenger and delivery services and telephone; (iv) all fees and disbursements of counsel to the Company; (v) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company. The Company shall bear its internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. 6. Indemnification And Contribution. (a) The Company agrees to indemnify and hold harmless each Holder (including each Initial Purchaser), its directors, officers, and employees and each person, if any, who controls any such Holder within the meaning of the Securities Act or the Exchange Act (each, an "INDEMNIFIED HOLDER"), against any loss, claim, damage, liability or expense, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Shelf Registration Statement as originally filed or in any amendment thereof, in any Prospectus, or in any amendment or supplement thereto or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Company (or based upon written information furnished by or on behalf of the Company expressly for use in such blue sky application or other document or amendment on supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer 17 Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a "BLUE SKY Application"); or (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have. (b) Each Holder, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, officers and employees and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement set forth in this Section shall be in addition to any liabilities which any such Holder may otherwise have. In no event shall any Holder, its directors, officers or employees or any person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Shelf Registration Statement exceeds the amount of any damages that such Holder, its directors, officers or employees or any person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the 18 extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Holders shall have the right to employ a single counsel to represent jointly the Holders and their directors, officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Holders against the Company under this Section 6 if the Holders seeking indemnification shall have been advised by legal counsel that there may be one or more legal defenses available to such Holders and their respective directors, officers, employees and controlling persons that are different from or additional to those available to the Company, and in that event, the fees and expenses of such separate counsel shall be paid by the Company. (d) The indemnifying party under this Section shall not be liable for any settlement of any proceeding effected without its written consent, which shall not be withheld unreasonably, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (x) includes an unconditional release of 19 such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (e) If the indemnification provided for in this Section 6 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b) in respect of any loss, claim, damage or liability (or action in respect thereof) referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (or action in respect thereof): (i) in such proportion as is appropriate to reflect the relative benefits received by the Company from the offering and sale of the Transfer Restricted Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other, or (ii) if the allocation provided by Section (6)(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in Section 6(d)(i) but also the relative fault of the Company on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage or liability (or action in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under the Purchase Agreement (before deducting expenses) received by the Company, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Holders on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 6(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e). 20 The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 6 shall be deemed to include, for purposes of this Section 6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 6, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities purchased by it were resold exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this Section 6(d) are several and not joint. (f) The provisions of this Section 6 shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 6 hereof, and will survive the sale by a Holder of Transfer Restricted Securities. 7. Rule 144A and Rule 144. The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. 8. No Participation In Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder. 9. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely, and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's 21 obligations under Section 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) Actions Affecting Transfer Restricted Securities. The Company shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Company shall not grant to any of its securityholders (other than the Holders in such capacity) the right to include any of its securities in the Shelf Registration Statement provided for in this Agreement other than the Transfer Restricted Securities. (d) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority of Holders; provided, however, that with respect to any matter that directly or indirectly adversely affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to depart from the provisions hereof, with respect to a matter, which relates exclusively to the rights of Holders whose securities are being sold pursuant to a Shelf Registration Statement and does not directly or indirectly adversely affect the rights of other Holders, may be given by the Majority Holders, determined on the basis of Notes or Common Stock being sold rather than registered under such Shelf Registration Statement. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first class mail (registered or certified, return receipt requested), telex, facsimile transmission, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the registrar under the Indenture or the transfer agent of the Common Stock, as the case may be; and 22 (ii) if to the Company, initially at its address set forth in the Purchase Agreement, All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Any party hereto may change the address for receipt of communications by giving written notice to the others. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders. The Company hereby agrees to extend the benefit of this Agreement to any Holder and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Transfer Restricted Securities Held by the Company or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its Affiliates (other than subsequent Holders if such subsequent Holders are deemed to be Affiliates solely by reason of their holding of such Transfer Restricted Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (k) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby, it being 23 intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MAXTOR CORPORATION By:/s/ Paul J. Tufano ---------------------------------- Name: Paul J. Tufano Title: President, Chief Executive Officer and Acting Chief Financial Officer BANC OF AMERICA SECURITIES LLC MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Acting as Representatives of the several Initial Purchasers named in Schedule A to the Purchase Agreement. BANC OF AMERICA SECURITIES LLC By: /s/ Derek Dillon ----------------------------- Name: Derek Dillon Title: Managing Director EX-10.1 5 f89812exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 February 24, 2003 Mr. Paul J. Tufano 80 Broadway Los Gatos, CA 95030 Dear Paul, Maxtor Corporation is pleased to offer you the position of President and Chief Executive Officer, effective February 24, 2003, reporting to Dr. C.S. Park, Chairman, and the Board of Directors ("BOD"). Your base salary will be $700,000 per annum. You will be eligible for a management incentive bonus which will be 100% of your base salary at target and which will be paid out based on BOD determined performance goals for both corporate measures and your individual measures. Salary and bonus are subject to applicable taxes at the time of payment. You will be eligible for all of Maxtor's benefit plans applicable to California-based employees. In addition, on February 24, 2003, the BOD granted you 750,000 Maxtor stock options under our Stock Option Plan, and 100,000 restricted stock units in our Restricted Stock Unit Plan, both grants subject to your acceptance of this offer. Details of the programs will be provided to you at the time of your acceptance of this offer. If your employment is involuntarily terminated other than for "Cause", "Permanent Disability", "Termination Upon Change of Control" (as "Cause", "Permanent Disability" and "Termination Upon Change of Control" are defined in your Retention Agreement dated May 29, 1998) or death, you will be paid, subject to you executing a mutually acceptable release in favor of Maxtor: (i) your management incentive bonus for the year immediately prior to the year in which termination occurs in such amount as the Board determines was actually earned, assuming that such bonus has not already been paid, and (ii) a severance package consisting of the following: two (2) years base salary, plus two times (2x) the management incentive bonus set forth in (i) immediately above (even if such prior year bonus has already been paid to you prior to or on the date of termination), to be paid evenly over a two (2) year severance period on Maxtor's regular paydays. Company employee health benefits would continue during the severance period and would be paid either directly by Maxtor or by reimbursement to you without gross up. Additionally, in consideration of the salary, incentive bonus opportunity, stock grants and benefits set forth above, including the severance package, you agree that if you are involuntarily terminated from Maxtor as aforesaid, you will not accept employment with a direct Maxtor competitor in the role of President, CEO, CFO or COO, or an equivalent operating position to the aforementioned positions, within two (2) years of such termination. If you accept such employment, then as of the date of such acceptance, MXO may cease, at its sole option, any of the aforementioned severance and severance benefit payments, except any earned bonus, and if MXO makes such decision to cease such payments, any payments made after such acceptance date must be immediately refunded. By signing and accepting this offer, you also agree to forfeit the unpaid portion of any bonus if you voluntarily resign from your employment at Maxtor prior to the last day of payment of any such bonus, unless otherwise agreed in writing from time to time by the Maxtor Board of Directors. Also, as it is customary with all Maxtor employees, you will not have an Page 1 employment contract, and either you or Maxtor can terminate your employment relationship with or without cause at any time. You agree that all previous agreements between you and Maxtor remain in full force and effect, except as specifically modified by this offer, and that this offer letter constitutes the entire arrangement and understanding between Maxtor and you regarding this offer. Additionally, you agree that if any provision(s) of this offer letter are held to be unenforceable or invalid by a court of competent jurisdiction, the remaining provisions will remain in full force and effect. Paul, we at Maxtor look forward to having you as President and Chief Executive Officer and are confident that you will make significant contributions to the company's future. Please sign below signifying your acceptance of this position and these conditions and return this letter to me. Sincerely, By: /s/ Dr. C.S. Park Dr. C.S. Park Chairman of the Board Accepted: /s/ Paul J. Tufano Mr. Paul J. Tufano Dated: February 24, 2003 Maxtor Corporation ? 500 McCarthy Boulevard ? Milpitas, CA 95035 ? Telephone (408) 894 5000 Page 2 EX-10.2 6 f89812exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 CONFIDENTIAL April 15, 2003 Maxtor Technology (Suzhou) Co., Ltd. (as user of the Total Commitment) Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch (as provider of the Total Commitment) MASTER FINANCING AGREEMENT TABLE OF CONTENTS
CLAUSE NUMBER TITLE PAGE NUMBER Clause 1 Interpretation 1 Clause 2 The Facilities and Purposes 5 Clause 3 Conditions of Utilization 6 Clause 4 Interest 8 Clause 5 Repayment, Prepayment and Cancellation 8 Clause 6 Fees 9 Clause 7 Comfort Letter and Negative Pledge Letter 9 Clause 8 Service promise, representations and undertakings of Party A 9 Clause 9 Representations and covenants of Party B 10 Clause 10 Events of default and remedy 14 Clause 11 Performance of agreement 14 Clause 12 Amendment and termination 14 Clause 13 Set-off, assignment and reservation of rights 15 Clause 14 Commencement of agreement 15 Clause 15 Special note 15 Clause 16 Governing law, dispute resolution and jurisdiction 15 Clause 17 Communications 16 Clause 18 Miscellaneous 17 Signature Page Party A 18 Signature page Party B 19

