<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to _________
Commission File No. 1-6635
APPLIED MAGNETICS CORPORATION
(Exact name of registrant as specified in its charter)
A Delaware Corporation 95-1950506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Robin Hill Road, Goleta, California 93117
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 683-5353
(No Change)
-------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 22,302,711 $.10 par value common stock as of August 3, 1995.
1
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
The unaudited condensed consolidated financial statements included herein have
been prepared by Applied Magnetics Corporation and its subsidiaries (the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The unaudited condensed consolidated financial statements and
selected notes included therein should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
The following unaudited condensed consolidated financial statements reflect all
adjustments, consisting only of normal and recurring adjustments, which, in the
opinion of management, are necessary to present fairly the consolidated
financial position and results of operations for the periods presented.
2
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - Unaudited
(In thousands except share and per share data)
<TABLE>
<CAPTION>
For the three month For the nine months
ended June 30, ended June 30,
------------------------ ------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 79,860 $ 70,289 $ 200,152 $ 211,367
Cost of sales 63,454 73,012 179,417 209,393
----------- ----------- ----------- -----------
Gross profit (loss) 16,406 (2,723) 20,735 1,974
----------- ----------- ----------- -----------
Research and development expenses, net 8,612 7,953 23,679 18,747
Selling, general and administrative expenses 1,921 4,205 5,770 12,234
----------- ----------- ----------- -----------
Total operating expenses 10,533 12,158 29,449 30,981
----------- ----------- ----------- -----------
Income (Loss) from operations 5,873 (14,881) (8,714) (29,007)
Interest income 423 159 1,092 664
Interest expense (1,352) (1,275) (3,432) (3,155)
Other income (expense), net 1,822 (293) 3,814 96
----------- ----------- ----------- -----------
Income (Loss) before taxes 6,766 (16,290) (7,240) (31,402)
Provision for income taxes 45 215 444 723
----------- ----------- ----------- -----------
Net income (loss) $ 6,721 $ (16,505) $ (7,684) $ (32,125)
=========== =========== =========== ===========
Net income (loss) per share: $ 0.30 $ (0.75) $ (0.35) $ (1.45)
=========== =========== =========== ===========
Weighted average common and dilutive equivalent
shares outstanding: 22,304,211 22,081,043 22,089,460 22,082,451
=========== =========== =========== ===========
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial Statements
are an integral part of these condensed consolidated statements.
3
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets - Unaudited
(In thousands except share and par value data)
<TABLE>
<CAPTION>
ASSETS
June 30, September 30,
1995 1994
----------- -------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 37,130 $ 20,761
Accounts receivable, net 40,069 18,720
Inventories 36,170 31,520
Prepaid expenses and other 13,114 6,879
----------- -----------
126,483 77,880
----------- -----------
Property, plant and equipment, at cost 257,591 289,362
Less-accumulated depreciation (154,952) (165,046)
----------- -----------
102,639 124,316
----------- -----------
Other assets 12,643 18,360
----------- -----------
$ 241,765 $ 220,556
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current portion of long-term debt $ 11,362 $ 20,412
Bank notes payable 54,741 46,062
Accounts payable 47,626 22,332
Accrued payroll and benefits 9,467 9,406
Other current liabilities 17,901 16,111
----------- -----------
141,097 114,323
----------- -----------
Long-term debt, net 2,254 677
----------- -----------
Other liabilities 6,754 7,123
----------- -----------
Shareholders' investment:
Preferred stock, $.10 par value, authorized
5,000,000 shares, none issued and outstanding - -
Common stock, $.10 par value, authorized
40,000,000 shares, issued 22,199,495 as
of June 30, 1995, and 22,161,460 as of
September 30, 1994 2,220 2,216
Paid-in capital 178,733 178,481
Retained deficit (88,463) (80,779)
----------- -----------
92,490 99,918
Treasury stock, at cost (96,603 shares as of June 30,
1995, and 92,509 as of September 30, 1994) (830) (812)
Unearned restricted stock compensation - (673)
----------- -----------
91,660 98,433
----------- -----------
$ 241,765 $ 220,556
=========== ===========
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial
Statements are an integral part of these condensed consolidated balance sheets.
4
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows - Unaudited
(In thousands)
<TABLE>
<CAPTION>
For the nine months ended
June 30,
-------------------------
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (7,684) $ (32,125)
Adjustments to derive cash flows:
Depreciation and amortization 20,339 16,881
Gain on sale of business and assets (5,109) -
Provision for receivable allowances and related costs 50 100
Amortization of unearned restricted stock
compensation 673 197
Other assets 4,723 (4,621)
Other liabilities (369) (657)
Other, net 23 578
Working capital changes affecting
cash flows from operations:
Accounts receivable (24,497) 9,875
Other receivables 4,096
Inventories (7,215) (758)
Prepaid expenses and other (1,418) (1,228)
Accounts payable 26,259 3,307
Accrued payroll and benefits 287 81
Other current liabilities (3,199) (5,201)
----------- -----------
Net cash flows provided by (used in) operating activities 2,863 (9,475)
----------- -----------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (13,953) (27,870)
Proceeds from sale of businesses and assets, net 24,264 516
Notes receivable 1,740 1,958
----------- -----------
Net cash flows provided by (used in) investing activities 12,051 (25,396)
----------- -----------
Cash Flows from Financing Actitivies:
Proceeds from debt 126,012 116,832
Repayment of debt (126,180) (107,045)
Proceeds from stock options exercised 238 177
----------- -----------
Net cash flows provided by financing activities 70 9,964
----------- -----------
Effect of Exchange Rate Changes on Cash and Equivalents 1,385 783
----------- -----------
Net Increase (Decrease) in Cash and Equivalents 16,369 (24,124)
----------- -----------
Cash and Equivalents at Beginning of Period 20,761 49,371
----------- -----------
Cash and Equivalents at End of Period $ 37,130 $ 25,247
=========== ===========
</TABLE>
The accompanying Selected Notes to Condensed Consolidated Financial Statements
are an integral part of these condensed consolidated statements.
5
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Selected Notes to Condensed Consolidated Financial Statements
Unaudited
(June 30, 1995)
Note A: Inventories
--------------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory costs consist of purchased materials and services, direct production
labor and manufacturing overhead expense. The components of inventory are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
--------- -------------
1995 1994
--------- -------------
<S> <C> <C>
Purchased parts and
manufacturing supplies $15,254 $ 9,970
Work in process 19,119 17,436
Finished goods 1,797 4,114
------- -------
$36,170 $31,520
======= =======
</TABLE>
Note B: License and Technology Development Agreements
------------------------------------------------------
During 1992 and 1993, the Company entered into various joint development
agreements, including one with Hitachi Metals, Ltd. ("HML") relating, primarily,
to the advancement of the Company's inductive thin-film technology and the
development and commercialization of magnetoresistive ("MR") disk head products.
The performance schedule and development efforts related to these agreements
were substantially completed by September 1994. Under these agreements, all
cost offsets were recognized by the end of fiscal 1994. The Company recognized
$11.0 million as cost offsets against development costs incurred for the nine
months ended June 30, 1994; no cost offsets against development costs incurred
were recognized for the nine months ended June 30, 1995. The Company does not
anticipate receiving any significant additional amounts of development funding
from customers or strategic partners in fiscal 1995.
Note C: Restructuring Reserve
------------------------------
During the nine months ended June 30, 1995 and 1994, expenditures of
approximately $1.5 million and $3.2 million, respectively, were charged to the
1993 restructuring reserve, which related to the consolidation of certain of the
Company's manufacturing resources.