CLAUSE NUMBER TITLE PAGE NUMBER Appendix 1 : Form of Loan Notification (Chinese) 20 Appendix 2 : Form of foreign exchange loan agreement (Chinese) 21 Appendix 3 : Form of Drawdown Notice (Chinese) 34 Appendix 4 : Sample of loan receipt 35 Appendix 5 : Comfort letter 36 Appendix 6 : Form of Negative Pledge Letter (Chinese) 37
MASTER FINANCING AGREEMENT THIS AGREEMENT is made between the following parties on 15 April 2003: (1) BANK OF CHINA SUZHOU BRANCH ("SUZHOU BRANCH") and BANK OF CHINA SUZHOU INDUSTRIAL PARK SUB-BRANCH ("SIP SUB-BRANCH") as the provider of the Total Commitment under this Agreement (Suzhou Branch and SIP Sub-branch are hereinafter jointly and severally called "PARTY A"); (2) MAXTOR TECHNOLOGY (SUZHOU) CO., LTD., a wholly foreign-owned enterprise with limited liability duly incorporated and existing in accordance with the laws of the People's Republic of China, registered in Suzhou Industrial Park of the People's Republic of China, as the user of the Total Commitment under this Agreement (hereinafter called "PARTY B"). For the purpose of developing a long-term, stable and mutual business cooperation relationship and on the principles of freedom of choice, equality, mutuality and good faith, the above parties have reached the following agreement after consultation: CLAUSE 1 INTERPRETATION 1.1 Definitions In this Agreement: "AVAILABILITY PERIOD" means the period from and including the Effective Date to the date falling 48 months after the Effective Date; "CAPITAL INJECTION SCHEDULE" means the injection schedule of the registered capital of Party B set out in clause 9.2.13, as may be adjusted from time to time by Party B under such clause; "CAPITAL VERIFICATION REPORT" means each report prepared and issued by an accountant qualified in the PRC appointed by Party B in relation to the injection of the registered capital of Party B; "COMFORT LETTER" means the comfort letter in the form set out in appendix 5 to this Agreement to be given by Maxtor Corporation to Party A; "DRAWDOWN NOTICE" means the drawdown notice in the form set out in appendix 3 to this Agreement; "EBITDA" has the meaning given to such expression in clause 9.2.4(b); "EFFECTIVE DATE" means the date of this Agreement; "EVENT OF DEFAULT" means any one of the events specified in clause 10; "FACILITY" means the Tranche A Facility or the Tranche B Facility and "FACILITIES" means both of them; 1 "FELA" means a foreign exchange loan agreement in the form set out in appendix 2 to this Agreement; "FINAL MATURITY DATE" means the date falling 120 months after the Effective Date; "GAAP" means the generally accepted accounting standards, principles and practices in the PRC; "GOVERNMENT AGENCY" means any government or any governmental agency, semi-governmental or judicial entity or authority; "GROUP" means Maxtor Corporation and its directly and indirectly owned subsidiaries; "INTEREST CALCULATION DATE" means, in relation to an Interest Period, one day prior to the first day of that Interest Period; "INTEREST PAYMENT DATE" means each of the days which fall on each semi-annual anniversary after the Effective Date up to and including the Final Maturity Date, provided that on the relevant day any Loan is outstanding; "INTEREST PERIOD" means any of those periods mentioned in clause 4.1 and any other period by reference to which interest on a Loan or any unpaid sum is calculated; "LIBOR" means, in relation to any Loan or unpaid sum and any Interest Period relating to it, the rate per annum equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent.) of the respective rates of each of the banks whose rates appear on the screen page designated "LIBO" (or any equivalent successor to such page) published or reported by Reuters Limited on the Reuters monitor screen as the rate at which such banks are offering in the London Inter-Bank Market deposits in US dollars for a period comparable to such Interest Period at or about 11.00 a.m. (London time) on the Interest Calculation Date for such Interest Period, provided that where such Interest Period is 3 months or less, the comparable period shall be taken to be 3 months or, where such Interest Period is greater than 3 months, the comparable period shall be 6 months; "LOAN" means a Tranche A Loan or a Tranche B Loan; "LOAN DOCUMENTS" means this Agreement, each FELA, the Comfort Letter and the Negative Pledge Letter; "LOAN NOTIFICATION" means each loan notification from Party B to Party A in the form set out in appendix 1; "LOAN RECEIPT" means a loan receipt in the form set out in appendix 4; "MARGIN" means (1) 0.5% per annum if LIBOR is equal to or lower than 3.12% per annum on the relevant Interest Calculation Date or (2) 0.6% per annum if LIBOR is higher than 3.12% per annum on the relevant Interest Calculation Date; "MATERIAL ADVERSE EFFECT" means a material adverse effect on the ability of Party B to perform its payment obligations under this Agreement; 2 "MAXIMUM LOAN AMOUNT" means, on any Utilization Date, an amount equal to the total amount of the paid up registered capital of Party B on that date multiplied by the ratio referred to in clause 9.2.13; "MAXTOR CORPORATION" means Maxtor Corporation, a company incorporated in accordance with the laws of the State of Delaware, United States of America; "NEGATIVE PLEDGE LETTER" means the negative pledge letter in the form set out in appendix 6 to this Agreement to be given by Party B to Party A; "PERMITTED DISPOSALS" means any sale, lease, licence, transfer or other disposal of (1) products, inventory or other assets made in the ordinary course of trade or business of Party B, including in the ordinary course of any business permitted by law, (2) receivables by factoring or any other means of receivables financing, (3) obsolete or worn-out assets, (4) land, plant, equipment or machinery in exchange for other land, plant, equipment or machinery comparable or superior in type, value or quality, (5) any machinery or equipment on arms length terms for fair market value or (6) assets of a value not exceeding US$ 5,000,000 by reference to their net book value, in any financial year or (7) tangible or intangible assets under transactions between companies in the Group pursuant to which Party B receives consideration equal to or greater than the fair market value of the relevant assets at the time of such disposal; "PERMITTED INDEBTEDNESS" means (1) financial indebtedness under the Loan Documents, (2) any indebtedness or liability of Party B arising out of or in connection with the ordinary course of trade or business of Party B, including in the ordinary course of any business permitted by law, (3) any indebtedness arising under any leasing or hire purchase arrangements, (4) any financial arrangements undertaken for the purpose of hedging or managing foreign currency exposure, interest rate fluctuations or other financial risks, (5) any indebtedness of Party B not exceeding US$ 5,000,000 outstanding at any time, or (6) any indebtedness owed to, or arising out of transactions involving, any companies in the Group pursuant to which Party B acquires any assets the fair market value of which is equal to or greater than such indebtedness at the time of incurring such indebtedness; "PERMITTED SECURITY" means (1) any security imposed by law or any security of any nature arising out of or in connection with the ordinary course of trade or business of Party B, including in the ordinary course of any business permitted by law, (2) any security deposit provided to any Government Agency or utility company in relation to the Project or the operation of Party B's business, (3) any security of any nature securing liabilities not exceeding US$5,000,000 outstanding at any time or (4) security of any nature arising out of investments made in the PRC by Party B or transactions between or involving domestic PRC companies in the Group; "POTENTIAL EVENT OF DEFAULT" means any event which may become (with the passage of time, the giving of notice, the satisfaction of any condition or any combination of them) an Event of Default; "PRC" means the People's Republic of China; "PROJECT" means the establishment and operation of a hard disk drive manufacturing plant at the Suzhou Industrial Park of the PRC by Party B; "REPAYMENT DATE" means each of the days which are 54, 60, 66, 72, 78, 84, 90 and 96 3 months after the Effective Date, and the Final Maturity Date; "TRANCHE A COMMITMENT" means US$30,000,000 to the extent not adjusted, cancelled or utilized in accordance with this Agreement; "TRANCHE A FACILITY" means the working capital loan facility made available under clause 2.1.1 of this Agreement; "TRANCHE A LOAN" means a loan made or to be made under the Tranche A Facility or the principal amount outstanding for the time being of that loan; "TRANCHE B COMMITMENT" means the aggregate of the Tranche B1 Commitment and the Tranche B2 Commitment of US$103,000,000 to the extent not adjusted, cancelled or utilized in accordance with this Agreement; "TRANCHE B FACILITY" means the Tranche B1 Facility and the Tranche B2 Facility made available under clauses 2.1.2 and 2.1.3 of this Agreement; "TRANCHE B LOAN" means a Tranche B1 Loan or a Tranche B2 Loan; "TRANCHE B1 COMMITMENT" means US$30,000,000, being part of the Tranche B Commitment, to the extent not adjusted, cancelled or utilized in accordance with this Agreement; "TRANCHE B1 FACILITY" means the plant construction project facility under the Tranche B Facility; "TRANCHE B1 LOAN" means a loan made or to be made under the Tranche B1 Facility or the principal amount outstanding for the time being of that loan; "TRANCHE B2 COMMITMENT" means US$73,000,000, being part of the Tranche B Commitment, to the extent not adjusted, cancelled or utilized in accordance with this Agreement; "TRANCHE B2 FACILITY" means the project facility other than the Tranche B1 Facility under the Tranche B Facility; "TRANCHE B2 LOAN" means a loan made or to be made under the Tranche B2 Facility or the principal amount outstanding for the time being of that loan; "TOTAL COMMITMENT" means the aggregate of the Tranche A Commitment and the Tranche B Commitment being US$133,000,000 at the Effective Date; "UTILIZATION DATE" means the date on which a Loan is, or is to be, made available by Party A to Party B; "UTILIZATION PLAN" means the plan given by Party B to Party A before the Effective Date in relation to the amounts and order of Party B's proposed utilization of the Facilities under this Agreement, as adjusted from time to time in accordance with clause 2.3 of this Agreement. 4 1.2 Aids to Construction Save where the contrary is indicated, any reference in this Agreement to: a "BUSINESS DAY" shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in the PRC or, if such reference relates to the date for the payment or purchase of any sum denominated in US dollars, New York, London and the PRC or, if such reference relates to a day on which LIBOR is to be determined, London; any DOCUMENT or AGREEMENT (including, without limitation, each Loan Document) shall be construed as a reference to such document or agreement as amended, novated, supplemented, substituted, varied or replaced from time to time. CLAUSE 2 THE FACILITIES AND PURPOSES 2.1 Subject to the terms of this Agreement, Party A agrees irrevocably to make available to Party B the following facilities: 2.1.1 a working capital term loan facility in an aggregate amount equal to the Tranche A Commitment; 2.1.2 a plant construction project term loan facility in an aggregate amount equal to the Tranche B1 Commitment; and 2.1.3 a project term loan facility for projects other than plant construction in an aggregate amount equal to the Tranche B2 Commitment; for the purposes of providing finance to Party B for the plant construction, equipment and machinery, other projects and general working capital needs in relation to the Project. Party B shall apply all amounts borrowed by it under this Agreement for such purposes. 2.2 On the Effective Date, the allocation of the Total Commitment is set out in the table below:
- --------------------------------------------------------------------------------------------------- COMMITMENT AMOUNT FACILITY TYPE (US$10,000) - --------------------------------------------------------------------------------------------------- Tranche A General working capital 3000 - --------------------------------------------------------------------------------------------------- Tranche B1 Plant construction 3000 - --------------------------------------------------------------------------------------------------- Tranche B2 Other projects 7300 - --------------------------------------------------------------------------------------------------- Total 13300 - ---------------------------------------------------------------------------------------------------
2.3 Party B may adjust the Utilization Plan and/or the allocation of the Tranche B1 Commitment and the Tranche B2 Commitment set out in clause 2.2 at any time and from time to time by giving not less than 10 business days' prior written notice to Party A, provided that no such adjustment shall cause the total amount of principal repayment 5 under the Tranche B1 Facility by Party B on the Final Maturity Date to exceed US$30,000,000. CLAUSE 3 CONDITIONS OF UTILIZATION 3.1 Initial conditions precedent Party B may not deliver any Drawdown Notice unless Party A has received or waived its right to receive (in the case of clauses 3.1.6 to 3.1.11 below) an original or (in the case of clauses 3.1.1 to 3.1.5 below) a copy, in each case (except the originals) certified as true, complete, valid and up to date by any person authorised by Party B, of each of the following documents: 3.1.1 the articles of association of Party B currently in force (including any amendment and supplement); 3.1.2 the approval of the articles of association of Party B by the Suzhou Industrial Park Administrative Committee; 3.1.3 the current and valid foreign investment enterprise approval certificate of Party B issued by Jiangsu Provincial Government; 3.1.4 the current and valid enterprise legal person business licence of Party B issued by the Jiangsu Provincial Administration for Industry & Commerce of the PRC; 3.1.5 the foreign exchange registration certificate issued by the State Administration of Foreign Exchange, Suzhou Sub-branch; 3.1.6 the board resolutions of Party B, duly passed, approving the signing and performance of this Agreement, each FELA and the Negative Pledge Letter and authorising the relevant persons to sign such documents on behalf of Party B; 3.1.7 a certificate setting out the names and specimen signatures of the persons of Party B who are authorised to sign this Agreement, each FELA and the Negative Pledge Letter and other related documents on behalf of Party B; 3.1.8 the Comfort Letter; 3.1.9 the Negative Pledge Letter; 3.1.10 this Agreement duly signed by Party A and Party B with their respective chops impressed thereon; and 3.1.11 a loan certificate or a loan card issued by the People's Bank of China of the PRC. Party A shall promptly notify Party B when it has received or waived its right to receive the above documents satisfactory to Party A. 3.2 Further conditions precedent Subject to the satisfaction of the conditions precedent in clause 3.1 above, Party B may 6 utilize any Facility by way of a Loan in accordance with the terms of this Agreement if: 3.2.1 Not less than (1) 10 business days before the Utilization Date (in the case of a Tranche A Loan) or (2) 15 business days before the Utilization Date (in the case of a Tranche B Loan), unless previously provided, Party B delivers to Party A a Loan Notification in relation to the Loan (and which, as the case may be, may include any other Loan(s)) duly completed and signed by Party B with its official chop impressed thereon; 3.2.2 Subject to Party A's performance of its obligations under clause 8.5, not less than 3 business days before the Utilization Date, Party B delivers to Party A: (a) unless previously provided, an FELA or, as the case may be, FELAs in relation to the Loan (and which, as the case may be, may include any other Loan(s)) duly completed and signed by Party B with its official chop impressed thereon in quadruplicate with two Chinese and two English versions; (b) a Drawdown Notice in relation to the Loan duly completed and signed by Party B with its official chop impressed thereon; (c) unless previously provided, a copy, certified as true, complete, valid and up to date by any person authorised by Party B, of the most recent Capital Verification Report except that Party B shall be entitled to provide other evidence to the reasonable satisfaction of Party A whenever the relevant Capital Verification Report is not available for any reason; 3.2.3 the proposed Utilization Date is a business day which falls within the Availability Period; 3.2.4 the proposed amount of the Loan (1) is a minimum of US$1,000,000 and a multiple of US$500,000 which is less than the Tranche A Commitment (in the case of a Tranche A Loan) or, as the case may be, the Tranche B Commitment (in the case of a Tranche B Loan) and (2) when added to the total amount of all Loans then outstanding on the proposed Utilization Date, does not exceed the Maximum Loan Amount, and (for the avoidance of doubt) (1) neither the Tranche A Commitment nor the Tranche B Commitment will be reduced unless and until a Loan is drawn under an FELA and (2) any commitment under an FELA which is not used for any reason within the availability period under that FELA will continue to be available to Party B under any subsequent FELA(s); 3.2.5 no Event of Default or Potential Event of Default is continuing on the proposed Utilization Date; and 3.2.6 the representations set out in clause 9.1 (except clause 9.1.3) are true and accurate on and as of the proposed Utilization Date; and immediately upon the making of such Loan, the Tranche A Commitment (in the case of Tranche A Loan) or the Tranche B Commitment (in the case of a Tranche B Loan) shall be reduced by the amount of such Loan and the Total Commitment shall be reduced accordingly. The Total Commitment shall be reduced to zero at the end of the Availability Period or earlier if fully cancelled or utilized in accordance with the terms of 7 this Agreement. CLAUSE 4 INTEREST 4.1 The first Interest Period of each Loan shall start on the Utilization Date for that Loan. The period for which a Loan is outstanding shall be divided into successive Interest Periods each of which (other than the first) shall start on the last day of the preceding Interest Period. 4.2 The duration of each Interest Period shall, save as otherwise provided in this Agreement, be six months, provided that: 4.2.1 the first Interest Period for each Loan shall end on the immediately following Interest Payment Date for any Loan; 4.2.2 any Interest Period which would otherwise end before, or extend beyond, a Repayment Date shall be of such duration that it shall end on that Repayment Date. 4.3 If two or more Interest Periods in respect of different Loans end at the same time then, Party B may make one single payment in respect of all interest due on such Loans on the relevant Interest Payment Date. 4.4 On each Interest Payment Date Party B shall pay accrued interest on all Loans. 4.5 Save as otherwise provided in this Agreement, the rate of interest applicable to each Loan from time to time during an Interest Period relating to that Loan shall be the rate per annum which is the sum of the Margin and LIBOR for such Interest Period. 4.6 The rate of interest applicable to any sum payable under this Agreement which Party B fails to pay when due in accordance with the terms of this Agreement shall be the rate per annum which is the sum from time to time of two per cent (2%) per annum, the Margin and LIBOR for the relevant Interest Period. 4.7 Party A will give notice to Party B if on the Interest Calculation Date for any Interest Period no banks have quotations of LIBOR appearing on the Reuters screen at the relevant time. 4.8 If a notice is given under clause 4.7 then within five days of such notice Party A and Party B shall enter into amicable negotiations and friendly consultation with a view to agreeing a substitute basis (1) for determining the rates of interest from time to time applicable to the Loan(s) and/or (2) upon which the Loan(s) may be maintained (whether in US dollars or some other currency) and any such substitute basis that is agreed shall take effect in accordance with its terms and be binding on each party to this Agreement. Unless and until any substitute basis is agreed, the rate of interest applicable to the Loans shall be the rate equal to the interest rate which was determined in respect of the immediate preceding Interest Period. If no substitute basis is agreed, Party B shall be entitled to repay the Loan(s) and all interest accrued thereon to Party A. CLAUSE 5 REPAYMENT, PREPAYMENT AND CANCELLATION 8 5.1 Subject to clause 5.2 below, Party B shall: 5.1.1 repay all Tranche B1 Loans in full on the Final Maturity Date; and 5.1.2 repay all Tranche A Loans and Tranche B2 Loans in 8 equal instalments, one on each Repayment Date (other than the Final Maturity Date), so that in any event the total principal amount of repayment on the Final Maturity Date will not exceed US$30,000,000. 5.2 Party B may prepay the whole or any part of any Loan on an Interest Payment Date by giving Party A not less than 10 business days' prior written notice to that effect, provided that the prepayment shall be a minimum of US$10,000,000 and a multiple of US$1,000,000. Any prepayment shall satisfy Party B's repayment obligations in respect of the Tranche A Loans and Tranche B2 Loans under clause 5.1.2 in inverse chronological order. 5.3 During the Availability Period, Party B may cancel the whole or any part of the Total Commitment (in a minimum amount of US$10,000,000 and of a multiple of US$1,000,000) by giving Party A not less than 10 business days' prior written notice. CLAUSE 6 FEES Party B is not required to pay to Party A any arrangement fee or commitment fee or other fees in relation to the Total Commitment under this Agreement. CLAUSE 7 COMFORT LETTER AND NEGATIVE PLEDGE LETTER Party B shall ensure that Party A receives the Comfort Letter and the Negative Pledge Letter in accordance with the terms of this Agreement. CLAUSE 8 SERVICE PROMISE, REPRESENTATIONS AND UNDERTAKINGS OF PARTY A 8.1 In addition to the commitment of Party A in respect of the Total Commitment under this Agreement, Party A will give priority treatment to other financing requests of Party B. 8.2 At the request of Party B, Party A will provide to Party B the services of enquiry, agency, settlement and other intermediary business services within Party A's business scope. 8.3 Party A will provide civilised and quality service in the operation of its financing business and intermediary business. Party A will take Party B's supervision, enquiry, criticism and complaint seriously and handle the same in a speedy and proper manner. 8.4 Party A undertakes to Party B to comply with the applicable and relevant law, regulations, rules, policies and authorisations (internal or external) and the terms of the Loan Documents. 8.5 Party A undertakes to Party B that within 3 business days of its receipt of each Loan Notification from Party B under clause 3.2.1, Party A will notify Party B in writing of the respective commitments of Suzhou Branch and SIP Sub-branch to fund the Loan(s) under such Loan Notification so as to enable Party B to perform its obligations under clause 3.2.2(a). 9 8.6 Party A undertakes to Party B that upon receipt from Party B of each FELA in quadruplicate for any Loan(s) (in the form set out in Appendix 2) pursuant to clause 3.2.2(a) above, Party A will (1) treat the condition under clause 3.2.2(a) as being satisfied in respect of such Loan(s), (2) sign such FELA in the name of Suzhou Branch or SIP Sub-branch (or both) in accordance with its notification to Party B under clause 8.5, impress the official chop(s) of Suzhou Branch and/or SIP Sub-branch thereon and date such FELA and (3) deliver to Party B two originals of such FELA (one in Chinese and the other in English) on the Utilization Date of the Loan. 8.7 Party A represents to Party B that Party A (1) is duly incorporated in accordance with the laws of the PRC, (2) has capacity and power to enter into and perform this Agreement and to carry on its business and (3) has complied with all laws, regulations, rules, policies and authorisations (internal or external) applicable to Party A in entering into and performing this Agreement. CLAUSE 9 REPRESENTATIONS AND COVENANTS OF PARTY B 9.1 Party B represents to Party A as follows: 9.1.1 Party B is duly incorporated and existing in accordance with the laws of the PRC. 9.1.2 Party B has obtained all board authorisations necessary for the signing of this Agreement. 9.1.3 All documents, written information, reports and certificates that have been provided by Party B to Party A are accurate, true, complete and valid in all material respects. 9.1.4 To the knowledge of Party B, Party B has not failed to disclose any of the following events which is occurring and has a Material Adverse Effect: (a) major breach by Party B of law or regulations applicable to Party B; (b) Party B incurring or having indebtedness (except Permitted Indebtedness) or providing mortgage or pledge security (except Permitted Security) in favour of third parties; (c) current litigation or arbitration involving Party B which, if successful, will result in a liability of Party B of more than the greater of (1)US$2,000,000 or (2) 10% of the then paid up registered capital of Party B; (d) other events that will have a Material Adverse Effect. 9.2 Party B covenants with Party A as follows: So long as Party B has not fully repaid the Loans under this Agreement: 9.2.1 Party A will be Party B's major bank for its deposit, domestic settlement, international settlement and other intermediary businesses and identify Party A as 10 its major bank for business co-operation, provided that Party A's terms and quality of service are at least equivalent to terms and quality offered by other financial institutions operating in Jiangsu Province. 9.2.2 Party B will obtain, comply with the terms of and maintain in force and effect all approvals and licences required in or by any law or regulations of the PRC to enable it to lawfully enter into and perform its obligations under this Agreement and to operate its business. 9.2.3 Party B shall: (a) within 180 days after the end of each of its financial years, deliver to Party A one set of its audited financial statements for such financial year; (b) within 30 days after the end of each quarter (being the end of each of Party B's fiscal quarters) in each of its financial years, deliver to Party A one set of its unaudited financial statements for such period; (c) provide to Party A such information about Party B's financial condition as Party A may reasonably require; and (d) ensure that each set of financial statements delivered by it pursuant to sub-clauses (a) and (b) above is prepared in accordance with GAAP and consistently applied. 9.2.4 Party B will ensure that: (a) the maximum liability to assets ratio, as determined by reference to its relevant financial statements delivered to Party A in accordance with clause 9.2.3 above, (1) for each of the financial years of 2004 and 2005 will not exceed 0.75 and (2) in each financial year thereafter, will not exceed 0.7. Liability to assets ratio means, in relation to any financial year of Party B, the ratio of Party B's total liability to its total assets, as determined by reference to its relevant financial statements delivered to Party A in accordance with clause 9.2.3 above; (b) the minimum ratio of interest cover, as determined by reference to its relevant financial statements delivered to Party A in accordance with clause 9.2.3 above, will not be lower than 2 in each year from and including 2005. In relation to any financial year, interest cover means the ratio of EBITDA to the interest expense of Party B for that year. EBITDA means the total operating profit of Party B for that financial year: (1) before taking into account:- (i) interest expense; (ii) tax; (iii) all extraordinary and exceptional items; 11 (iv) foreign exchange gains or losses; and (2) after adding back all amounts provided for depreciation and amortisation (to the extent already deducted in determining operating profit), in each case as determined by reference to the relevant financial statements delivered by Party B to Party A under clause 9.2.3 above. 9.2.5 The Loans borrowed by Party B under this Agreement will be fully used for the purposes of the Project as set out in clause 2.1 and Party B will not change such use without Party A's consent. 9.2.6 Party B will not to sell, transfer, distribute or dispose of all or a material part of its business or assets, except Permitted Disposals. 9.2.7 Party B will not create security over any of its present or future assets or provide security of any nature for the liability of any third party, in each case except Permitted Security. 9.2.8 Party B will maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against such risk and to such extent as is usual for prudent companies carrying on a business such as that carried on by Party B and Party B shall not terminate such insurances for any reason. If Party B terminates the insurances, Party A is entitled to continue or effect such insurances on its behalf as may be reasonably necessary for Party B's business and the relevant expenses shall be borne by Party B. 9.2.9 The liabilities of Party B to Party A under this Agreement shall rank at least pari passu with the liabilities of Party B to other unsecured creditors save those whose claims are preferred by law. 9.2.10 Party B shall not declare any Dividends in any year if: (a) it has no Net Profit in that year; (b) its Net Profit in that year does not exceed its Accumulated Losses; (c) it has not fully repaid all principal and interest under this Agreement that have fallen due up to the date of payment of the relevant Dividends; or (d) the cashflow amount before distribution of Dividends is insufficient to meet the needs of further investments as shown in the Annual Cash Flow Forecast. In this clause 9.2.10: "ACCUMULATED LOSSES" means the accumulated losses described as such in, or determined by reference to, the relevant financial statements of Party B; "ANNUAL CASH FLOW FORECAST" means the annual cash flow forecast, as amended 12 from time to time, delivered by Party B to Party A; "DIVIDENDS" means any dividends or other distributions (including by way of bonus) out of profits to the investors of Party B; "NET PROFIT" means the net profit described as such in the relevant financial statements of Party B. 9.2.11 Party B will procure that Maxtor Corporation directly or indirectly beneficially owns 50.1% or more of the paid up registered capital of Party B, so as to give Maxtor Corporation a controlling interest in Party B. 9.2.12 Party B shall promptly notify Party A by written notice in the event that (1) Party B's registered capital is reduced or materially changed (including, but not limited to, reduction of capital, except where Party B has fully repaid principal and paid interest which has fallen due in the relevant year and is able to satisfy the needs of capitalization of profits in accordance with the Capital Injection Schedule), (2) Party B is the subject of a merger (except a restructuring of the Group or where Party B is the surviving entity in such merger), or where Party B takes any steps for its dissolution, bankruptcy or cessation of business or (3) there is the occurrence of an Event of Default. 9.2.13 Party B shall provide a Capital Verification Report as soon as reasonably practicable after each capital injection. The Capital Verification Report shall be conclusive evidence in respect of the paid up registered capital except that Party B shall be entitled to provide other evidence to the reasonable satisfaction of Party A whenever the relevant Capital Verification Report is not available for any reason. In the case of material change to the schedule below, Party A and Party B shall consult each other amicably on the principle of equality, mutuality and good faith. The initial injection schedule for the registered capital is set out below.
- --------------------------------------------------------------------------- EQUIPMENT CASH INJECTION CONTRIBUTION YEAR (US$10,000) (US$10,000) - --------------------------------------------------------------------------- 2003 1000 - --------------------------------------------------------------------------- 2004 500 1179.7 - --------------------------------------------------------------------------- 2005 1533.6 - --------------------------------------------------------------------------- 2006 2000 - --------------------------------------------------------------------------- 2007 457 - --------------------------------------------------------------------------- Total 6670.3 - ---------------------------------------------------------------------------
The above schedule may be amended from time to time by Party B and will not affect Party B's utilization of the Facilities. Party B shall however ensure that the ratio of (1) the total amounts of the Loans to (2) the total amount of its paid up 13 registered capital will not exceed 2:1 at any time before Party B has fully repaid all Loans and paid interest thereon. 9.2.14 Party B will sign and deliver to Party A a Loan Receipt in respect of each Loan upon receiving the proceeds of that Loan from Party A. CLAUSE 10 EVENTS OF DEFAULT AND REMEDY Upon the occurrence of any of the following events to Party B, unless remedial action is taken within 90 days to the reasonable satisfaction of Party A (except an event under sub-clause 10.1 below), Party A is entitled to cancel the undrawn portion of the Facilities and/or declare all Loans and interest accrued thereon under this Agreement to be immediately due and payable on demand of Party A: 10.1 Party B fails to repay principal of any Loan under this Agreement after 5 days of its due date or fails to pay interest under this Agreement after 10 days of its due date; 10.2 an event of default occurs under an FELA; 10.3 any material loss of or damage to Party B's major assets or business which will have a Material Adverse Effect; 10.4 Party B ceases to carry on its business or threatens to cease to carry on its business; 10.5 substantial change to the scope of the business of Party B, as set out in its business licence which will have a Material Adverse Effect; 10.6 any action is taken or legal proceedings are started for the bankruptcy or liquidation of Party B except where Party B in good faith takes steps to dismiss such action or proceedings; 10.7 any material legal proceedings involving Party B or its assets which will have a Material Adverse Effect (except where Party B in good faith takes steps to defend such proceedings); 10.8 any representation made by Party B in this Agreement is or proves to be incorrect in any material respect when made; or 10.9 Party B fails to perform or comply with any covenants in clause 9.2 in any material respect. CLAUSE 11 PERFORMANCE OF AGREEMENT Party A and Party B will use all reasonable effort to further strengthen their connection, provide information to each other, supervise and procure the full performance of this Agreement together. CLAUSE 12 AMENDMENT AND TERMINATION This Agreement may be amended, supplemented or discharged by agreement in writing of Party A and Party B. The amendment to and supplement of this Agreement form part of this Agreement and shall have equal force and effect to this Agreement. 14 CLAUSE 13 SET-OFF, ASSIGNMENT AND RESERVATION OF RIGHTS 13.1 No party shall purport to exercise any right of set-off. No party shall assign its obligations under this Agreement to any third party without the written consent of the other party. 13.2 No indulgence, allowance, preference to Party B or delay in exercising any right under this Agreement by Party A shall effect, impair or restrict any right or benefit of Party A under this Agreement, the law or the regulations, and shall not operate as a waiver by Party A of its rights and benefit under this Agreement and shall not discharge Party B from any obligation that it shall perform under this Agreement. CLAUSE 14 COMMENCEMENT OF AGREEMENT This Agreement shall take effect on the date on which the authorised signatories of both parties sign, put the official chops on and date this Agreement. CLAUSE 15 SPECIAL NOTE Party A and Party B have sufficiently consulted each other on all the terms of this Agreement. Each of Party A and Party B has paid special attention to all terms concerning the rights and obligations of both parties and understands the same thoroughly and accurately. Party A's and Party B's understanding of the terms of this Agreement are fully consistent. The Loan Documents involve commercial secret, each party shall keep the Loan Documents confidential provided that each party may disclose any information about the Loan Documents and/or the transactions thereunder (1) if disclosure is required by law or regulations, (2) to its professional advisers, (3) to any member of the Group (in the case of Party B) or to any member of Bank of China (in the case of Party A) and (4) to third parties who have given a confidentiality undertaking to Party A or, as the case may be, Party B. CLAUSE 16 GOVERNING LAW, DISPUTE RESOLUTION AND JURISDICTION 16.1 The formation, validity, interpretation and implementation of this Agreement shall be governed by the published and publicly available laws of the PRC, but in the event there is no published law in the PRC governing a particular matter relating to this Agreement, reference shall be made to general international commercial practices. 16.2 Any question, dispute or difference between the parties arising from the formation, performance or otherwise in connection with this Agreement shall first be resolved through amicable negotiation and friendly consultation between the parties, as follows: 16.2.1 either party may at any time give a written notice (the "FIRST NOTICE") to the other requesting for resolution of the question, dispute or difference through negotiation and consultation; 16.2.2 within fourteen (14) days of the First Notice, each party shall cause a senior executive to meet and confer at such time and venue as may be convenient to the parties, with a view to resolving the question, dispute or difference; 16.2.3 if the question, dispute or difference cannot be resolved by the parties within thirty 15 (30) days of the First Notice, either party may give a written notice (the "SECOND NOTICE") to the other requesting for a meeting between the respective chief executive officer (in the case of Party A, the president of the bank branch; and in the case of Party B, its general manager) of the parties; and 16.2.4 within fourteen (14) days of the Second Notice, each party shall cause its chief executive officer (in the case of Party A, the president of the bank branch; and in the case of Party B, its general manager) to meet and confer at such time and venue as may be convenient to the parties, with a view to resolving the question, dispute or difference. 