6
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Selected Notes to Condensed Consolidated Financial Statements
Unaudited
(June 30, 1995)
Note D: Sale of Assets
-----------------------
During the first quarter of fiscal 1995, the Company completed the sale of a
facility in Singapore and received proceeds of $4.9 million in cash, which
approximated book value. In the same quarter, the Company also completed the
sale of its Tape Head subsidiary to Seagate Technology, Inc. ("Seagate") for
$21.5 million in cash, of which the Company received $14.0 million at the
closing of the transaction. Of the remaining funds, $1.0 million was held in
escrow for one year as a standard hold-back to indemnify the buyer for any
claims relating to the representations and warranties provided by the Company in
connection with the divestiture and $6.5 million was held in escrow pending the
completion of certain performance milestones pursuant to the Company's
agreements to provide certain tape-related goods and services to the buyer on an
ongoing basis. Of the estimated $7.5 million gain pursuant to this transaction,
$4.7 million was recognized, net of related expenses, during the nine months
ended June 30, 1995 as certain milestones were satisfied. It is anticipated that
the majority of the remaining performance milestones will be completed by the
first quarter of fiscal 1996.
Note E: Short Term Borrowings
-----------------------------
On January 11, 1995, the Company retired the $10.0 million debt obligation owed
to Conner Peripherals Inc. The Company also obtained a secured, revolving line
of credit from CIT Group/Business Credit, Inc. ("CIT"). This line of credit
provides for borrowings up to $35.0 million based on eligible trade receivables
at various interest rates over a three-year term and is secured by trade
receivables, inventories and certain other assets. As of June 30, 1995, $7.0
million of borrowings was outstanding. The $7.0 million of borrowings was fully
repaid during July 1995. The balance available for additional borrowings under
this line of credit was approximately $1.7 million at June 30, 1995 and the
Company was in compliance with all financial covenants.
In May, 1995, the Company's Malaysian subsidiary completed negotiations on a
letter offer from a Malaysian bank to continue a credit facility which has been
in place since 1990. The facility is callable on demand, has no termination
date, is guaranteed by the Company, is secured by the Malaysian subsidiary's
real property holdings in Malaysia and is subject to certain covenants which
preclude the subsidiary from granting liens and security interests in other
assets.
In May, 1995 the Company obtained an extension until April, 1996, of the
maturity date on a $10.0 million revolving credit facility from a commercial
bank. This facility is
7
<PAGE>
APPLIED MAGNETICS CORPORATION AND SUBSIDIARIES
Selected Notes to Condensed Consolidated Financial Statements
Unaudited
(June 30, 1995)
secured by a letter of credit issued for the account of HML, subject to
reimbursement by the Company. The Company's reimbursement obligation to HML is
secured by a security interest and lien on certain machinery and equipment.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Since the fourth quarter of fiscal 1994, and continuing through the third
quarter of fiscal 1995, the Company has achieved technological improvements
related to thin-film disk head products, including increased production of
nanoslider (50%) thin-film disk heads using fully etched air bearing ("FEAB")
and other negative air pressure disk head designs that allow certain of its
products to demonstrate improved performance. The Company also continued to
benefit from certain production process improvements during fiscal 1995 which
resulted in increases in thin-film disk head shipments and revenues through the
second quarter of fiscal 1995. Increased revenues in the third quarter of
fiscal 1995 were attributed primarily to head stack vs head assemblies product
mix, and to a lesser extent, a slight increase in thin-film disk head unit
shipment growth. During the last week of June 1995, unit production volumes at
the Company's manufacturing facility in Penang, Malaysia were moderately
affected when an explosion on the island's bridge from the mainland damaged the
power cables providing electricity to the island. Full power was restored within
one week. Penang faces an over employment situation as many of the disk drive
manufacturers expand their production facilities in Malaysia. As a result, the
Company has experienced labor shortages and is reviewing other alternatives to
increase final assembly labor requirements to meet customer and market demand.
Market and customer demand for thin-film disk head products continues to be
strong. Increased revenues, production process improvements, and cost controls
implemented by the Company in the fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995 improved the Company's gross profit and contributed to
the first profitable quarter since the third quarter of fiscal 1993. The
Company continues to progress in the development of MR disk heads and has
delivered prototype quantities of these products during the nine months ended
June 30, 1995. The conversion from prototype to production volume shipment
levels will depend on the Company's ability to achieve satisfactory progress in
its design and development.
Three Months Ended June 30, 1995
--------------------------------
NET SALES. Net sales in the third quarter of fiscal 1995 increased 23.0% and
13.6% from the second quarter of fiscal 1995 and the third quarter of fiscal
1994, respectively. The increase in net sales in the third quarter of fiscal
1995 from the second quarter of fiscal 1995 was due primarily to the change in
mix of shipments from head assemblies to head stack assemblies. The increase in
net sales in the third quarter of fiscal 1995 as compared to the same quarter of
the prior fiscal year was due to significant growth in thin-film disk head unit
shipments as a result of the production improvements discussed above and
continuing strong customer demand. This more than offset the 82.2% decrease in
ferrite shipments from the third quarter of fiscal 1994 as customer demand for
thin-film products replaces market requirements for disk heads using ferrite
technology. Net sales for thin-film disk head products in the third quarter of
fiscal 1995 increased 24.2% and 121.1% from the second quarter of fiscal 1995
and third quarter of fiscal 1994, respectively. The Company has experienced
quarter-to-quarter growth
9
<PAGE>
since the third quarter of fiscal 1994 as production process improvements were
achieved and as market demand for thin-film disk heads continued to increase.
The Company anticipates that the market demand for ferrite disk head products
will continue to decline as prices for thin-film disk heads, which offer
superior performance, become more competitive.
The following table sets forth, for the periods indicated, net sales by product
line.
<TABLE>
<CAPTION>
For the three months ended
----------------------------------
June 30, March 31, June 30,
1995 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Thin-film disk head products
Net sales $71,862 $57,878 $32.499
Percentage of total 90.0% 89.2% 46.2%
Ferrite disk head products
Net sales $ 5,774 $ 4,479 $32,458
Percentage of total 7.2% 6.9% 46.2%
Tape head products
Net sales $ 2,224 $ 2,562 $ 5,332
Percentage of total 2.8% 3.9% 7.6%
Total net sales $79,860 $64,919 $70,289
</TABLE>
GROSS PROFIT. As a percentage of net sales, gross profit was 20.5%, 7.9% and
(3.9%) for the third and second quarters of fiscal 1995 and the third quarter of
fiscal 1994, respectively. The increase in gross profit in the third quarter of
fiscal 1995 as compared to the second quarter of fiscal 1995 and the third
quarter of the prior fiscal year was due to higher sales volumes and production
process improvements in thin-film disk head products.
RESEARCH AND DEVELOPMENT. Research and development expenses as a percent of
net sales, before cost offsets from various joint development agreements, were
10.8%, 11.2% and 15.2% for the third and second quarters of fiscal 1995 and the
third quarter of fiscal 1994, respectively. The percentage decrease in the
third quarter of fiscal 1995 from the second quarter of fiscal 1995 was
primarily due to higher net sales. The percentage decrease in the third quarter
of fiscal 1995 from the third quarter of the prior fiscal year was due to higher
net sales, and cost controls implemented in fiscal 1995. Expenses in dollars
during the third quarter of fiscal 1995 increased $1.3 million from the second
quarter of fiscal 1995 as the Company focused on next generation thin-film
inductive technology and MR prototype development.
In connection with its development agreements with HML and other customers, the
Company recognized cost offsets of $2.8 million for the third quarter of fiscal
1994 . These agreements were substantially concluded by the end of fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of net sales were 2.4%, 2.5% and 6.0% for
the third and second quarters of fiscal 1995, and the third quarter of fiscal
1994, respectively. Expenses in
10
<PAGE>
dollars for the third quarter of fiscal 1995 remained flat compared to the
second quarter of fiscal 1995 before considering a bad debt recovery from a 1991
bankruptcy claim which was received in the second quarter of 1995. Expenses in
dollars for the third quarter of fiscal 1995 decreased $2.3 million from the
third quarter of fiscal 1994 as the Company benefited from the significant staff
and cost reductions that were implemented during the fourth quarter of fiscal
1994 and the first quarter of fiscal 1995.