16.3 If no resolution is reached within ninety (90) days of the First Notice, the question, dispute or difference shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") Beijing Branch in Beijing for final resolution by arbitration in accordance with the rules and procedures of CIETAC supplemented by the following: 16.3.1 the arbitration shall be conducted in the English and Chinese languages. There shall be three (3) arbitrators, all of whom shall be fluent in English and Chinese and shall have experience in handling cases involving the borrowing of loans by foreign invested enterprises from domestic banks in the PRC; 16.3.2 the English-language text and Chinese-language text of this Agreement shall be the reference text for the arbitrators; 16.2.3 the arbitration award shall be final and binding on the parties, and the parties agree to be bound thereby and to act accordingly; and 16.2.4 the costs of the arbitration (including the arbitration fees and lawyers' fees) shall be borne by the losing party. CLAUSE 17 COMMUNICATIONS 17.1 Any notice, request, letter or other document sent to either party in accordance with this Agreement shall be in writing and shall be sent to the address, telex number or fax number designated from time to time by the recipient in writing and marked for the attention of the contact person (if any). The initial address, telex number and fax number and contact person (if any) of each party are set out on the signing page of this Agreement, which shall be effective until notice of change is given under clause 17.3 below. 17.2 Each communication between the parties under this Agreement which is made in accordance with this Agreement shall be deemed to have been received by the recipient and effective if such communication satisfies the following conditions: 17.2.1 if delivered by courier, at the time of actual delivery; 17.2.2 if sent by telex or fax, at the time of the completion of transmission and upon receiving the accurate confirmation or fax transmission report; 17.2.3 if sent by post, at noon on the date falling 7 days after posting by registered post to the correct address. 16 17.3 Each party under this Agreement shall promptly notify the other party in writing of change to its address, telex number or fax number after such change. 17.4 A communication by Party B to either Suzhou Branch or SIP Sub-branch shall be deemed to be a communication to both of them. CLAUSE 18 MISCELLANEOUS 18.1 This Agreement has both Chinese version and English version, may be executed in any number of counterparts and will have equal force and effect. 18.2 The liabilities of Suzhou Branch and SIP Sub-branch under this Agreement is joint and several and they shall exercise their rights jointly. 18.3 Each of the provisions of this Agreement shall be severable and distinct from one another and if at any time any one or more of those provisions (or any part) is or becomes invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. 18.4 Notwithstanding any other provisions of this Agreement, or any of the other Loan Documents: 18.4.1 in the event of any conflict or inconsistency between this Agreement and any provisions of any other Loan Documents, this Agreement shall prevail; 18.4.2 without prejudice to the foregoing, this Agreement shall control the terms of the Total Commitment and each Loan made thereunder, notwithstanding the terms of the FELA (or any other Loan Document) which is entered into in relation to such Loan or any other Loan(s); and 18.4.3 no amendment or waiver (whether by course of conduct or by any purported amendment or waiver of any of the Loan Documents or otherwise) which relates to, or affects, this clause 18.4 will be effective unless made in writing by Party A and Party B with specific reference to this clause 18.4. 17 SIGNATURE PAGE Party A : Bank of China Suzhou Branch (official chop) Address : No. 188, West Ganjiang Road, Suzhou, the PRC Post Code : 215002 Tel No. : 0086-0512-65113558 Fax No. : 0086-0512-65113558 Legal representative or authorised signatory: /s/ [ILLEGIBLE] Date : 2003.4.15 - --------------- [SEAL] Party A : Bank of China Suzhou Industrial Park Sub-branch (official chop) Address : No. 328, Dong Huan Road, Suzhou, the PRC Post Code : 215021 Tel No. : 0086-0512-67266217 Fax No. : 0086-0512-67262706 Legal representative or authorised signatory: /s/ [ILLEGIBLE] Date : April 15, 2003 - --------------- [SEAL] 18 Party B : Maxtor Technology (Suzhou) Co., Ltd. (official chop) Address : The Suzhou Industrial Park of the People's Republic of China Post Code : 215002 Tel No. : 65-64801850 Fax No. : 65-6-64801852 Legal representative or authorised signatory: /s/ [ILLEGIBLE] Date : April 10, 2003 - --------------- [SEAL] With copy to: To : c/o Maxtor Corporation Recipient : Glenn H. Stevens, General Counsel Address : 2452 Clover Basin Drive, Longmont, CO 80503, United States of America Fax No. : 1-303-678-3111 19 APPENDIX 1 : FORM OF LOAN NOTIFICATION (CHINESE) LOAN NOTIFICATION To : Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch Date : Matter : Utilization of commitment amount under the Master Financing Agreement Dear Sirs: 1. We refer to the Master Financing Agreement in relation to a Total Commitment of US$133,000,000.00 entered into between Maxtor Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch on _________2003 (hereinafter called "AGREEMENT"). Terms and conditions defined in the Agreement shall have the same meaning in this notice. 2. This Notification is irrevocable. 3. We hereby notify you that we wish to utilize the Loan(s) in the aggregate amount of US$ _____, such amount to be allocated under the Facility(ies) and utilized on the date(s) as shown in the [attached Utilization Plan for year 20[ ]] / [the latest Utilization Plan provided to you]*. Such Utilization Plan may be amended by us in accordance with clause 2.3 of the Agreement. 4. We confirm that the Loan(s) will be used for the purposes set out in the Agreement which are also to be specifically set out in the FELA(s) to be entered into between you and us in respect of the Loan(s). 5. We confirm that the representations under clause 9.1 (except clause 9.1.3) of the Agreement will be true and accurate on and as of the Utilization Date of each Loan. 6. We confirm that no Event of Default or Potential of Event of Default is continuing as at the date of this notice. Signed by authorised signatory Official chop (Maxtor Technology (Suzhou) Co., Ltd.) * delete as appropriate 20 APPENDIX 2 : FORM OF FOREIGN EXCHANGE LOAN AGREEMENT (CHINESE) FOREIGN EXCHANGE LOAN AGREEMENT NO. BORROWER: Maxtor Technology (Suzhou) Co., Ltd. Enterprise legal person business licence number: Legal representative: Financial institution name and account number: [Bank of China Suzhou [ ] Branch] [Account no.: ] Address: Contact method: LENDER: [Name of Branch] Legal representative or person in charge: Address: Contact method: A. DEFINITIONS In this Agreement: "AVAILABILITY PERIOD" means a period of 12 months commencing on (and including) the date of this Agreement; "CAPITAL INJECTION SCHEDULE" means the injection schedule of the registered capital of the Borrower set out in clause 10.2.13, as may be adjusted from time to time by the Borrower under such clause; "CAPITAL VERIFICATION REPORT" means each report prepared and issued by an accountant qualified in the PRC appointed by the Borrower in relation to the injection of the registered capital of the Borrower; "COMFORT LETTER" means the comfort letter given by Maxtor Corporation to the Lender before the date of this Agreement; 21 "COMMITMENT" means US$ __________(1), as may be adjusted, cancelled or utilized in accordance with this Agreement; "DRAWDOWN NOTICE" means the drawdown notice in the form set out in appendix A to this Agreement; "EBITDA" has the meaning given to such expression in clause 10.2.4(b); "EVENT OF DEFAULT" means any one of the events specified in clause 11; "FACILITY" means the loan facility in an aggregate amount equal to the Commitment irrevocably made available by the Lender to the Borrower; "FINAL MATURITY DATE" means _________(2); "GAAP" means the generally accepted accounting standards, principles and practices in the PRC; "GOVERNMENT AGENCY" means any government or any governmental agency, semi-governmental or judicial entity or authority; "GROUP" means Maxtor Corporation and its directly and indirectly owned subsidiaries; "INTEREST CALCULATION DATE" means, in relation to an Interest Period, one day prior to the first day of that Interest Period; "INTEREST PAYMENT DATE" means each of the days which fall on (1) _________(3) and (2) each semi-annual anniversary after such date, provided that on the relevant day any Loan is outstanding; "INTEREST PERIOD" means any of those periods mentioned in clause 4.1 and any other period by reference to which interest on a Loan or any unpaid sum is calculated; "LIBOR" means, in relation to any Loan or unpaid sum and any Interest Period relating to it, the rate per annum equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent.) of the respective rates of each of the banks whose rates appear on the screen page designated "LIBO" (or any equivalent successor to such page) published or reported by Reuters Limited on the Reuters monitor screen as the rate at which such banks are offering in the London Inter-Bank Market deposits in US dollars for a period comparable to such Interest Period at or about 11.00 a.m. (London time) on the Interest Calculation Date for such Interest Period, provided that where such Interest Period is 3 months or less, the comparable period shall be taken to be 3 months or, where such Interest Period is greater than 3 months, the comparable period shall be 6 months; "LOAN" means a loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan; - ---------------------- (1) complete as appropriate (2) complete as appropriate, 10 years after date of MFA (3) complete as appropriate, first Interest Payment Date 22 "LOAN RECEIPT" means a loan receipt in the form set out in appendix B; "MARGIN" means (1) 0.5% per annum if LIBOR is equal to or lower than 3.12% per annum on the relevant Interest Calculation Date or (2) 0.6% per annum if LIBOR is higher than 3.12% per annum on the relevant Interest Calculation Date; "MATERIAL ADVERSE EFFECT" means a material adverse effect on the ability of the Borrower to perform its payment obligations under this Agreement; "MAXTOR CORPORATION" means Maxtor Corporation, a company incorporated in accordance with the laws of the State of Delaware, United States of America; "NEGATIVE PLEDGE LETTER" means the negative pledge letter given by the Borrower to the Lender before the date of this Agreement; "PERMITTED DISPOSALS" means any sale, lease, licence, transfer or other disposal of (1) products, inventory or other assets made in the ordinary course of trade or business of the Borrower, including in the ordinary course of any business permitted by law, (2) receivables by factoring or any other means of receivables financing, (3) obsolete or worn-out assets, (4) land, plant, equipment or machinery in exchange for other land, plant, equipment or machinery comparable or superior in type, value or quality, (5) any machinery or equipment on arms length terms for fair market value or (6) assets of a value not exceeding US$ 5,000,000 by reference to their net book value, in any financial year or (7) tangible or intangible assets under transactions between companies in the Group pursuant to which the Borrower receives consideration equal to or greater than the fair market value of the relevant assets at the time of such disposal; "PERMITTED INDEBTEDNESS" means (1) financial indebtedness under the Loan Documents, (2) any indebtedness or liability of the Borrower arising out of or in connection with the ordinary course of trade or business of the Borrower, including in the ordinary course of any business permitted by law, (3) any indebtedness arising under any leasing or hire purchase arrangements, (4) any financial arrangements undertaken for the purpose of hedging or managing foreign currency exposure, interest rate fluctuations or other financial risks, (5) any indebtedness of the Borrower not exceeding US$ 5,000,000 outstanding at any time, or (6) any indebtedness owed to, or arising out of transactions involving, any companies in the Group pursuant to which the Borrower acquires any assets the fair market value of which is equal to or greater than such indebtedness at the time of incurring such indebtedness; "PERMITTED SECURITY" means (1) any security imposed by law or any security of any nature arising out of or in connection with the ordinary course of trade or business of the Borrower, including in the ordinary course of any business permitted by law, (2) any security deposit provided to any Government Agency or utility company in relation to the Project or the operation of the Borrower's business, (3) any security of any nature securing liabilities not exceeding US$5,000,000 outstanding at any time or (4) security of any nature arising out of investments made in the PRC by the Borrower or transactions between or involving domestic PRC companies in the Group; "POTENTIAL EVENT OF DEFAULT" means any event which may become (with the passage of time, the giving of notice, the satisfaction of any condition or any combination of them) an Event of Default; "PRC" means the People's Republic of China; 23 "PROJECT" means the establishment and operation of a hard disk drive manufacturing plant at the Suzhou Industrial Park of the PRC by the Borrower; ["REPAYMENT DATE" means each of the days which (1) fall on _________(4) and (2) each semi-annual anniversary after such date up to and including ___________(5)]](6); "UTILIZATION DATE" means the date on which a Loan is, or is to be, made available by the Lender to the Borrower. B. AIDS TO CONSTRUCTION Save where the contrary is indicated, any reference in this Agreement to: a "BUSINESS DAY" shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in the PRC or, if such reference relates to the date for the payment or purchase of any sum denominated in US dollars, New York, London and the PRC or, if such reference relates to a day on which LIBOR is to be determined, London; any DOCUMENT or AGREEMENT (including, without limitation, this Agreement) shall be construed as a reference to such document or agreement as amended, novated, supplemented, substituted, varied or replaced from time to time. CLAUSE 1 CURRENCY AND AMOUNT The currency of the Loan(s) shall be US dollars. The total amount of the Loan(s) under this Agreement is (in words) __________ (in figure) US$ _________.(7) CLAUSE 2 TERM The term of each Loan commences on its Utilization Date and ends on the Final Maturity Date/the last Repayment Date(8) of the Loan as set out in clause 8. CLAUSE 3 PURPOSES The purposes of the Loan(s) under this Agreement are to provide finance to the Borrower for plant construction/equipment and machinery and projects other than plant construction/general - ------------------- (4) complete only in the case of Tranche A and Tranche B2 Loans, 54 months after date of MFA (5) complete only in the case of Tranche A and Tranche B2 Loans, 8 years after date of MFA (6) delete in the case of Tranche B1 Loans, complete in the case of other Loans (7) complete as appropriate (8) delete as appropriate 24 working capital needs(9). The Borrower will not change the purposes of the Loan(s) without the consent of the Lender. CLAUSE 4 INTEREST RATE AND INTEREST 4.1 The first Interest Period of each Loan shall start on the Utilization Date for that Loan. The period for which a Loan is outstanding shall be divided into successive Interest Periods each of which (other than the first) shall start on the last day of the preceding Interest Period. 4.2 The duration of each Interest Period shall, save as otherwise provided in this Agreement, be six months, provided that: 4.2.1 the first Interest Period for a Loan shall end on the immediately following Interest Payment Date for that Loan; 4.2.2 any Interest Period which would otherwise end before, or extend beyond, the Final Maturity Date/a Repayment Date(10) shall be of such duration that it shall end on that date. 4.3 If two or more Interest Periods in respect of different Loans end at the same time then, the Borrower may make one single payment in respect of all interest due on such Loans on the relevant Interest Payment Date. 4.4 On each Interest Payment Date the Borrower shall pay accrued interest on the Loan(s). 4.5 Save as otherwise provided in this Agreement, the rate of interest applicable to each Loan from time to time during an Interest Period relating to that Loan shall be the rate per annum which is the sum of the Margin and LIBOR for such Interest Period. 4.6 The rate of interest applicable to any sum payable under this Agreement which the Borrower fails to pay when due in accordance with the terms of this Agreement shall be the rate per annum which is the sum from time to time of two per cent. (2%) per annum, the Margin and LIBOR for the relevant Interest Period. 4.7 The Lender will give notice to the Borrower if on the Interest Calculation Date for any Interest Period no banks have quotations of LIBOR appearing on the Reuters screen at the relevant time. 4.8 If a notice is given under clause 4.7 then within five days of such notice the Lender and the Borrower shall enter into amicable negotiations and friendly consultation with a view to agreeing a substitute basis (1) for determining the rates of interest from time to time applicable to the Loan(s) and/or (2) upon which the Loan(s) may be maintained (whether in US dollars or some other currency) and any such substitute basis that is agreed shall take effect in accordance with its terms and be binding on each party to this Agreement. Unless and until any substitute basis is agreed, the rate of interest applicable - ------------------- (9) delete as appropriate (10) delete as appropriate 25 to the Loans shall be the rate equal to the interest rate which was determined in respect of the immediate preceding Interest Period. If no substitute basis is agreed, the Borrower shall be entitled to repay the Loan(s) and all interest accrued thereon to the Lender. CLAUSE 5 DRAWDOWN CONDITIONS The Borrower may utilize the Facility by way of a Loan in accordance with the terms of this Agreement if: 5.1 Not less than 3 business days before the Utilization Date, the Borrower delivers to the Lender a Drawdown Notice duly completed and signed by the Borrower with its official chop impressed thereon; 5.2 the proposed Utilization Date is a business day which falls within the Availability Period; 5.3 the proposed amount of the Loan is a minimum of US$1,000,000 and a multiple of US$500,000 which is less than the Commitment; 5.4 no Event of Default or Potential Event of Default is continuing on the proposed Utilization Date; and 5.5 the representations set out in clause 10.1 (except clause 10.1.3) are true and accurate on and as of the proposed Utilization Date; and immediately upon the making of such Loan, the Commitment shall be reduced accordingly. The Commitment shall be reduced to zero at the end of the Availability Period or earlier if fully cancelled or utilized in accordance with the terms of this Agreement. CLAUSE 6 TIME OF DRAWDOWN The Utilization Date of each Loan is or is to be set out in the Drawdown Notice for that Loan which has been or is to be delivered to the Lender by the Borrower. CLAUSE 7 DRAWDOWN PROCEDURE The Borrower shall comply with the procedure under clause 5 of this Agreement for the drawdown of each Loan. CLAUSE 8 REPAYMENT 8.1 Subject to clause 8.2 below, the Borrower shall repay all Loans [in full on Final Maturity Date](11) [in 8 equal instalments, one on each Repayment Date](12) - ------------------ (11) delete in the case of Tranche A and Tranche B2 Loans (12) delete in the case of Tranche B1 Loans 26 8.2 The Borrower may prepay the whole or any part of any Loan on an Interest Payment Date by giving the Lender not less than 10 business days' prior written notice to that effect, provided that the prepayment shall be a minimum of US$10,000,000 and a multiple of US$1,000,000. Any prepayment shall satisfy the Borrower's repayment obligations in respect of the Loans under clause 8.1 in inverse chronological order. 