INTEREST INCOME AND EXPENSE. Interest income in the third quarter of fiscal
1995 remained flat compared to the second quarter of fiscal 1995 as average cash
balances remained the same. Interest income in the third quarter of fiscal 1995
increased $0.3 million compared the third quarter of fiscal 1994 due to higher
average cash balances and favorable investment management results. Interest
expense in the third quarter of fiscal 1995 increased $0.3 million as compared
to the second quarter of fiscal 1995, even though average debt outstanding was
similar, primarily as a result of higher average interest rates on the Malaysian
bank loans, and letter of credit and loan fees with CIT. Interest expense in
the third quarter of fiscal 1995 remained similar to the third quarter of fiscal
1994 while average debt outstanding was lower, due to reasons mentioned above.
OTHER INCOME AND EXPENSE. Other income, net, increased $2.1 million in the
third quarter of fiscal 1995 as compared to the third quarter of fiscal 1994
primarily due to the gains recognized as the Company completed certain
performance milestones pursuant to the sale of its Tape Head subsidiary to
Seagate. See Note D to the Financial Statements.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for the
nine months ended June 30, 1995, consisted primarily of foreign taxes and
minimal state taxes.
Nine Months Ended June 30, 1995
-------------------------------
The following table sets forth, for the periods indicated, net sales by product
line.
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Thin-film disk head products
Net sales $171,666 $ 95,887
Percentage of total 85.8% 45.3%
Ferrite disk head products
Net sales $ 19,237 $101,351
Percentage of total 9.6% 48.0%
Tape head products
Net sales $ 9,249 $ 14,129
Percentage of total 4.6% 6.7%
Total net sales $200,152 $211,367
</TABLE>
11
<PAGE>
NET SALES. Net sales for the nine months ended June 30, 1995 decreased 5.3%
from the same period in the prior fiscal year primarily due to change in product
mix. During fiscal 1995, the Company's focus on thin-film head technology
generated a 79.0% increase in the thin-film net sales for the first nine months
of fiscal 1995 as compared to the same period of the prior fiscal year. The
thin-film revenue increase fell slightly short of absorbing the 81.0% decrease
in ferrite net sales, for the comparable periods.
GROSS PROFIT. As a percentage of net sales, gross profit was 10.4% and 0.9% for
the nine months ended June 30, 1995 and 1994, respectively. The gross profit
improvement for the first nine months of fiscal 1995 as compared to same period
of the prior fiscal year was attributable to higher thin-film disk head unit and
sales volumes as a result of significant production process improvements and
increased production capacity.
RESEARCH AND DEVELOPMENT. Research and development expenses as a percent of net
sales, before cost offsets from various joint development agreements, were 11.8%
and 14.1% for the nine months ended June 30, 1995 and 1994, respectively. The
percentage decrease for the first nine months of fiscal 1995 as compared to the
same period of the prior fiscal year was primarily due to cost controls
implemented in fiscal 1995. Expenses in dollars decreased $6.2 million, for the
comparable periods, before cost offsets from various joint development
agreements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of net sales were 2.9% and 5.8% and
expenses in dollars were $5.8 million and $12.2 million for the nine months
ended June 30, 1995 and 1994, respectively. Significant staff and cost
reductions contributed to the decreases for the comparable periods.
OTHER INCOME AND EXPENSES. Other income, net, increased $3.7 million for the
nine months ended June 30, 1995 as compared to the same period in the prior
fiscal year primarily as a result of gains recognized as the Company completed
certain performance milestones pursuant to the Seagate agreement. See Note D to
the Financial Statements.
Liquidity and Capital Resources
-------------------------------
In fiscal 1994, lower sales volumes, manufacturing difficulties and production
yield problems, operating losses and capital expenditures resulted in a
significant reduction in the Company's cash balance to $20.8 million at
September 30, 1994 from $49.4 million at September 30, 1993. During fiscal
1995, in order to improve liquidity and as part of a cash management and
operating plan implemented by management, the Company implemented cost and cash
expenditure controls, negotiated accelerated payment terms with some of its key
customers, sold its Tape Head business unit to Seagate and completed other
financings, including new loan and credit facilities, extensions or renewals of
existing facilities, and lease financing.
12
<PAGE>
During the third quarter of fiscal 1995, the Company initiated additional
equipment lease financing for capital expenditures that will be completed by the
fourth quarter of fiscal 1995. The Company expects to continue to use lease
financing for capital expenditures and anticipates that it will continue to
implement cost and expenditure controls to maintain acceptable liquidity.
At June 30, 1995, the Company's cash and equivalents increased to $37.1 million
from $20.8 million at September 30, 1994. During the nine months ended June 30,
1995, the Company generated $24.3 million in cash from the sale of businesses
and assets which were made up of the following: (1) the sale of a building in
Singapore for $4.9 million; (2) the sale of its Tape Head subsidiary to Seagate,
for $21.5 million, of which the Company received $14.0 million at the closing
date of the transaction and $4.7 million, net of related expenditures, upon
completion of certain performance milestones and (3) $0.7 million for the sale
of excess machinery and equipment. See Note D in the accompanying Selected
Notes to Condensed Consolidated Financial Statements for discussion of the
Seagate Agreement. During the first three quarters of fiscal 1995 the Company
used $14.0 million for capital expenditures and provided $2.7 million from
operating activities, which was primarily as a result of the timing of inventory
purchases and payments offset by increases in accounts receivable as a result of
the higher sales levels.
At June 30, 1995, total debt, including notes payable, amounted to $68.4
million, an increase of $1.2 million from the balance outstanding at September
30, 1994, primarily due to capital lease financing in Malaysia. At June 30,
1995, the Company had fully drawn down its unsecured Malaysian credit facility
which has no stated maturity but is callable on demand from a bank in Malaysia
where the Company has substantial manufacturing operations. Should all or any
significant portion of the Malaysian credit facility become unavailable for any
reason, the Company would need to pursue alternative financing sources. See
Note E to Financial Statements.
On January 11, 1995 the Company retired the $10.0 million debt obligation owed
to Conner Peripherals Inc. The Company also obtained a secured, asset-based
revolving line of credit of $35.0 million from CIT Group/Business Credit, Inc.
("CIT"). This line of credit provides for borrowings up to $35.0 million based
on eligible trade receivables at various interest rates over a three-year term
and is secured by trade receivables, inventories and certain other assets. As
of June 30, 1995, $7.0 million of borrowings was outstanding. The $7.0 million
of borrowings was fully repaid during July 1995. The balance available for
additional borrowings under this line of credit was approximately $1.2 million
at June 30, 1995 and the Company was in compliance with all financial covenants.
In May, 1995, the Company's Malaysian subsidiary completed negotiations on a
letter offer from a Malaysian bank to continue a credit facility which has been
in place since 1990. The facility is callable on demand, has no termination
date, is guaranteed by the Company, is secured by the Malaysian subsidiary's
real property holdings in Malaysia and is subject to certain covenants which
preclude the subsidiary from granting liens and security interests in other
assets.
13
<PAGE>
In May, 1995 the Company obtained an extension until April, 1996, of the
maturity date on a $10.0 million revolving credit facility from a commercial
bank. This facility is secured by a letter of credit issued for the account of
HML, subject to reimbursement by the Company. The Company's reimbursement
obligation to HML is secured by a security interest and lien on certain
machinery and equipment.
The Company continues to have informal understandings with some of its customers
to make payments on accelerated terms. However, the liquidity risk associated
with the cancellation of one or more of these arrangements is partially
ameliorated by the credit available under the CIT Agreement under which
available loan proceeds could generally increase as the Company's trade accounts
receivable increase.
Capital expenditures for the nine months ended June 30, 1995, including
financing from operating and capital leases, was $24.0 million. The Company
plans approximately $13.0 million in new capital expenditures for the fourth
quarter of fiscal 1995. Capital expenditures are related primarily to improving
thin-film production processes, increasing thin-film production volumes and
development and production of MR technologies and products. The Company's
objective is to provide sufficient cash flows from operations and to continue
pursuit of equipment lease financing alternatives in order to meet its operating
and capital expenditure requirements.