8.3 During the Availability Period, the Borrower may cancel the whole or any part of the Commitment (in a minimum amount of US$10,000,000 and of a multiple of US$1,000,000) by giving the Lender not less than 10 business days' prior written notice. CLAUSE 9 COMFORT LETTER AND NEGATIVE PLEDGE LETTER The Borrower has delivered to the Lender the Comfort Letter and the Negative Pledge Letter. CLAUSE 10 REPRESENTATIONS AND COVENANTS 10.1 The Borrower represents to the Lender as follows: 10.1.1 The Borrower is duly incorporated and existing in accordance with the laws of the PRC. 10.1.2 The Borrower has obtained all board authorisations necessary for the signing of this Agreement. 10.1.3 To the knowledge of the Borrower, the Borrower has not failed to disclose any of the following events which is occurring and has a Material Adverse Effect: (a) major breach by the Borrower of law or regulations applicable to the Borrower; (b) the Borrower incurring or having indebtedness (except Permitted Indebtedness) or providing mortgage or pledge security (except Permitted Security) in favour of third parties; (c) current litigation or arbitration involving the Borrower which, if successful, will result in a liability of the Borrower of more than the greater of (1) US$2,000,000 or (2) 10% of the then paid up registered capital of the Borrower; (d) other events that will have a Material Adverse Effect. 10.2 The Borrower covenants with the Lender as follows: So long as the Borrower has not fully repaid the Loan(s) under this Agreement: 10.2.1 The Lender will be the Borrower's major bank for its deposit, domestic settlement, international settlement and other intermediary businesses and identify the Lender as its major bank for business co-operation, provided that the Lender's terms and quality of service are at least equivalent to terms and quality offered by other financial institutions operating in Jiangsu Province. 27 10.2.2 The Borrower will obtain, comply with the terms of and maintain in force and effect all approvals and licences required in or by any law or regulations of the PRC to enable it to lawfully enter into and perform its obligations under this Agreement and to operate its business. 10.2.3 The Borrower shall: (a) within 180 days after the end of each of its financial years, deliver to the Lender one set of its audited financial statements for such financial year; (b) within 30 days after the end of each quarter (being the end of each of the Borrower's fiscal quarters) in each of its financial years, deliver to the Lender one set of its unaudited financial statements for such period; (c) provide to the Lender such information about the Borrower's financial condition as the Lender may reasonably require; and (d) ensure that each set of financial statements delivered by it pursuant to sub-clauses (a) and (b) above is prepared in accordance with GAAP and consistently applied. 10.2.4 The Borrower will ensure that: (a) the maximum liability to assets ratio, as determined by reference to its relevant financial statements delivered to the Lender in accordance with clause 10.2.3 above, (1) for each of the financial years of 2004 and 2005 will not exceed 0.75 and (2) in each financial year thereafter, will not exceed 0.7. Liability to assets ratio means, in relation to any financial year of the Borrower, the ratio of the Borrower's total liability to its total assets, as determined by reference to its relevant financial statements delivered to the Lender in accordance with clause 10.2.3 above; (b) the minimum ratio of interest cover, as determined by reference to its relevant financial statements delivered to the Lender in accordance with clause 10.2.3 above, will not be lower than 2 in each year from and including 2005. In relation to any financial year, interest cover means the ratio of EBITDA to the interest expense of the Borrower for that year. EBITDA means the total operating profit of the Borrower for that financial year: (1) before taking into account:- (i) interest expense; (ii) tax; (iii) all extraordinary and exceptional items; (iv) foreign exchange gains or losses; and (2) after adding back all amounts provided for depreciation and 28 amortisation (to the extent already deducted in determining operating profit), in each case as determined by reference to the relevant financial statements delivered by the Borrower to the Lender under clause 10.2.3 above. 10.2.5 The Loan(s) borrowed by the Borrower under this Agreement will be fully used for the purposes of the Project as set out in clause 3 and the Borrower will not change such use without the Lender's consent. 10.2.6 The Borrower will not to sell, transfer, distribute or dispose of all or a material part of its business or assets, except Permitted Disposals. 10.2.7 The Borrower will not create security over any of its present or future assets or provide security of any nature for the liability of any third party, in each case except Permitted Security. 10.2.8 The Borrower will maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against such risk and to such extent as is usual for prudent companies carrying on a business such as that carried on by the Borrower and the Borrower shall not terminate such insurances for any reason. If the Borrower terminates the insurances, the Lender is entitled to continue or effect such insurances on its behalf as may be reasonably necessary for the Borrower's business and the relevant expenses shall be borne by the Borrower. 10.2.9 The liabilities of the Borrower to the Lender under this Agreement shall rank at least pari passu with the liabilities of the Borrower to other unsecured creditors save those whose claims are preferred by law. 10.2.10 The Borrower shall not declare any Dividends in any year if: (a) it has no Net Profit in that year; (b) its Net Profit in that year does not exceed its Accumulated Losses; (c) it has not fully repaid all principal and interest under this Agreement that have fallen due up to the date of payment of the relevant Dividends; or (d) the cashflow amount before distribution of Dividends is insufficient to meet the needs of further investments as shown in the Annual Cash Flow Forecast. In this clause 10.2.10: "ACCUMULATED LOSSES" means the accumulated losses described as such in, or determined by reference to, the relevant financial statements of the Borrower; "ANNUAL CASH FLOW FORECAST" means the annual cash flow forecast, as amended from time to time, delivered by the Borrower to the Lender; 29 "DIVIDENDS" means any dividends or other distributions (including by way of bonus) out of profits to the investors of the Borrower; "NET PROFIT" means the net profit described as such in the relevant financial statements of the Borrower. 10.2.11 The Borrower will procure that Maxtor Corporation directly or indirectly beneficially owns 50.1% or more of the paid up registered capital of the Borrower, so as to give Maxtor Corporation a controlling interest in the Borrower. 10.2.12 The Borrower shall promptly notify the Lender by written notice in the event that (1) the Borrower's registered capital is reduced or materially changed (including, but not limited to, reduction of capital, except where the Borrower has fully repaid principal and paid interest which has fallen due in the relevant year and is able to satisfy the needs of capitalization of profits in accordance with the Capital Injection Schedule), (2) the Borrower is the subject of a merger (except a restructuring of the Group or where the Borrower is the surviving entity in such merger), or where the Borrower takes any steps for its dissolution, bankruptcy or cessation of business or (3) there is the occurrence of an Event of Default. 10.2.13 The Borrower shall provide a Capital Verification Report as soon as reasonably practicable after each capital injection. The Capital Verification Report shall be conclusive evidence in respect of the paid up registered capital except that the Borrower shall be entitled to provide other evidence to the reasonable satisfaction of the Lender whenever the relevant Capital Verification Report is not available for any reason. In the case of material change to the schedule below, the Lender and the Borrower shall consult each other amicably on the principle of equality, mutuality and good faith. The initial injection schedule for the registered capital is set out below. - --------------------------------------------------------- CASH INJECTION EQUIPMENT CONTRIBUTION YEAR (US$10,000) (US$10,000) - --------------------------------------------------------- 2003 1000 - --------------------------------------------------------- 2004 500 1179.7 - --------------------------------------------------------- 2005 1533.6 - --------------------------------------------------------- 2006 2000 - --------------------------------------------------------- 2007 457 - --------------------------------------------------------- Total 6670.3 - ---------------------------------------------------------
The above schedule may be amended from time to time by the Borrower and will not affect the Borrower's utilization of the Facility. 30 10.2.14 The Borrower will sign and deliver to the Lender a Loan Receipt in respect of each Loan upon receiving the proceeds of that Loan from the Lender. CLAUSE 11 EVENTS OF DEFAULT AND REMEDY Upon the occurrence of any of the following events to the Borrower, unless remedial action is taken within 90 days to the reasonable satisfaction of the Lender (except an event under sub-clause 11.1 below), the Lender is entitled to cancel the undrawn portion of the Facility and/or declare all Loan(s) and interest accrued thereon under this Agreement to be immediately due and payable on demand of the Lender: 11.1 the Borrower fails to repay principal of any Loan under this Agreement after 5 days of its due date or fails to pay interest under this Agreement after 10 days of its due date; 11.2 any material loss of or damage to the Borrower's major assets or business which will have a Material Adverse Effect; 11.3 the Borrower ceases to carry on its business or threatens to cease to carry on its business; 11.4 substantial change to the scope of the business of the Borrower, as set out in its business licence which will have a Material Adverse Effect; 11.5 any action is taken or legal proceedings are started for the bankruptcy or liquidation of the Borrower except where the Borrower in good faith takes steps to dismiss such action or proceedings; 11.6 any material legal proceedings involving the Borrower or its assets which will have a Material Adverse Effect (except where the Borrower in good faith takes steps to defend such proceedings); 11.7 any representation made by the Borrower in this Agreement is or proves to be incorrect in any material respect when made; or 11.8 the Borrower fails to perform or comply with any covenants in clause 10.2 in any material respect. CLAUSE 12 TAX AND EXPENSES All relevant tax and expenses, including but not limited to stamp duty, interest tax, court fees, enforcement fees, legal representation fees, notarisation fees in relation to the formation and performance of this Agreement and dispute resolution under this Agreement shall be shared by the Borrower and the Lender in accordance with the relevant regulation. CLAUSE 13 SET-OFF, ASSIGNMENT AND RESERVATION OF RIGHTS 13.1 No party shall purport to exercise any right of set-off. No party shall assign its obligations under this Agreement to any third party without the written consent of the other party. 13.2 No indulgence, allowance, preference to the Borrower or delay in exercising any right 31 under this Agreement by the Lender shall effect, impair or restrict any right or benefit of the Lender under this Agreement, the law or the regulations, and shall not operate as a waiver by the Lender of its rights and benefit under this Agreement and shall not discharge the Borrower from any obligation that it shall perform under this Agreement. CLAUSE 14 AMENDMENT AND TERMINATION This Agreement may be amended, supplemented or discharged by agreement in writing of both parties. The amendment to and supplement of this Agreement form part of this Agreement and shall have equal force and effect to this Agreement. CLAUSE 15 GOVERNING LAW, DISPUTE RESOLUTION AND JURISDICTION 15.1 The formation, validity, interpretation and implementation of this Agreement shall be governed by the published and publicly available laws of the PRC, but in the event there is no published law in the PRC governing a particular matter relating to this Agreement, reference shall be made to general international commercial practices. 15.2 Any question, dispute or difference between the parties arising from the formation, performance or otherwise in connection with this Agreement shall first be resolved through amicable negotiation and friendly consultation between the parties, as follows: 15.2.1 either party may at any time give a written notice (the "FIRST NOTICE") to the other requesting for resolution of the question, dispute or difference through negotiation and consultation; 15.2.2 within fourteen (14) days of the First Notice, each party shall cause a senior executive to meet and confer at such time and venue as may be convenient to the parties, with a view to resolving the question, dispute or difference; 15.2.3 if the question, dispute or difference cannot be resolved by the parties within thirty (30) days of the First Notice, either party may give a written notice (the "SECOND NOTICE") to the other requesting for a meeting between the respective chief executive officer (in the case of the Lender, the president of the bank branch; and in the case of the Borrower, its general manager) of the parties; and 15.2.4 within fourteen (14) days of the Second Notice, each party shall cause its chief executive officer (in the case of the Lender, the president of the bank branch; and in the case of the Borrower, its general manager) to meet and confer at such time and venue as may be convenient to the parties, with a view to resolving the question, dispute or difference. 15.3 If no resolution is reached within ninety (90) days of the First Notice, the question, dispute or difference shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") Beijing Branch in Beijing for final resolution by arbitration in accordance with the rules and procedures of CIETAC supplemented by the following: 15.3.1 the arbitration shall be conducted in the English and Chinese languages. There shall be three (3) arbitrators, all of whom shall be fluent in English and Chinese and shall have experience in handling cases involving the borrowing 32 of loans by foreign invested enterprises from domestic banks in the PRC; 15.3.2 the English-language text and Chinese-language text of this Agreement shall be the reference text for the arbitrators; 15.2.3 the arbitration award shall be final and binding on the parties, and the parties agree to be bound thereby and to act accordingly; and 15.2.4 the costs of the arbitration (including the arbitration fees and lawyers' fees) shall be borne by the losing party. CLAUSE 16 COMMENCEMENT OF AGREEMENT This Agreement shall take effect after the authorised signatories of both parties have signed, impress their respective official chops on and day this Agreement. This Agreement is in both Chinese and English and executed in four counterparts, each of the Borrower and the Lender keeps two counterparts, all with equal force and effect. CLAUSE 17 SPECIAL NOTE The Lender and the Borrower have sufficiently consulted each other on all the terms of this Agreement. Each of the Lender and the Borrower has paid special attention to all terms concerning the rights and obligations of both parties and understands the same thoroughly and accurately. The Lender's and the Borrower's understanding of the terms of this Agreement is fully consistent. Borrower:____________(official chop): Lender:_______(official chop): Legal representative Legal representative (or authorised signatory) (or authorised signatory) __________________ 20 ____ ____________________ 20 ____ 33 APPENDIX 3 : FORM OF DRAWDOWN NOTICE (CHINESE) DRAWDOWN NOTICE To: Bank of China Suzhou Branch / Bank of China Suzhou Industrial Park Sub-branch: Pursuant to the Foreign Exchange Loan Agreement dated _______ signed by Maxtor Technology (Suzhou) Co., Ltd. (hereinafter called the "BORROWER") and submitted to you, we the Borrower wish to utilize a Loan as follows: (1) The amount of the Loan is (in words) United States Dollar __________ (in figure) US$_________________. (2) This is the _______ (number) utilization under the Foreign Exchange Loan Agreement. (3) The Utilization Date of the Loan is ___. (4) Please remit the proceeds of the Loan to our bank account, the account number is _____. This Drawdown Notice shall be irrevocable. Signed by authorised signatory for and on behalf of MAXTOR TECHNOLOGY (SUZHOU) CO., LTD. __________________________ (Official chop) Date:____________________________ 34 APPENDIX 4 : SAMPLE OF LOAN RECEIPT The following is a scanned version of the front copy of a loan receipt. The loan receipt shall be completed neatly and orderly, and the seal shall be affixed. (____ Subject) Foreign Exchange Loan Receipt (loan receipt counterfoil copy) One Date of loan: ______ 20__ Loan agreement number: _______ This copy shall be kept by lending department for record - -------------------------------------------------------------------------------------------------------- Loan Name Borrowing Name receiving entity entity ---------------------------------- ---------------------------------------- Settlement bank Borrowing account number bank account ---------------------------------- ---------------------------------------- Account opening Account bank opening bank - --------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------- Direct Method of payment Applicable interest rate payment ---------------------------------- Commercial contract number - --------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------- Amount of loan @ -------------------------- US$ - --------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------- Bank's comment in examination and Term of loan approval: - --------------------------------------------------------------- No. Scheduled T Scheduled repayment date* repayment amount* - --------------------------------------------------------------- 1 - --------------------------------------------------------------- 2 - --------------------------------------------------------------- 3 - ---------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------- Finance Chief Seal of borrowing entity personnel Supervisor supervisor - --------------------------------------------------------------------------------------------------------

* in the case of Tranche B1 Loans, one repayment date and one repayment amount; in the case of other Loans, eight repayment dates and eight equal repayment amounts 35 APPENDIX 5 : COMFORT LETTER COMFORT LETTER Date: Attn: Re: Maxtor Suzhou We refer to the Master Financing Agreement dated _____ for the Term Loan Facility of US$133,000,000 made between Maxtor Technology (Suzhou) Co., Ltd. ("Borrower"), Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch (together the "Lender"). We confirm that Maxtor Corporation currently owns 100% (directly and indirectly) of the issued and paid-up share capital of the Borrower. We further confirm that Maxtor Corporation is aware of the terms and conditions of the Master Financing Agreement and that Maxtor Corporation will direct the management of the Borrower to comply with, and perform, its financial and other obligations under the Master Financing Agreement during the term of that transaction. This letter, however, is not to be interpreted as a guarantee or a promise by Maxtor Corporation to perform any obligations of the Borrower, or any other form of legally binding commitment. Yours faithfully, Maxtor Corporation (authorized signature) 36 APPENDIX 6 : FORM OF NEGATIVE PLEDGE LETTER (CHINESE) UNDERTAKING LETTER To Bank of China Suzhou Branch / Bank of China Suzhou Industrial Park Sub-branch: Pursuant to the Master Financing Agreement dated _______ signed by us and your bank (the "Agreement"), we hereby undertake to your bank as follows: 1 Subject to, and save as provided in, the Agreement, all of our current and future assets are not and will not be subject to any security or mortgage in favour of third parties other than your bank; 2 The reference to "all of our current and future assets" mentioned above, includes, without limitation, land, real property, machinery and equipment, stock, book debt, etc. 3 If we commit any act which violates this undertaking, it may be regarded as our breach of clause 9.2.7 of the Agreement and the relevant clause of each of the individual loan agreements thereunder, and we are willing to take responsibility in accordance with the terms of the Agreement and such agreements. Maxtor Technology (Suzhou) Co., Ltd. (Official chop and signed by authorised signatory) Date:_________________________ 37 EX-10.3 7 f89812exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 EXECUTION COPY DATED 12 FEBRUARY 2003 CHINA-SINGAPORE SUZHOU INDUSTRIAL PARK DEVELOPMENT CO. LTD. AND MAXTOR TECHNOLOGY (SUZHOU) CO. LTD. ---------------------------------- CONTRACT FOR TRANSFER OF THE RIGHT TO THE USE OF LAND IN RESPECT OF 222,700.82 SQUARE METERS OF LAND LOCATED AT SU HONG DONG ROAD, SUZHOU INDUSTRIAL PARK ---------------------------------- CONTRACT NO.: 110200 TABLE OF CONTENTS CHAPTER 1 AREA, LOCATION, TENURE AND USE OF THE LAND PARCEL 1-2 CHAPTER 2 LAND TRANSFER PRICE AND METHOD OF PAYMENT 2-3 CHAPTER 3 MATTERS RELATING TO TRANSFER AND REGISTRATION 3 CHAPTER 4 WARRANTIES AND INDEMNITIES 4 CHAPTER 5 LAND USE CONDITIONS 4 CHAPTER 6 INFRASTRUCTURE AND UTILITIES 4-5 CHAPTER 7 FORCE MAJEURE 5-6 CHAPTER 8 TERMINATION 6-7 CHAPTER 9 LIQUIDATION 7 CHAPTER 10 NOTICES 7-8 CHAPTER 11 APPLICABLE LAW AND DISPUTE RESOLUTION 8 CHAPTER 12 EFFECTIVENESS OF CONTRACT AND OTHER MATTERS 9 ANNEXURE 1 LAND SURVEY PLAN FOR THE LAND PARCEL 11 ANNEXURE 2 THE WARRANTIES 12-14