Market and customer demand continues to be strong for the Company's thin-film
disk heads. In the event that demand for the Company's products declines,
management believes that it will be able to reduce its funding requirements for
planned, but not committed, capital expenditures. However, if the Company were
unable to continue to increase sales or maintain production yields at acceptable
levels in order to permit it to execute customer orders for new drive programs
in a timely manner, there could be a significant adverse impact on liquidity.
This would require the Company to either obtain additional capital from external
sources or to curtail its capital, research and development and working capital
expenditures. Such curtailment could adversely affect the Company's future
years' operations and competitive position.
14
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description
------- -----------
10 Material Contacts
10(a) Letter Agreement between Registrant and Hitachi
Metals, Ltd. dated May 30, 1995 extending maturity
date of Letter of Credit to April 12, 1996
10(b) Security Agreement between Registrant and Hitachi
Metals, Ltd. dated May 30, 1995
10(c) Offer Letter dated April 19, 1995 between Maybank
Banking Berhad and Applied Magnetics (M) Sdn Bhd. for
extension of Credit Facility
10(d) Corporate Guarantee of the Registrant dated June 8,
1995 in favor of Maybank Banking Berhad
11 Statement re computation of per share information.
None
27 Financial Data Schedule
(b) Reports on Form 8-K. None
15
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED MAGNETICS CORPORATION
Dated: August 14, 1995 /s/ Craig D. Crisman
---------------------------------------
Craig D. Crisman
President and Chief Executive Officer
(Principal Financial Officer)
Dated: August 14, 1995 /s/ Peter T. Altavilla
---------------------------------------
Peter T. Altavilla
Corporate Controller
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT 10.(a)
LETTERHEAD OF APPLIED MAGNETICS
May 30, 1995
VIA FACSIMILE
-------------
011\81 3 3215 6853
Mr. S. Takemoto
Board Director, General Manager
Electronic Devices Division
Hitachi Metals, Ltd.
2-1-2 Marunouchi, Chiyoda-ku
Tokyo, Japan
Re: Extension of US$10,000,000 Letter of Credit
(435:95\RPL:sj)
Dear Mr. Takemoto:
As you are aware, Hitachi Metals, Ltd. ("HML") has arranged for The Bank of
Tokyo, Ltd. to issue an irrevocable clean transferable letter of credit ("L/C")
for the benefit of Union Bank (the "Bank") in the face amount of US$10,000,000
and with a current expiry date of June 9, 1995 (the "Expiry Date"). The L/C was
issued to support the obligations of Applied Magnetics Corporation ("AMC") owing
to the Bank in connection with the Revolving Credit Agreement between AMC and
the Bank dated February 13, 1992, as amended (the "Revolving Credit Agreement").
If the L/C is drawn on for any reason, HML is obligated to reimburse the Bank of
Tokyo, Ltd. for the amounts drawn. Pursuant to that certain letter agreement
dated September 25, 1992, between AMC and HML, as amended by subsequent letter
agreements dated August 29, 1994 and March 24, 1995 (the "Letter Agreement"),
AMC has agreed to reimburse HML for amounts owing by HML to The Bank of Tokyo,
Ltd. in connection with the L/C.
AMC has requested that HML arrange for the Expiry Date to be extended to April
12, 1996, and HML has agreed, subject to the terms and conditions of this
letter, to extend the Expiry Date to April 12, 1996. HML understands that the
Bank will extend the due date for repayment of AMC's obligations under the
Revolving Credit Agreement to March 29, 1996, as a result of such extension of
the Expiry Date of the L/C; provided, however, HML does not warrant or guarantee
in any way that such extension of the Revolving Credit Agreement will be granted
by the Bank. It is understood and agreed by AMC that the extension of the
Expiry Date of the L/C to April 12, 1996, is expressly subject to and contingent
upon extension of AMC's obligations under the Revolving Credit Agreement to
March 29, 1996. To induce HML to agree to extend the Expiry
<PAGE>
Mr. S. Takemoto
Re: HML/AMC L/C
May 30, 1995
Page 2
Date of the L/C, AMC has agreed to secure its reimbursement and other
obligations owing to HML under the Letter Agreement by providing HML with a
security interest and lien in or with respect to certain machinery, equipment
and other assets of AMC ("Collateral") as described in and in accordance with
the terms and conditions of that certain Security Agreement between AMC and HML
of even date herewith (the "Security Agreement").
Based on the foregoing, AMC and HML agree that on or before May 31, 1995 (the
"Closing Date"), or such other date as may be agreed to between the parties:
1. AMC and HML shall each have executed and delivered to each other copies of
this letter agreement and the Security Agreement;
2. HML shall have caused the maturity date of the L/C to have been extended to
April 12, 1996;
3. AMC and the Bank shall have entered into such agreements or amendments to
the Revolving Credit Agreement as are reasonably necessary and appropriate
to extend the maturity date thereof to March 29, 1996;
4. HML shall deliver or cause to be delivered to AMC a Request for Full
Reconveyance of all of HML's right, title and interest in the Deeds of Trust
with Assignment of Rents ("Deeds of Trust") previously executed and
delivered by AMC for the benefit of HML and covering AMC's real property
holdings in Santa Barbara County, California (together with such other
documents as are reasonably necessary and appropriate to reconvey and
transfer all of HML's interest in such real property, all in recordable form
and accompanied by such other documents, instruments and the like as are
reasonably required by Chicago Title Company to effect such reconveyance;
provided, however, that AMC shall be responsible for (a) making all
------------------
appropriate arrangements with Chicago Title for the release of the Deeds of
Trust and (b) paying all recording fees and reconveyance costs charged by
Chicago Title or others in connection with the release of the Deeds of
Trust);
<PAGE>
Mr. S. Takemoto
Re: HML/AMC L/C
May 30, 1995
Page 3
5. AMC shall furnish to HML UCC-1 Financing Statements and such other
documents, instruments and the like as are reasonably necessary to perfect a
first priority security interest in favor of HML in the Collateral;
6. Prior to the Closing Date AMC shall execute and deliver to HML or HML's
counsel UCC-1 Financing Statements covering the Collateral for filing with
the Secretary of State of California prior to closing. If for any reason the
Expiry Date of the L/C is not extended as contemplated by this letter
agreement, HML unconditionally and irrevocably covenants and agrees that it
will promptly, but in any event, within five (5) days following receipt of
written notice from AMC, deliver or cause to be delivered to AMC properly
executed UCC-2 Termination Statements terminating and releasing HML's
security interest and lien in the Collateral; and
7. AMC and HML shall each provide the other with such other documents,
agreements, and certificates, in form and substance reasonably satisfactory
to each party and their respective counsel, as are reasonably necessary and
appropriate to consummate the transactions contemplated herein and to
evidence the compliance with their agreements and covenants set forth
herein.
Notwithstanding anything to the contrary herein, the full satisfaction of AMC's
obligations set forth in paragraph 1,3,5, 6 and 7 above are conditions precedent
to HML's obligation to extend the Expiry Date of the L/C to April 12, 1996.
HML shall have no obligation to extend the Expiry Date beyond April 12, 1996,
unless and until HML and AMC shall have entered into a binding written agreement
to do so, upon terms and conditions which are satisfactory to HML in its sole
discretion (and AMC acknowledges that HML has no obligation to enter into any
such agreement).
<PAGE>
Mr. S. Takemoto
Re: HML/AMC L/C
May 30, 1995
Page 4
Kindly confirm HML's agreement with the foregoing by signing (where noted below)
and returning to me this letter agreement.
Very truly yours,
APPLIED MAGNETICS CORPORATION
/s/ Craig D. Crisman
Craig D. Crisman
President and Chief Executive Officer
ACCEPTED AND AGREED TO BY:
HITACHI METALS, LTD.