THIS CONTRACT is made on 12 February 2003: BETWEEN: THE TRANSFEROR : CHINA-SINGAPORE SUZHOU INDUSTRIAL PARK DEVELOPMENT CO. LTD. ("PARTY A") Legal Address : 12th Floor, International Building No.2 Suhua Road Suzhou Industrial Park The Municipality of Suzhou The Province of Jiangsu The People's of Republic of China Legal Representative : Name : Yang Wei Ze Position : Chairman Nationality : Chinese Citizen AND THE TRANSFEREE : MAXTOR TECHNOLOGY (SUZHOU) CO. LTD. ("PARTY B") Legal Address : Su Hong Dong Road, Suzhou Industrial Park, Suzhou, Jiangsu Province, the People's Republic of China (the "PRC") Legal Representative : Name : Teh Kee Hong Position : Chairman Nationality : Malaysian WHEREAS (A) On 2nd January 2003, Party A and the Land Administration Bureau of Suzhou Industrial Park (the "LAB") entered into a "Contract for the Grant of the Right to the Use of State-owned Land in the Suzhou Industrial Park"(Contract Reference Number: Suzhou Industrial Park Assignment No. 63 of 2002) (the "LAND GRANT CONTRACT"), pursuant to which the LAB granted to Party A the right to use the plot of land as defined in Article 2 of this Contract (the "LAND PARCEL") for industrial purposes for a term of fifty (50) years. Party A has paid the land grant premium (the "LAND GRANT PREMIUM") and all applicable taxes and fees in accordance with Articles 12, 13, 16 and 17 of the Land Grant Contract in full and Party A has been registered as the owner of the land use rights over the Land Parcel as evidenced by a State-owned Land Use Rights Certificate dated 20 January 2003 (Certificate Number: su gong yuan guo yong (2003) No. 014). (B) Pursuant to the "Interim Regulation of the People's Republic of China Concerning the Assignment and Transfer of the Right to the Use of State-Owned Land in Urban Areas" (the "INTERIM REGULATIONS"), the "Interim Measures of the Administration of Foreign-Invested Development and Management of Tracts of Land" (the "INTERIM MEASURES"), the "Law of the People's Republic of China on the Administration of Urban Real Property" (the "ADMINISTRATION LAW"), and other relevant national and local stipulations, Party A and Party B have, through friendly negotiations, reached a mutual understanding with regard to the transfer of the right of the use of the Land Parcel and hereby agree to enter into this contract (this "CONTRACT"). CHAPTER 1 AREA, LOCATION, TENURE AND USE OF THE LAND PARCEL ARTICLE 1 The area of the Land Parcel is 222,700.82 square meters, which has been duly surveyed by the competent authority and accepted by Party A and Party B as final and official. ARTICLE 2 The Land Parcel identified as Plot No. 81015 is located to the north of Su Hong Dong Road, Suzhou Industrial Park, Suzhou, Jiangsu Province, the PRC. Details of the Land Parcel are set out in the Land Survey Plan for the Land Parcel attached as Annexure 1 to this Contract. ARTICLE 3 The tenure of the Land Parcel shall be the remainder of the fifty (50)-year term from 20 January 2003 to 19 January 2053. ARTICLE 4 Party B shall only use the Land Parcel for industrial purposes. If Party B wishes to change the use of the Land Parcel during the tenure, Party B shall obtain the prior approval of the Suzhou Industrial Park Planning and Construction Bureau, the LAB (both under the Suzhou Industrial Park Administrative Committee ("SIPAC")) and any other relevant PRC governmental authorities and shall complete the formalities for examination and approval in accordance with the relevant stipulations. CHAPTER 2 LAND TRANSFER PRICE AND METHOD OF PAYMENT ARTICLE 5 Party A and Party B hereby agree that the purchase price for the right to the use of the Land Parcel (the "LAND TRANSFER PRICE") shall be United States Dollars Six (US$6) per square meter totalling United States Dollars One Million Three Hundred Thirty Six Thousand Two Hundred and Four and Cents Ninety Two (US$1,336,204.92). Party B shall pay to Party A the Land Transfer Price in accordance with the provisions in Article 6 and Article 7 of this Contract. ARTICLE 6 PAYMENT TIME AND MANNER 6.1 The Land Transfer Price shall be paid by Party B to Party A by installments at the following times:- (a) within ten (10) days from the date of signing of this Contract, a sum equal to thirty per cent (30%) of the Land Transfer Price (it being agreed that Party A has received in Singapore a sum equal to ten per cent (10%) of the Land Transfer Price as deposit prior to the date of this Contract, which sum shall be refunded in full to the payor in Singapore simultaneously with payment of the Land Transfer Price by Party B on the due date); (b) within thirty (30) days from the date of signing of this Contract, a sum equal to fifty (50%) of the Land Transfer Price; and (c) within sixty (60) days from the date of signing this Contract, , a sum equal to the remaining twenty per cent (20%) of the Land Transfer Price. 6.2 Party B shall make payment of the Land Transfer Price in Renminbi. The exchange rate between Renminbi and United States Dollars shall be based on the middle rate of exchange between United States Dollars and Renminbi quoted by the Bank of China, Suzhou Branch on the date of actual receipt, and if no such rate is available then on the first succeeding date on which such rate is quoted. The difference between the amount due and the amount deemed received using the aforesaid exchange rate shall be paid by Party A to Party B (in the case of a surplus) or vice versa (in the case of a shortfall), as the case may be, within seven (7) days from the date of conversion. 6.3 If the due date for any payment falls on a Saturday, Sunday or public holiday in the PRC, that date shall be extended to the next succeeding day which is not a Saturday, Sunday or public holiday in the PRC. ARTICLE 7 If Party B delays in payment or otherwise fails to pay any monies due to Party A in accordance with the provisions of this Contract, interest shall accrue on such unpaid monies from the payment due date up to but excluding the date of actual payment, and the interest shall be calculated day to day at the rate of the one-year term loan interest rate published by 2 the Bank of China from time to time plus two (2) percentage points. ARTICLE 8 If Party B fails to pay to Party A the Land Transfer Price and interest (if any) in accordance with Articles 5, 6 and 7 of this Contact, and Party B, within two (2) weeks from receiving a written notice from Party A, still fails to pay the due monies, Party A shall be entitled to proceed with the following actions: (a) unilaterally terminate this Contract by giving notice in writing to Party B; and (b) resell or otherwise dispose of or deal with the right to the use of the Land Parcel as it shall deem fit. CHAPTER 3 MATTERS RELATING TO TRANSFER AND REGISTRATION ARTICLE 9 Party A shall transfer the right to the use of the Land Parcel to Party B in accordance with the provisions of this Contract and applicable PRC laws and regulations. ARTICLE 10 Party B shall have the full right of access to the Land Parcel, including the right to enter into, use, and commence the construction of structures, facilities and other works on the Land Parcel, upon Party B's payment in full of the amounts due to Party A pursuant to Article 6.1(a) of this Contract. Title to all such structures, facilities and other works shall vest in Party B at every stage of their construction. ARTICLE 11 (a) Party A and Party B shall, within thirty (30) days of the date of this Contract, jointly procure the submission of this Contract to the relevant authorities for examination and notarisation (if required by PRC laws and regulations). (b) Party A shall, within thirty (30) days of Party B's payment of the Land Transfer Price in full to Party A, do all such things and sign all such documents as may be necessary or appropriate to effectuate the transfer of the right to the Land Parcel to Party B (including, without limitation, procuring the registration of Party B by LAB as the owner of the land use rights over the Land Parcel and the issuance of a State-owned Land Use Rights Certificate (the "TITLE DOCUMENT") by the competent authorities to Party B within such thirty (30)-day period). ARTICLE 12 The right to the sole use of the Land Parcel shall be deemed to be transferred to Party B on the date of issue of the Title Document to Party B. ARTICLE 13 With the exception of land appreciation tax applicable to the Land Parcel (if any) and business tax payable by Party A for the transfer by Party A of the right to the use of the Land Parcel to Party B, Party B shall bear all relevant taxes, fees and charges relating to the transfer of the right to the use of the Land Parcel, including but not limited to deed tax (unless otherwise exempted), pegging and survey fees and stamp duty in accordance with relevant PRC laws and regulations. As from the date of issue of the Title Document, Party B shall bear all taxes and outgoings relating to the Land Parcel. ARTICLE 14 Upon the issue of the Title Document to Party B, the rights, interest and obligations (other than the obligations of Party A to pay any Land Grant Premium and any taxes and fees relating to the execution and performance of the Land Grant Contract) set out in the Land Grant Contract shall also be transferred to and borne by Party B. ARTICLE 15 In the event that Party B desires to continue the use of the Land Parcel upon the expiration of the tenure of the use of the Land Parcel, Party B shall, no later than six (6) months before the expiration of such tenure, submit to the competent land authorities an application for the extension of such tenure in compliance with the relevant stipulations, and shall enter into a new contract relating to the use of the Land Parcel through negotiation in accordance with the land grant price at that time. 3 CHAPTER 4 WARRANTIES AND INDEMNITIES ARTICLE 16 16.1 Party A warrants and undertakes to Party B in the terms set out in Annexure 2 to this Contract as of the date of this Contract and the date when the transfer of the right to use the Land Parcel to Party B is effected respectively. 16.2 Each of the warranties set out in Annexure 2 to this Contract (the "WARRANTIES") shall be separate and independent and, save as expressly provided, shall not be limited by reference to any other Warranty or anything else in this Contract. 16.3 Without restricting the rights of Party B or the ability of Party B to claim damages on any basis, in the event that any of the Warranties is breached or proves to be untrue or misleading, Party A shall pay to Party B upon demand: (a) the amount necessary to put Party B into the position which would have existed if the relevant Warranty or Warranties had not been breached and had been true and not misleading; and (b) all costs and expenses incurred by Party B, directly or indirectly, including legal fees, as a result of such breach. 16.4 Party A acknowledges and agrees that Party B has entered into this Contract in reliance on, inter alia, the Warranties. 16.5 Party A undertakes to indemnify and keep indemnified Party B against any direct loss or liability suffered by Party B as a result of any breach of any of the Warranties. CHAPTER 5 LAND USE CONDITIONS ARTICLE 17 Party B shall use the Land Parcel only in accordance with the land use conditions set out in Annexure 2 to the Land Grant Contract. ARTICLE 18 Party B shall erect information signboards on the Land Parcel after the signing of this Contract in compliance with the unified specifications (a copy of which has been provided by Party A to Party B). CHAPTER 6 INFRASTRUCTURE AND UTILITIES ARTICLE 19 Party A shall procure: (a) before 15 April 2003, the installation by the relevant SIP power authorities of an electricity switching station in the vicinity of the Land Parcel for the supply of electricity to the Land Parcel; and (b) the installation by the relevant SIP authorities of the following utilities (the "UTILITIES") to the boundary of the Land Parcel at no charge to Party B:- (i) before 30 September 2003, one 20KV ring circuit power line; (ii) before 15 April 2003, a water supply with a capacity of at least 1,000 cubic meters per day; (iii) before 15 April 2003, sewage disposal and drainage facilities with a capacity of at least 800 cubic meters per day; (iv) before 30 September 2003, a steam supply with a capacity of at least 2,800 4 cubic meters per month; (v) before 15 April 2003, fibre optic telecommunication lines as provided by the relevant telecommunication operators to public users of similar nature and size within the Suzhou Industrial Park; and (vi) before 15 April 2003, a liquified petroleum gas supply with a capacity of at least 1,000 cubic metres per day. ARTICLE 20 (a) Before 30 June 2003, Party A: (i) shall provide a public main road to the boundary of the Land Parcel and shall construct an ingress and egress access (the "ACCESS") as approved by SIPAC, including a bridge crossing the Lou Xie Canal, to the western boundary of the Land Parcel, which shall have a width of not less than 22 meters and can be used by trailers with a weight of not more than 120 metric tonnes and motor vehicles with a weight of not more than 55 metric tonnes, at no charge to Party B; and (ii) shall use its best efforts to assist Party B to construct an additional ingress and egress access with a width of not less than 7.5 meters from Su Hong Dong Road to the southern boundary of the Land Parcel at Party B's own cost, which may be used only with the permission of the customs authorities. (b) Party A shall construct and maintain the Access using materials and workmanship of appropriate quality and standards so as not to cause any damage to the public basic infrastructure. ARTICLE 21 Party B shall at its own cost and expense apply to the relevant authorities and accept the examination in accordance with the stipulations set by such authorities for the installation of the Utilities from the boundary of the Land Parcel to designated points located within the Land Parcel. ARTICLE 22 Party B shall be responsible for all relevant fees and charges relating to the installation of the Utilities within the Land Parcel and the usage of the Utilities by Party B. CHARTER 7 FORCE MAJEURE ARTICLE 23 No Party shall be considered to be in breach of this Contract and therefore be liable for any loss or damage caused by any delay in the performance or non-observance of any of its obligations under this Contract when the same is occasioned by an "Event of Force Majeure" - that is to say any of the following events which is not reasonably foreseeable, controllable and surmountable by the affected Party and which directly or indirectly prevents or impedes the due performance of this Contract: (a) war or hostilities; and (b) Acts of God such as earthquake, flood, typhoon, fire or other natural disaster. ARTICLE 24 A certificate or confirmation issued by the relevant administrative department of the Suzhou Municipal Government or a non-governmental authoritative organisation in the PRC shall be accepted by the Parties as proof that the said Event of Force Majeure has occurred. ARTICLE 25 Should any such Event of Force Majeure occur the affected party shall notify the other Party in writing within fifteen (15) days and shall use its reasonable endeavours to resume prompt performance as soon as such Event of Force Majeure shall have ceased, and the time for any 5 such Party's performance shall be extended for a period equal to the time lost by reason of the delay which shall be remedied with all due despatch in the circumstances. ARTICLE 26 The respective obligations of the Parties hereto under this Contract shall be suspended during the continuance of any of the aforesaid events and neither Party shall claim from the other Party any damages, compensation or for loss of any kind whatsoever arising from or attributable whether directly or indirectly to the occurrence of any of the aforesaid event. However, either Party hereto shall have the right to terminate this Contract by notice to the other Party and therefore be free from all the obligations under this Contract if any of the aforesaid events shall continue beyond a period of ninety (90) days; provided that Party A shall forthwith upon such termination refund to Party B all sums paid by Party B to Party A under this Contract. CHAPTER 8 TERMINATION ARTICLE 27 Without prejudice to the right of Party B to terminate this Contract under Article 26, Party B may forthwith terminate this Contract by notice in writing to Party A if: (a) for any reason whatsoever (other than a breach by Party B of its obligations under this Contract) the competent authorities have not issued the Title Document in respect of the whole of the Land Parcel to Party B within thirty (30) days after Party B has paid the Land Transfer Price in full to Party A; or (b) the General Administration of Customs or its duly authorized designate do not confirm their acceptance of phase 2 of the Suzhou Industrial Park Export Processing Zone of which the Land Parcel forms part as forming an operational part of the Suzhou Industrial Park Export Processing Zone on or before 31 October 2003; or (c) if any of the Warranties shall have been breached or proved to be untrue or misleading. ARTICLE 28 Upon the termination of this Contract under Article 27: (a) this Contract (other than Articles 28, 29, 30, 31, 32, 33, 34, 35, 38, 39 and 40, which shall survive the termination of this Contract and remain in full force and effect) shall become null and void and of no further effect; and (b) Party A shall forthwith pay to Party B in immediately available funds a sum equal to the aggregate of: (i) all amounts paid by Party B to Party A under this Contract; and (ii) all taxes, fees and other expenses paid or incurred by Party B in connection with the transfer of the Land Parcel contemplated under this Contract; and (c) any structures, facilities and other works then existing on the Land Parcel shall be dealt with under a separate agreement to be entered into between Party A and Party B. ARTICLE 29 If the event set out in Article 27(b) or (c) of this Contract occurs at any time after the issue of the Title Document to Party B, Party B shall have the option to sell the right to use the Land Parcel back to Party A by giving a notice in writing to Party A stating its decision to exercise its right under this Article 29. Within seven (7) days of the date of such notice, Party A shall pay to Party B in immediately available funds a sum equal to the aggregate of: (a) all amounts paid by Party B to Party A under this Contract; and 6 (b) all taxes, fees and expenses paid or incurred by Party B in connection with the transfer of the Land Parcel contemplated under this Contract. Subject to the performance by Party A of its obligations under the preceding paragraph, Party B shall do all such things and sign all such documents as may be necessary to effectuate a transfer of the right to use the Land Parcel back to Party A without liability to Party B. All taxes, fees and expenses relating to such transfer shall be borne by Party A. Any structures, facilities and other works then existing on the Land Parcel shall be dealt with under a separate agreement to be entered into between Party A and Party B. CHAPTER 9 LIQUIDATION ARTICLE 30 In the event that (a) this Contract is terminated pursuant to Article 27 of this Contract, or the Land Parcel is sold back to Party A pursuant to Article 29 of this Contract, and (b) Party B determines that it shall cease its investment activities and be liquidated, then Party A shall use its best efforts to assist Party B to complete its liquidation and repatriate its surplus assets (if any) as soon as reasonably practicable and, in any event, within nine (9) months of the commencement of the liquidation. CHAPTER 10 NOTICES ARTICLE 31 Notices to Party A and Party B shall be issued to their respective addresses or fax numbers as follows: If to Party A: To : China-Singapore Suzhou Industrial Park Development Co. Ltd. Recipient : Chief Executive Officer Correspondence : 12th Floor, International Building Address No.2 Suhua Road Suzhou Industrial Park The Municipality of Suzhou The Province of Jiangsu The People's of Republic of China Fax Number : 512-62881297 If to Party B: To : Maxtor Technology (Suzhou) Co. Ltd. Recipient : Chairman of the Board Correspondence : Plot No. 81015, Su Hong Dong Road Suzhou Industrial Park The Municipality of Suzhou The Province of Jiangsu The People's Republic of China Fax Number : 65-6-6480-1852 With copy to: 7 To : c/o Maxtor Corporation Recipient : Glenn H. Stevens, General Counsel Correspondence : 2452 Clover Basin Drive Longmont, CO 80503 United States of America Fax Number : 1-303-678-3111 ARTICLE 32 If Party A or Party B wishes to change the above-mentioned correspondence address or fax number, it shall inform the other Party of the new correspondence address or fax number two (2) days before such change. ARTICLE 33 If the notice is sent by fax, it shall be deemed to be received on the date of transmission; if the notice is sent by hand, it shall be deemed to be received on the date of delivery to the address stipulated; if the notice is sent by registered post, it shall be deemed to be received on the fourteenth (14th) day after the date of posting. In each case, if the notice is received on a Saturday, Sunday or public holiday, it shall be deemed to have been received on the next following working day. CHAPTER 11 APPLICABLE LAW AND DISPUTE RESOLUTION ARTICLE 34 The formation, validity, interpretation and performance of this Contract and the resolution of any dispute arising from or in relation to this Contract shall be governed by the laws of the PRC. In the event that there is no published and publicly available laws in the PRC governing a particular matter relating to this Contract, reference shall be made to general international commercial practices. ARTICLE 35 Any question, dispute or difference between the Parties arising from the formation, performance or otherwise in connection with this Agreement shall first be resolved through amicable negotiation and friendly consultation between the Parties. If no resolution is reached within ninety (90) days of the notice by either Party requesting for resolution through negotiation and consultation, the question, dispute or difference shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") Beijing Branch in Beijing for final resolution by arbitration in accordance with the rules and procedures of CIETAC supplemented by the following: (a) the arbitration shall be conducted in the English and Chinese languages. There shall be three (3) arbitrators, all of whom shall be fluent in English and Chinese and shall have experience in handling cases involving land acquisition by foreign investment enterprises in the PRC; (b) the English-language text and Chinese-language text of this Contract shall be the reference text for the arbitrators; (c) the arbitration award shall be final and binding on the Parties, and the Parties agree to be bound thereby and to act accordingly; and (d) the costs of the arbitration (including the arbitration fees and lawyers' fees) shall be borne by the losing Party. ARTICLE 36 Party A and Party B hereby represent and warrant that each of them shall carry out their respective obligations under this Contract from the date on which this Contract comes into effect until the full performance thereof. 8 CHAPTER 12 EFFECTIVENESS OF CONTRACT AND OTHER MATTERS ARTICLE 37 This Contract shall come into effect upon signing by Party A and Party B. ARTICLE 38 The headings in this Contract are for reference only and shall not be used to construe or interpret this Contract. ARTICLE 39 This Contract is written in the Chinese and English language and both language texts shall have equal validity. If there is any conflict or inconsistency between the Chinese text and the English text, the Chinese text shall be the governing and prevailing version. Party A and Party B shall, as required by SIPAC, submit the Chinese text for registration. There shall be six (6) original sets of the Chinese text and four (4) original sets of the English text. Party A and Party B shall retain two (2) sets each comprising both the English and Chinese text of this Contract, SIPAC shall retain two (2) sets of the Chinese text of this Contract. ARTICLE 40 Save that it is not inconsistent or in conflict with the provisions of this Contract and the Land Grant Contract, and any PRC law and regulation, Party A and Party B may enter into any supplemental contract in respect of any matter for which no provision or adequate provision has been made in this Contract. The supplemental contract(s), the schedules and the annexure to this Contract shall form part of this Contract and shall have equal force and effect in law as this Contract. [The remainder of this page is intentionally left blank] 9 IN WITNESS WHEREOF the representatives of Party A and Party B have executed this Contract on the date first written above. CHINA-SINGAPORE SUZHOU INDUSTRIAL PARK DEVELOPMENT CO. LTD. By: /s/ Yang Zhi Ping -------------------------------- (official seal) Name: Yang Zhi Ping Position: Legal Representative Nationality: Chinese MAXTOR TECHNOLOGY (SUZHOU) CO. LTD. By: /s/ Teh Kee Hong -------------------------------- (official seal) Name: Teh Kee Hong Position: Legal Representative Nationality: Malaysian 10 ANNEXURE 1 LAND SURVEY PLAN FOR THE LAND PARCEL (see attached) 11 [MAP OF LAND SURVEY PLAN FOR THE LAND PARCEL] ANNEXURE 2 THE WARRANTIES 1 PARTY A 1.1 Party A is a duly organised and validly existing independent legal person in its place of establishment and has the legal capacity to enter into this Contract in accordance with its business licence, articles of association and other relevant documents. 1.2 Party A possesses full power and authority to enter into this Contract and perform its obligations hereunder and has obtained all relevant authorisations, consents and approvals required for it to enter into this Contract and to transfer the land use rights over the Land Parcel on the terms set out herein. This Contract has been duly executed by the legal representative of Party A or his duly authorised representative. This Contract constitutes the legally valid and binding obligations of Party A, enforceable against Party A in accordance with its terms. 1.3 All obligations and conditions imposed by the LAB on Party A under the Land Grant Contract have been fully performed and complied with, and the Land Grant Premium and any applicable taxes, fees and charges relating to the grant of the Land Parcel to Party A under the Land Grant Contract have been paid in full. 1.4 All requirements and procedures in relation to the grant of the Land Parcel to Party A (including, without limitation, any condition precedent to a transfer of the land use rights over the Land Parcel) under the Land Grant Contract have been complied with in accordance with the relevant PRC laws and regulations. 1.5 Party A has a good, valid and transferrable title to the land use rights over the Land Parcel as evidenced by a State-owned Land Use Rights Certificate dated 20 January 2003 (Certificate Number: su gong yuan guo yong (2003) No. 014), and the legal right to transfer the rights to the Land Parcel to Party B in accordance with relevant PRC laws and regulations. 1.6 Party A will procure the transfer of any existing authorisations, approvals and consents required to develop and carry out construction on the Land Parcel including, but not limited to, any construction land planning permit and construction land approvals. 2 THE LAND PARCEL 2.1 The Land Parcel was requisitioned by the State in accordance with PRC laws and regulations. All relevant compensation, resettlement fees and expenses as well as related taxes have been paid in full in accordance with PRC laws and regulations. 2.2 The Land Parcel is located within the Suzhou Industrial Park approved by the State Council in accordance with its document guo han [1994] No. 9 issued on 11 February 1994. 2.3 The Land Parcel is located within boundary of the Suzhou Industrial Park Export Processing Zone approved by the State Council in accordance with its document guo ban han [2000] No. 37 issued on 27 April 2000, and the General Administration of Customs in accordance with its document shu shui [2000] No. 482 issued on 24 August 2000. The Land Parcel will be inspected and accepted by the General Administration of Customs or its duly authorized designate as an operational part of the Suzhou Industrial Park Export Processing Zone on or before 31 October 2003. 2.4 The Land Parcel has never been zoned as "essential arable land" by any PRC governmental authority. 2.5 The Land Parcel is zoned, and may be lawfully used, for industrial purposes. 12 2.6 The Land Parcel is in good condition and is not affected by any subsidence. There are no existing circumstances which may result in the extinguishment of the Land Parcel. 2.7 The Land Parcel is free from any liens, mortgages, encumbrances, guarantees, leases or other third party rights in any form. 2.8 There are no existing structures or other attachments on the Land Parcel. There are no cables or pipes running over, through or under any part of the Land Parcel. 2.9 There are no underground trenches, watercourses or canals running under the Land Parcel. 2.10 There are no occupants on the Land Parcel. 2.11 There are no easements, rights of way, public utilities (other than public utilities serving the Land Parcel exclusively) or other rights of access over the Land Parcel in favour of any third parties or any neighbouring land or property. 2.12 Upon registration of Party B as the owner of the land use rights over the of the Land Parcel, and issuance of the Title Certificate to Party B, Party B shall be the sole legally recognised owner of the land use rights over the Land Parcel, and shall have the exclusive right to use the Land Parcel without restriction at any time during the tenure free from all costs, fees, taxes and other charges, save those arising as a result of the use of the Land Parcel by Party B. 2.13 The Land Transfer Price is not less than the market price for land of similar size and nature in the Suzhou Industrial Park. 2.14 The Land Parcel has been filled to a level of 2.6 meters above the Yellow Sea level. 2.15 Infrastructure developments (including the so-called "seven connections and levelling") at the Land Parcel have been completed in compliance with the planning requirements applicable to the Land Parcel or (as the case may be) the connection requirements imposed by the relevant public utilities suppliers. 2.16 The Utilities will be constructed to the boundary of the Land Parcel at no charge (including, without limitation, any so-called "capacity increase fee") to Party B in accordance with the requirements and time frame set out in Article 19 of this Contract. 2.17 Party B shall have no responsibility for the repair, maintenance, improvement or reconstruction of any portion of the banks of Lou Jiang lying to the north of the Land Parcel or the banks of Lou Xie Canal to the west of the Land Parcel; nor will Party B be required to contribute to the costs of such repair, maintenance, improvement or reconstruction (if any). The responsibility for such repair, maintenance, improvement or reconstruction vests solely on the Suzhou City Navigation Bureau and the Suzhou Industrial Park Public Utilities Property Management Company respectively. 2.18 (a) The Land Parcel has complied with and is complying with all applicable environmental laws and regulations. (b) The Land Parcel is not and has not been used for any industrial or polluting purposes, and the Land Parcel is not and has not been contaminated by any polluting or dangerous substances or items. (c) No discharge, release, leaching, emission or escape into the environment of any polluting or dangerous substances has occurred or is occurring from the Land Parcel. 2.19 The Land Parcel was not and is not the subject of any litigation, arbitration or administrative proceedings, and no such proceedings are threatened or pending. Party A's title to the Land Parcel is not disputed by any person for any reasons. 13 2.20 There is no unsatisfied judgment, order, decree or decision of any court or any governmental authority outstanding or existing against (i) Party A which may have an adverse effect upon the Land Parcel or (ii) the Land Parcel directly, and no order or application has been made in respect of the bankruptcy or liquidation of Party A. 3 GENERAL All information contained in this Contract and in the documents referred to in this Contract and all other information concerning Party A and the Land Parcel supplied during the course of negotiations leading to the signing of this Contract to Party B was, when given, true, complete and accurate in all respects and there is no fact or matter which has not been disclosed which renders any such information or documents untrue, inaccurate or misleading at the date of this Contract or which if disclosed, might reasonably be expected to influence adversely Party B's decision or willingness to purchase the land use rights over the Land Parcel on the terms of this Contract. [The remainder of this page is intentionally left blank] 14 EX-99.1 8 f89812exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Maxtor Corporation (the "Company") on Form 10-Q for the quarter ended March 29, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul J. Tufano, President, Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ("Section 906"), that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 12, 2003 /s/ Paul J. Tufano ------------------------------- Paul J. Tufano President, Chief Executive Officer and Acting Chief Financial Officer

[A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.] ~~-----END PRIVACY-ENHANCED MESSAGE-----~~


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the period ended March 29, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		77-0123732
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 McCarthy Boulevard, Milpitas, CA (Address of principal executive offices)		95035 (Zip Code)


PART I. FINANCIAL INFORMATION
	Item1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations
MAXTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXTOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 99.1


		Page

PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements		2
	Condensed Consolidated Balance Sheets — March 29, 2003, and December 28, 2002		2
	Condensed Consolidated Statements of Operations — Three months ended March 29, 2003, and March 30, 2002		3
	Condensed Consolidated Statements of Cash Flows — Three months ended March 29, 2003, and March 30, 2002		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40
Item 4.	Controls and Procedures		40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		41
Item 2.	Changes in Securities		42
Item 3.	Defaults Upon Senior Securities		42
Item 4.	Submission of Matters to a Vote of Security Holders		42
Item 5.	Other Information		42
Item 6.	Exhibits and Reports on Form 8-K		43
Signature Page			44
Certifications			45


			March 29,			December 28,
			2003			2002


			(Unaudited)

			(In thousands, except share and
			per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	328,666		$	306,444
	Restricted cash			54,008			56,747
	Marketable securities			83,722			87,507
	Accounts receivable, net of allowance of doubtful accounts of $19,414 at March 29, 2003 and $18,320 at December 28, 2002			320,245			363,664
	Inventories			217,073			175,545
	Prepaid expenses and other			46,145			33,438

		Total current assets		1,049,859			1,023,345
Property, plant and equipment, net				340,153			364,842
Goodwill				813,951			813,951
Other intangible assets, net				126,340			146,898
Other assets				10,108			11,798

		Total assets	$	2,340,411		$	2,360,834

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Short-term borrowings, including current portion of long-term debt		$	40,072		$	41,042
	Accounts payable			620,203			642,206
	Accrued and other liabilities			452,776			471,750
	Liabilities of discontinued operations			6,902			11,646

		Total current liabilities		1,119,953			1,166,644
Deferred taxes				196,455			196,455
Long-term debt, net of current portion				198,274			206,343
Other liabilities				195,151			199,071

		Total liabilities		1,709,833			1,768,513
Stockholders’ equity:
	Preferred stock, $0.01 par value, 95,000,000 shares authorized; no shares issued or outstanding			—			—
	Common stock, $0.01 par value, 525,000,000 shares authorized; 249,815,926 shares issued and 244,815,926 shares outstanding at March 29, 2003 and 247,507,244 shares issued and 242,507,244 shares outstanding at December 28, 2002			2,498			2,475
Additional paid-in capital				2,358,095			2,349,253
Deferred stock-based compensation				(920	)		(1,193	)
Accumulated deficit				(1,713,183	)		(1,740,591	)
Cumulative other comprehensive income				4,088			2,377
Treasury stock (5,000,000 shares) at cost				(20,000	)		(20,000	)

		Total stockholders’ equity		630,578			592,321

		Total liabilities and stockholders’ equity	$	2,340,411		$	2,360,834


Item 1.	*Condensed Consolidated Financial Statements*



			Three Months Ended

			March 29,			March 30,
			2003			2002


			(Unaudited)

			(In thousands, except share and per
			share amounts)
Net revenues			$	938,889		$	1,036,100
Cost of revenues				767,042			922,334

	Gross profit			171,847			113,766
Operating expenses:
	Research and development			86,661			103,058
	Selling, general and administrative			31,932			41,352
	Amortization of intangible assets			20,562			20,562

		Total operating expenses		139,155			164,972

Income/ (loss) from operations				32,692			(51,206	)
Interest expense				(5,422	)		(6,546	)
Interest and other income				1,327			3,029
Other gain				88			—

Income/ (loss) from continuing operations before income taxes				28,685			(54,723	)
Provision for income taxes				1,277			654

Income/ (loss) from continuing operations				27,408			(55,377	)
Loss from discontinued operations				—			(9,661	)

Net income/(loss)			$	27,408		$	(65,038	)

Net income/ (loss) per share — basic
Continuing operations			$	0.11		$	(0.23	)
Discontinued operations			$	—		$	(0.04	)

		Total	$	0.11		$	(0.27	)

Net income/ (loss) per share — diluted
Continuing operations			$	0.11		$	(0.23	)
Discontinued operations			$	—		$	(0.04	)

		Total	$	0.11		$	(0.27	)

	— basic			243,634,139			236,956,653
	— diluted			246,866,117			236,956,653


Accounts payable	$	1.4
Payroll and other accrued expenses		1.7
Warranty, returns and other		3.8

Total	$	6.9


				Severance
	Facility			and			Other
	Costs			Benefits			Costs			Total


				(In millions)
Provision at April 2, 2001.	$	59.1		$	29.2		$	12.7		$	101.0
Amounts paid		(0.9	)		(15.5	)		(12.7	)		(29.1	)

Balance at December 29, 2001		58.2			13.7			—			71.9
Amounts paid		(4.5	)		(13.7	)		—			(18.2	)

Balance at December 28, 2002		53.7			—			—			53.7
Amounts paid		(2.6	)		—			—			(2.6	)

Balance at March 29, 2003.	$	51.1		$	—		$	—		$	51.1



		Years Ended

		March 29,		March 30,
		2003		2002

Net income/(loss) applicable to common stockholders, as reported		$	27,408	$	(65,038	)
Add: Stock-based employee compensation expense included in reported net income/(loss)			273		1,491
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards			5,523		11,206
	Pro forma net income/(loss)	$	22,158	$	(74,753	)

Net income/(loss) per share
	As reported — basic	$	0.11	$	(0.27	)
	Pro forma — basic	$	0.09	$	(0.32	)
	As reported — diluted	$	0.11	$	(0.27	)
	Pro forma — diluted	$	0.09	$	(0.32	)


12.	Segment, Geography and Major Customers Information



	Revenue				Long-lived Assets


	Three Months Ended				March 29,		December 28,
	March 29, 2003				2003		2002

United States and Canada	$	319,108	$	390,378	$	1,173,171	$	1,207,738
Asia Pacific and Japan		283,327		294,290		116,608		128,860
Europe, Middle East and Africa		330,593		340,623		773		891
Latin America and other		5,861		10,809		—		—

Total	$	938,889	$	1,036,100	$	1,290,552	$	1,337,489



				March 29, 2003							December 28, 2002

				Gross							Gross
		Useful		Carrying		Accumulated					Carrying		Accumulated
		Life		Amount		Amortization			Net		Amount		Amortization			Net


		(Years)		(In thousands)							(In thousands)
Goodwill			—	$	813,951	$	—		$	813,951	$	813,951	$	—		$	813,951

Quantum HDD
Existing technology Core technology			5	$	105,000	$	(42,000	)	$	63,000	$	105,000	$	(36,750	)	$	68,250
	Consumer electronics		3		8,900		(5,933	)		2,967		8,900		(5,192	)		3,708
	High-end		3		75,500		(50,333	)		25,167		75,500		(44,042	)		31,458
	Desktop		3		96,700		(64,467	)		32,233		96,700		(56,408	)		40,292
MMC Technology
Existing technology			5		4,350		(1,377	)		2,973		4,350		(1,160	)		3,190

Total other intangible assets				$	290,450	$	(164,110	)	$	126,340	$	290,450	$	(143,552	)	$	146,898


									More Than
			Less Than				3-5 Years		5 Years
	Total		1 Year		1-3 Years		(1)(2)		(1)(2)(3)

Debt	$	200,155	$	14,766	$	110,116	$	40,388	$	34,885
Capital Lease Obligations		38,191		25,306		12,857		28		—
Operating Leases(4)		276,748		27,078		60,331		52,342		136,997

Total	$	515,094	$	67,150	$	183,304	$	92,758	$	171,882


										Fair Value
										as of
										March 29,
										2003
	+150 bps			+100 bps			+50 bps			($000)		—50 bps			—100 bps			—150 bps

Financial Instruments	$	82,484		$	82,892		$	83,301		$	83,722	$	84,098		$	84,552		$	84,877
% Change		(1.48	)%		(0.99	)%		(0.50	)%				0.45	%		0.99	%		1.38	%


	*Basis of Presentation*


	*Use of Estimates*


	*Fiscal Calendar*


8.	Stock-Based Compensation


										Fair Value
										as of
	Valuation of Security									March 29,		Valuation of Security
	Given X% Decrease in the									2003		Given X% Increase in the
	Security Price									($000)		Security Price


Corporate equity investments	$	4,215		$	6,322		$	7,165		$	8,429	$	9,693		$	10,536		$	12,644
% Change		(50	)%		(25	)%		(15	)%				15	%		25	%		50	%


3.1	(1)	Certificate of Merger and Restated Certificate of Incorporation.
4.1		Indenture between Registrant and U.S. Bank National Association, dated May 7, 2003.
4.2		Registration Rights Agreement between Registrant, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated May 7, 2003.
10.1		Employment Offer Letter from Registrant to Paul J. Tufano, dated February 24, 2003.*
10.2		Master Financing Agreement between Maxtor Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch, dated as of April 15, 2003.
10.3		Contract for Transfer of the Right to the Use of Land in Respect to 222,700.82 Square Meters of Land Located at Su Hong Dong Road, Suzhou Industrial Park between China-Singapore Suzhou Industrial Park Development Co., Ltd. and Maxtor Technology (Suzhou) Co., Ltd., dated as of February 12, 2003.
99.1		Certification of Paul J. Tufano, President, Chief Executive Officer and Acting Chief Financial Officer of the Registrant pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit
Number		Description

	3.1(1)	Certificate of Merger and Restated Certificate of Incorporation.
	4.1	Indenture between Registrant and U.S. Bank National Association, dated May 7, 2003.
	4.2	Registration Rights Agreement between Registrant, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated May 7, 2003.
	10.1	Employment Offer Letter from Registrant to Paul J. Tufano, dated February 24, 2003.*
	10.2	Master Financing Agreement between Maxtor Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch, dated as of April 15, 2003.
	10.3	Contract for Transfer of the Right to the Use of Land in Respect to 222,700.82 Square Meters of Land Located at Su Hong Dong Road, Suzhou Industrial Park between China-Singapore Suzhou Industrial Park Development Co., Ltd. and Maxtor Technology (Suzhou) Co., Ltd., dated as of February 12, 2003.
	99.1	Certification of Paul J. Tufano, President, Chief Executive Officer and Acting Chief Financial Officer of the Registrant pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.