By /s/ S. Takamoto
________________________________
S. Takamoto
Board Director, General Manager
Electronic Devices Division
<PAGE>
EXHIBIT 10.(b)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement') is made and entered into as
of May 30, 1995, by and between Applied Magnetics Corporation, a Delaware
corporation, as debtor, with chief executive offices at 75 Robin Hill Road,
Goleta, California, 93117 (the "Company") and Hitachi Metals, Ltd., a juridical
person duly organized and existing under the laws of Japan with its head office
at 2-1-2 Marunouchi, Chiyoda-ku, Tokyo, Japan, as secured party (the "Secured
Party").
RECITALS
The Company and Secured Party are parties to that certain Letter Agreement
dated September 25, 1992, as amended by (a) letter agreements dated August 24,
1994, and March 24, 1995; and (b) the Extension Amendment, as defined herein
(collectively, the "Reimbursement Agreement").
It is a condition precedent to the transactions contemplated by the
Extension Agreement that the Company and HML enter into this Security Agreement.
Now therefore, in consideration of the mutual agreements, covenants and
promises set forth herein and in the Reimbursement Agreement and for other good
and valuable consideration, receipt of which is hereby acknowledged, the Company
and HML agree as follows:
1. Definitions
-----------
For purposes of this Security Agreement, the following terms and all other
terms defined in this Security Agreement shall have the meanings so defined
unless the context clearly indicates otherwise:
1.1 "Equipment" shall mean the machinery and equipment listed in
Attachment 1, whether now owned or hereafter acquired by the Company.
1.2 "AMC Orders" shall mean the purchase orders issued by the Company for
the procurement of certain items of machinery and equipment as listed
in Attachment 2.
1.3 "Surplus Items" shall mean the machinery and equipment listed in
Attachment 3.
1
<PAGE>
1.4 "Bank" shall mean Union Bank, a California banking corporation.
1.5 "Event of Default" shall have the meaning described in Section 7.1
hereof.
1.6 "Extension Amendment" shall mean that certain letter agreement dated
as of the date hereof whereby HML has agreed to extend the term of the
HML L/C to April 12, 1996.
1.7 "Credit Agreement" shall mean that certain Revolving Credit Agreement
dated as of February 13, 1992, by and between AMC and Union Bank as
amended from time to time.
1.8 "Release Event" shall have the meaning described in Section 4.1
hereof.
1.9 "HML L/C" shall mean the irrevocable letter of credit issued by The
Bank of Tokyo, Ltd. for the account of HML and for the benefit of
Union Bank in the face amount of U.S. $10.0 million to support the
obligations of the Company to the Bank in connection with the Credit
Agreement.
1.10 "Contract Rights" shall mean the Company's now existing and future
contract rights under or general intangibles (excluding Intellectual
Property) relating to the AMC Orders, including rights to deposits,
advance and progress payments and all rights to receive, inspect,
reject or otherwise dispose of goods and services thereunder.
1.11 "Secured Obligations" shall have the meaning described in Section 3
hereof.
1.12 "Union Amendment" shall mean the Amendment No. 8 to the Credit
Agreement to be dated on or before the Closing Date, pursuant to which
the maturity date of the Credit Agreement has been extended to March
29, 1996.
1.13 "Closing Date" shall have the meaning described in the Extension
Agreement.
2
<PAGE>
1.14 "Intellectual Property" shall mean any patents or utility models
issued throughout the world, including design patents and any
extension, renewal or reissue thereof and any patents based on
continuations, continuations in part or divisions of such issued
patents or utility models and any confidential or proprietary
information, inventions, software, processes, designs, data, know-how,
trade secrets, processes, formulas or methods.
1.15 "CIT Lien" shall mean the security interest and lien granted by the
Company to The CIT Group/Business Credit, Inc. ("CIT") pursuant to
that certain Financing Agreement dated January 11, 1995.
2. Grant of Security Interest. The Company hereby grants, assigns and
--------------------------
transfers to the Secured Party a continuing security interest in all of the
Company's right, title and interest in and to (a) the Equipment, and (b) the
Contract Rights, whether now owed or hereafter acquired, and all additions
and accessions thereto and replacements thereof and documents therefor,
including any documents of title representing any of the above, and all
products and proceeds thereof, whether tangible or intangible, and any and
all accounts, equipment, general intangibles (excluding Intellectual
Property), inventory, negotiable instruments or other negotiable collateral,
money, deposit accounts, or other tangible or intangible property resulting
from the sale, exchange, collection or other disposition of the Equipment or
Contract Rights, or any portion thereof or interest therein, and the
proceeds thereof (any and all of the foregoing being the "Collateral") to
secure the Secured Obligations.
3. Secured Obligations. This Security Agreement secures, and the Collateral is
-------------------
security for, the performance in full when due of all obligations of the
Company to the Secured Party under the Reimbursement Agreement, including,
but not limited to:
A. the payment to HML of any and all Drawdowns (as defined in the
Reimbursement Agreement), interest and other sums due or to become due
under this Reimbursement Agreement (and any amendments, extensions,
modifications, renewals or replacements thereof; and
B. the observance and performance of each agreement, covenant and
obligation of the Company herein contained or incorporated herein by
reference and payment of each fee, cost and expense owing by the
Company as herein set forth.
3
<PAGE>
4. Release of Security Interest
----------------------------
4.1 Release Events. Secured Party covenants and agrees that the security
--------------
interest, lien and all other claims of Secured Party on or with
respect to the Surplus Items shall terminate and be released upon
delivery by the Company to Secured Party of copies of packing slips
signed by the Company or, on its behalf, by one of the employees or
agents, evidencing receipt of all items in Schedule 4 of Attachment 1
("Receipt Documents") and confirmation, to HML's reasonable
satisfaction, of HML's perfected first priority security interest in
the Equipment listed in Schedule 4 of Attachment 1 (herein a "Release
Event").
4.2 Delivery of Release. Upon the request of the Company, after delivery
-------------------
to Secured Party of copies of the Receipt Documents, the Secured Party
shall deliver or cause to be delivered to the Company, executed form
UCC-2 partial termination or release documents and such other
instruments as are reasonably necessary, in the opinion of the
Company's counsel, to confirm the release of the Surplus Items from
the lien of this Security Agreement and shall terminate its security
interest with respect thereto.
5. Representations and Warranties. The Company hereby represents and warrants
------------------------------
as follows:
5.1 Prior Encumbrances. Except for the CIT Liens, which AMC covenants
------------------
will have been released as to the Collateral on or before the Closing
Date, the Company has good and indefeasible title to the Collateral,
free and clear of all liens, security interests or encumbrances
(except in favor of HML). None of the Collateral has been purchased by
the Company within the six (6) month period preceding the date of this
Security Agreement, except for sales to the Company in the ordinary
course of the vendors' or suppliers' business.
5.2 Location of Equipment. Except for temporary relocations of certain
---------------------
items of Equipment for repairs and maintenance in the ordinary course
and as contemplated under Section 6.4 hereof: (a) the Equipment is not
now and shall not at any time hereafter be stored with a bailee,
warehouseman, or
4
<PAGE>
similar party without HML's prior written consent and (b) the Company
shall keep the Equipment only at the following locations:
75 Robin Hill Road
Goleta, County of Santa Barbara, California; or
6300 Hollister Avenue
Goleta, County of Santa Barbara, California
None of the Equipment has been located, during the six (6) month
period prior to the Closing Date, in any jurisdiction other than the
county and state set forth in this Section 5.2.
5.3 Location of Principle Office. The chief executive office of the
----------------------------
Company is located at the address indicated in the first paragraph of
this Agreement and the Company covenants and agrees that it will not,
without thirty (30) days prior written notification to HML, relocate
such chief executive office.
5.4 Due Organization and Qualification. The Company is and shall at all
----------------------------------
times hereafter be, duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation and as a
foreign corporation to do business in and is in good standing in such
other states in which the nature of its business or its ownership of
the Collateral requires that it be so qualified.
5.5 Due Authorization; No Conflict. The execution, delivery and
------------------------------
performance of this Security Agreement and the Reimbursement Agreement
are within the Company's corporate authority, have been duly
authorized by all necessary corporate action and are not in conflict
with nor constitute a breach of any provision contained in the
Company's Articles or Certificate of Incorporation, or Bylaws nor,
provided the release of the CIT Lien is obtained as described in
Section 5.1 above and the Union Amendment is entered into on or before
the Closing Date, will they constitute an event of default under any
material agreement to which the Company is a party.
5
<PAGE>
5.6 Reliance by HML. Each warranty and representation contained in this
---------------
Security Agreement shall be conclusively presumed to have been relied
on by HML regardless of any investigation made or information
possessed by HML.
6. Covenants Concerning the Collateral. The Company covenants and agrees:
-----------------------------------
6.1 Condition of Collateral. To maintain the Collateral in good condition
-----------------------
and repair, normal wear and tear excepted, and shall, from time to
time, make or cause to be made, all needed and proper replacements,
repairs, renewals and improvements so that the efficiency of the
Collateral shall not be impaired.
6.2 Collateral List. To keep accurate and complete records with respect to
---------------
the Collateral in a manner consistent with the ordinary course of its
business and to permit the representatives of Secured Party at any
time during normal business hours, with prior notice, to call at the
Company's place of business or such other place where the Collateral
or any part thereof may be held or located to inspect the Collateral.
6.3 Additional Filings. To cooperate with Secured Party in preparing,
------------------
executing and filing all financing statements, continuation statements
and instruments necessary to provide Secured Party continuously with a
perfected first priority security interest in the Collateral.
6.4 Collateral Location and Removal. To not remove or permit the removal
-------------------------------
of, encumber, lease, sell, exchange or otherwise dispose of any item
or portion of the Collateral, except for maintenance and repair
activities in the ordinary course of business within the state of
California, from the Company's principal places of business in Goleta,
California. The foregoing notwithstanding, the Company may transfer
and relocate some or all of the items of Equipment listed in Schedule
4 of Attachment 1 to the Company's subsidiary in Penang, Malaysia,
Applied Magnetics (M) Sdn. Bhd. ("AMM") on an intercompany loan or
lease basis with the Company retaining title therein (such Equipment
as loaned or leased to AMM being referred to as the "Loaned
Equipment"); provided, however, that, prior to the delivery of such
Loaned Equipment to AMM, the Company shall provide not less than
twenty-one (21) days (in the case of items 2 and 4-6) and thirty (30)
days (in the case of items 9 and 10) prior
6
<PAGE>
written notice to Secured Party and further provided that the Company
shall, at Secured Party's election, either (a) arrange for the
continuation of a perfected first priority security interest and lien,
or its equivalent under the laws of Malaysia, in favor of Secured
Party with respect to such Loaned Equipment and, in connection
therewith, execute and deliver all such assignments, charges, lien
recordations and other similar documents and instruments as are
reasonably necessary and appropriate or (b) provide replacement or
substitute items of machinery and equipment (of reasonably equivalent
net book value and type as the items of Loaned Equipment, reasonably
approved by Secured Party) as additional Collateral which replacement
or substitute items are to be subject of a first priority perfected
security interest in favor of Secured Party. Notwithstanding anything
contained herein to the contrary, Secured Party agrees that if
requested by the Company, Secured Party will not unreasonably elect to
require that the Company provide replacement or substitute items as
described in clause (b) of the preceding sentence if the Company can
provide to and in favor of Secured Party a deed of assignment in form
satisfactory for registration with the Registrar of Companies in
Malaysia granting to Secured Party a first priority perfected security
interest in such Loaned Equipment, which deed of assginment will
include or be accompanied by such other documents as are reasonably
necessary to provide to Secured Party, such rights and remedies as are
substantially equivalent (in AMC's reasonable view) to those set forth
in this Agreement, including, but not limited to, Section 8.2 hereof.
With respect to items 1A, 3, 7 and 8 on Schedule 4 of Attachment 1,
the Company represents that such items presently have the status of
Loaned Equipment; and, in connection therewith, the Company agrees
that it shall, on or before June 9, 1995, and at Secured Party's
election, undertake to provide a Malaysian Security Interest or
substitute Collateral security in accordance with clauses (a) and (b)
hereinabove. In addition, as to Item 1, Equipment on Schedule 4 of
Attachment 1, the Company shall provide written notice to Secured
Party of the occurrence of such Equipment being located at AMM as
Loaned Equipment, which written notice shall be issued to Secured
Party within three (3) business days of the occurrence of such event.
With respect to each of such Item 1 Equipment, the Company shall, on
or before ten (10) business days of such foregoing written notice to
Secured party and at Secured party's election, undertake such
Malaysian security interest or substitute Collateral security in
accordance with parts (a) and (b) above.
7
<PAGE>
6.5 Insurance. To maintain at all times with respect to the Collateral
---------
insurance against risks of fire, so-called extended coverage, and
other risks customarily insured against by companies engaged in
similar business to that of the Company in amounts, containing such
terms including reasonable deductibles, in such form, for such periods
and written by such companies as are consistent with the ordinary
course of the Company's business. All policies of insurance shall
provide for a ten (10) day written cancellation notice to Secured
Party. In the event of failure to maintain such insurance, Secured
Party may, at its option, obtain such insurance as Secured Party may
require at the expense of the Company. All such policies of insurance
shall be in such form, with such companies, and in such amounts as may
be satisfactory to HML. All such policies of insurance (except those
of public liability and property damage) shall contain a 438BFU
lender's loss payable endorsement, or an equivalent endorsement, in a
form satisfactory to HML, showing HML as loss payee thereof, and shall
contain a waiver of warranties. The Company shall deliver to HML
certified copies of such policies of insurance and evidence of the
payment of all premiums therefor. From and after an Event of Default,
all proceeds payable under any such policy shall be payable to HML to
be applied on account of the Secured Obligations.
6.6 Further Assurances. To execute and deliver to Secured Party any and
-------------------
all additional instruments or documents and do all things which
Secured Party from time to time may reasonably deem necessary or
convenient to carry into effect the provisions of this Security
Agreement.
7. Release of Equipment. In any instance where the Company, in its sole
--------------------
discretion, determines that any items of Equipment have become obsolete,
worn out, unsuitable, inappropriate or unnecessary for its purposes, and so
long as no Event of Default has occurred and is continuing hereunder, the
Company may remove such items from the locations set forth in Section 6.4
and sell, trade-in, exchange or otherwise dispose of them (as a whole or in
part) without any responsibility or accountability to Secured Party
therefor, provided that the Company shall (i) first obtain HML's written
consent prior to taking any such actions with respect to any item of
existing Equipment that has a net book value equal to or greater than
$200,000 as reflected in Attachment 1 (which consent shall not be
unreasonably withheld) and (ii) substitute and install in the applicable
location set forth in Section 6.4 additional or replacement equipment
8
<PAGE>
(which was not previously subject to HML's security interest) having a net
book value equal or greater than the amount set forth on Attachment 1
(attached to this Agreement) for the item of equipment which the Company
proposes to dispose of, all of which substituted equipment shall be free of
all security interests, liens or encumbrances (except in favor of HML) and
shall become part of the Collateral hereunder (and the Company hereby grants
a security interest in such substituted equipment to HML).
8. Events of Default and Remedies
------------------------------
8.1 Events of Default. The occurrence of any of the following events
-----------------
shall constitute an "Event of Default" hereunder:
A. The Company shall have failed to make any payment when due under
the Reimbursement Agreement or to perform any other obligations
under the Reimbursement Agreement;
B. The Company shall have failed to observe or perform any term,
covenant, promise or agreement on the Company's part to be observed
or performed under this Security Agreement and the same shall not
have been cured or corrected within thirty (30) days after notice
thereof is given by Secured Party to the Company; provided,
however, that this Section 8.1B shall not apply in any case
specifically provided for by another section of this Section 8.1.
C. There is a material impairment of the priority of HML's security
interests in the Collateral.
D. Any material portion of the Company's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon and such
attachment, seizure, writ or warrant is not stayed, vacated or
dismissed within sixty (60) days following the commencement of
filing thereof or comes into the possession of any person or entity
(other than the Company).
E. A proceeding is commenced by or against the Company under any
provision of the United States Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors.
9
<PAGE>
F. The Company is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or a material part of
its business affairs.
G. If a notice of lien, levy or assessment is filed of record with
respect to all or substantially all of the Company's assets by the
United States Government, or any department, agency or
instrumentality thereof, or by any state, county, municipal or
governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon all or substantially all of the
Company's assets and the same is not paid on the payment date
thereof; provided, however, that the Company shall not be deemed to
be in default under this paragraph G if it is contesting, by
appropriate proceedings, any such taxes or debts and it has
established appropriate reserves in connection therewith.
8.2 Remedies Upon Event of Default.
------------------------------
A. Remedies. Upon the occurrence and during the continuance of an
---------
Event of Default, the Secured Party shall have all rights and
remedies of a secured party under the California Uniform Commercial
Code (the "Code"), and, in addition, the following rights and
remedies, all of which, except as otherwise specified herein or
required by law, may be exercised with or without notice to the
Company and without affecting the Secured Obligations of the
Company or the enforceability of the security interest created
hereby:
(i) to foreclose the liens and security interest created hereunder
by any available judicial procedure or without judicial
process;
(ii) to secure, protect, insure, inventory, appraise, inspect,
repair, preserve, store, prepare, render unusable, remove and
process the Collateral and enter upon any premises where any
Collateral may be located for any such purpose;
10
<PAGE>
(iii) to require the Company to assemble the Collateral and make it
available to the Secured Party at places that the Secured Party
may reasonably designate, whether at the premises of the
Company or elsewhere;
(iv) to sell, assign, lease or otherwise dispose of any Collateral,
or any part thereof, either at public or private sale; and
(v) to make such payments and do such acts as the Secured Party may
deem necessary to protect its security interest in the
Collateral and perform any obligation of the Company under this
Security Agreement.
B. Cumulative Remedies. The Secured Party shall have the right to enforce
-------------------
one or more remedies hereunder successively or concurrently, and any
such action shall not estop or prevent the Secured Party from pursuing
any further remedy that it may have hereunder or by law.
9. Miscellaneous
-------------
9.1 Expenses. Each party shall bear the expenses (including, without
--------
limitation, attorneys' fees) incurred by it in connection with the
negotiation, execution and delivery of this Security Agreement and the
consummation of the transactions contemplated by this Security
Agreement. In the event any party files suit or takes other action to
enforce any of the terms of this Security Agreement, the prevailing
party shall be entitled to recover its attorneys' fees and costs from
the other party.
9.2 Security Interest Absolute. All rights of the Secured Party
--------------------------
hereunder, the security interest, and all obligations of the Company
hereunder, shall be absolute and unconditional irrespective of:
11
<PAGE>
A. Invalidity or Unenforceability. Any lack of validity or enforceability
------------------------------
of the Reimbursement Agreement, any agreement with respect to any of
the Secured Obligations or any other agreement or instrument relating
to any of the foregoing.
B. Amendments or Waivers. Any change in the time, manner or place of
---------------------
payment of, or in any other term of, all or any of the Secured
Obligations, or any renewal or extension of all or any of the Secured
Obligations or any other amendment or waiver of or any consent to any
departure from the Reimbursement Agreement or any other agreement or
instrument.
C. Other Circumstances. Any other circumstance that might otherwise
-------------------
constitute a defense available to, or a discharge of, the Company in
respect of the Secured Obligations or in respect of this Security
Agreement.
9.3 Headings. The Section and other headings contained in this Security
--------
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Security Agreement.
9.4 Governing Law. The validity, construction and performance of this
-------------
Security Agreement, and any suit, action or proceeding arising out of
or relating to this Security Agreement, shall be governed by the laws,
without regard to the laws as to choice or conflict of laws, of the
State of California.
9.5 Entire Agreement. This Security Agreement, including the Attachment
----------------
embodies the entire agreement and understanding between the parties
pertaining to the subject matter of this Security Agreement, and
supersedes all prior agreements, understanding, negotiations,
representations and discussions, whether verbal or written, of the
parties, pertaining to that subject matter. Notwithstanding the
foregoing, nothing contained herein shall be deemed to amend, waive,
modify, rescind, change or extinguish, in any manner whatsoever, any
limitations or restrictions on the Company's liability, which are set
forth in the Reimbursement Agreement.
12
<PAGE>
9.6 Assignment. Neither this Security Agreement nor any rights under this
----------
Security Agreement may be assigned by either party.
9.7 Binding Effect. The provisions of this Security Agreement shall bind
--------------
and inure to the benefit of the parties and their respective
successors.
9.8 Notices. Any notice or communication required or permitted by this
-------
Security Agreement shall be deemed sufficiently given if in writing
and, if delivered personally, when it is delivered or, if delivered in
another manner, the earlier of when it is actually received by the
party to whom it is directed or when the period set forth below expires
(whether or not it is actually received):
(a) if transmitted by telecopier or facsimile transmission (fax)
twenty-four (24) hours after (i) transmission to the other party's
telecopier number set forth below, with the party's name and
address set forth below clearly shown on the page first
transmitted, and (ii) receipt by the transmitting party of written
confirmation of successful transmission, which confirmation may be
produced by the transmitting party's equipment;
(b) if deposited with the U.S. Postal Service, postage prepaid, and
addressed to the party to receive it as set forth below, ten (10)
days after such deposit as registered or certified mail; or
(c) if accepted by Federal Express or a similar delivery service in
general usage for delivery to the address of the party to receive
it as set forth below, 24 hours after the delivery time promised by
the delivery service:
If to AMC:
75 Robin Hill Road
Goleta, CA 93117
Attention: General Counsel
Fax No. 805\967-2677
13
<PAGE>
If to HML:
Kishimoto Building
2-1 Marunouchi, 2-Chome
Chiyoda-ku, Tokyo, Japan
Attention: General Manager, Electronic Devices Division
Thin Film Head Department
Fax No. 011\81 3-3215-6853
9.9 Counterparts. This Security Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute a single agreement.
9.10 Amendment and Waiver. This Security Agreement may be amended,
--------------------
modified or supplemented only by a writing executed by each of the
parties. Any party may in writing waive any provision of this
Security Agreement. No waiver by any party of a breach of any
provision of this Security Agreement shall be construed as a waiver
of any subsequent or different breach, and no forbearance by a party
to seek a remedy for noncompliance or breach by another party shall
be construed as a waiver of any right or remedy with respect to such
noncompliance or breach.
9.11 Venue, Jurisdiction and Process. The parties agree that any suit,
-------------------------------
action or proceeding arising out of or relating to this Security
Agreement, or the interpretation, performance or breach of this
Security Agreement, shall be instituted in the United States District
Court for the Central District of California or any court of the
State of California, located in Santa Barbara County, and each party
irrevocably submits to the jurisdiction or venue that it may have
under the laws of the State of California or otherwise in those
courts in any such suit, action or proceeding.
9.12 Severability. The invalidity or unenforceability of any particular
------------
provision of this Security Agreement shall not affect the other
provisions, and this Security Agreement shall be construed in all
respects as if any invalid or unenforceable provision were omitted.
14
<PAGE>
9.13 Holidays. If any date on which action is to be taken under this
---------
Security Agreement occurs, or if any period ends, on a Saturday,
Sunday, or a day on which banking institutions in California are
authorized or obligated by law or executive order to close, the date
or period shall be extended to the next succeeding day which is not a
Saturday, Sunday or a day on which banking institutions in California
are authorized or obligated by law or executive order to close.
9.14 Further Action. Each party agrees to perform any further acts and to
--------------
execute and deliver any other documents which may be reasonably
necessary to effect the provisions of this Security Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed as of the date and year first above written.
COMPANY: SECURED PARTY:
APPLIED MAGNETICS CORPORATION HITACHI METALS, LTD.
By /s/ Craig D. Crisman By /s/ Koji Matsumo
----------------------------------- --------------------------------
Craig D. Crisman Koji Matsuno, President
President & Chief Executive Officer
15
<PAGE>
ATTACHMENT 1
============
CONFIDENTIAL
============
APPLIED MAGNETICS CORPORATION
EQUIPMENT AND MACHINERY
(052395)
SCHEDULE 1
ASSET NO. DESCRIPTION ACQ VALUE NBV
-------- ----------- --------- ----
11895 Electroglass Model 2001X $ 105,510 $ 17,682
11925 Nanometrics Measure System 68,871 14,787
11932 Dexon Plating Base Etch 254,319 42,620
12128 Nanometrics Model #210 ME 53,643 15,397
12295 Innotech Sputtering System 346,890 123,905
12600 6" UltraFab CU Etch Station 124,632 54,881
12608 Plasma for 6" wafer 133,887 65,735
12646 Ion Gun/Controller 87,298 34,919
12883 SVG Coater & Developer 160,747 91,607
12902 Amray System 323,925 190,046
12925 Rinser-Dryer 6 Inch 91,687 52,179
12933 Misc. Equipment 6 Inch 271,572 154,552
12938 Mask Cleaner 6 Inch 61,767 35,152
12830-00 6" Wafer Project 183,691 122,422
12944 RFD Mod 6 Inch 280,605 159,693
12948 6 Inch Flatness 130,693 74,378
13123 6" Irvine Optical Miscrsc 105,524 65,201
13145 Water Processing Equipment 154,964 101,299
13256 ConfocalMicroscope 85,574 58,794
13284 6" Hot Plate 185,348 123,527
13377 SSEC 156 Mask Scrubber 77,500 51,667
13403 Omicorn X-ray Microfluores 151,978 103,742
13408 6 In Particle Inspect 125,034 85,349
13547 Atomic Force M Scope 184,332 129,032
13694 Confocal Microscope 115,470 90,451
13769 Update CU Plating Bench 58,213 38,809
13770 10 Hotplates 62,115 41,410
14018 Exhaust Bench with Hot Plates 55,272 42,900
14078 Exhaust Bench with Hot Plates 55,096 44,383
14136 Upgrade-Dexon Wet Bench 55,620 47,895
14147 Auto Wet Process Station 894,024 849,323
01146200 Stepper Mask Aligner 345,078 11,503
14138 Nonometrics Measurement System 125,389 114,940
14070 Spin Rince Dryer-Doublestack 124,807 108,166
14145 ST22 Strip Bench MRPRSO2 122,961 112,715
14025 SHB 100D Hysteresis Loop Trac 108,651 84,505
14089 G350 Vacuum Bake Oven 65,478 58,930
SUBTOTAL SCHEDULE 1 $6,468,715 $3,629,353
========== ==========
<PAGE>
SCHEDULE 2
ASSET NO. DESCRIPTION ACQ VALUE NBV
--------- ----------- --------- ---
12602 Coater Track 3"/6" $ 263,998 $ 129,606
11646 Nordiko Mife Sputtinger System 820,140 729,014
12945 6 Inch Blazers 856,935 487,684
12945-001 6 Inch Blazers 447,777 298,424
13150 6 In Dektak. 153,896 97,585
13208 6" Lead Lock 315,866 205,403
13220 Ion Mill Track Trimming 444,718 287,288
13220-001 Ion Mill Track Trimming 102,342 82,442
13989 Ultrasonic Cleaning System 105,573 89,737
14061 Matrix Stripper 163,603 155,423
14074 Strasbaugh Lapping System 620,854 538,073
14162 Nordiko 5 RFM 755,402 713,434
14205 Innotec DS-24 (RFD)-RF16 310,675 305,497
24206 Innotec DS-24(RFD)-RF15 310,675 305,497
14263 Rite Track Coater (Recondition) 217,752 217,752
14266 Nanometrics 4000 102,944 102,944
14267 Nanometrics 4000 102,944 102,944
14268 Tencor P-2 Profiler 100,636 100,636
14159 Nordiko Sputtering System 973,986 892,816
11647 SD 4000 Ellipsometer 353,296 329,743
SUBTOTAL SCHEDULE 2 $7,524,012 $6,171,942
========== ==========
SCHEDULE 3
12864 TPC Product Process Devel 940,541 215,817
12435 Crest Auto Wet Bench 368,664 99,056
12885 TPC Process Tooling 350,082 80,330
14139 WCO Expansion for Integrat 172,125 166,388
11961 Wyoko 165,698 2,761
13290 P. Wolters DD Lapper 123,836 4,492
13291 Wyko Prod Tester System 116,773 1,297
14083 RLG Lapping Machine RLG 96,034 74,693
14088 RLG Lapping Machine RLG-7 96,034 74,693
14085 RLG Lapping Machine RLG-1 96,034 74,693
14084 RLG Lapping Machine RLG-5 96,034 74,693
12267 Wyko Interfrometer 92,517 3,154
14206 Row Bow Measurement System 80,544 77,860
13286 Auto Brush Cleaning System 70,473 23,859
14082 RLG Lapping Supplies & Tool 64,737 35,965
14293 Spare Parts/Supplies 60,625 60,625
14133 OLI System 60,361 54,324
13854 RLG Transfer Tooling 55,734 28,978
13618 Coin Master Lapper Spitfire 52,761 37,812
SUBTOTAL SCHEDULE 3 $3,159,607 $1,191,490
========== ==========
<PAGE>
AMC CONFIDENTIAL
================
ATTACHMENT 2
(AMC ORDERS)
052495
<TABLE>
<CAPTION>
ADVANCE
DEPOSITS/PROGRESS
PO NUMBER VENDOR DESCRIPTION/QUANTITY PAYMENTS
<S> <C> <C> <C>
AC40909M Advanced Imaging RLG Machines (18) $540,281
AC40909M Advanced Imaging RLG Machines (8)
AV48461 Advanced Engineering Products 7035 Strip/Clean System (1) 56,703
AV50625M AIO Micro Service Rebuilt SVG 8120 Scrubber (1) 37,900
AV48489 Commonwealth Scientific Ion Mill (1) 174,000
AV50654M Engineered Product Sales Conveyor Oven (2) 13,794
AV49537 McBain Instruments Stepper/Aligner (2) 152,668
AV48421 McBain Instruments Stepper/Aligner (2) --
WW37181 Nordiko ABSOC System (MR) (1) --
AV51965M Zygo New View 100 System (1) -0-
AV51987M Zygo New View 100 System (1) -0-
</TABLE>
<PAGE>
SCHEDULE 4
ITEM DESCRIPTION (QUANTITY) NBV
---- ---------------------- ---
1 RLG Machines (18) $1,080,562
1A RLG Machines (8)
2 7035 Strip/Clean System (1) 160,580
3 Rebuilt SVG 8120 Scrubber (1) 37,900
4 Ion Mill (1) 580,000
5 Conveyor Oven (2 Each) 53,676
6 Stepper/Aligner (2) 334,930
7 Stepper/Aligner (2) 334,930
8 ABSOC System (MR) 635,835
9 New View 100 System (1) 101,000
10 New View 100 System (3) 303,000
SUBTOTAL SCHEDULE 4 $3,622,413
==========
SUMMARY
ACQUISITION VALUE NBV
----------------- ---
Schedule 1 $6,468,715 $3,629,353
Schedule 2 $7,524,012 $6,171,942
Schedule 3 $3,159,607 $1,191,490
Schedule 4 $3,622,413 $3,622,413
ORIGINAL COST NBV
=======================================
$20,774,747 $14,615,198
=======================================
<PAGE>
ATTACHMENT 3
CONFIDENTIAL
============
APPLIED MAGNETICS CORPORATION
(SURPLUS ITEMS)
ASSET NO. DESCRIPTION ACQ VALUE NBV
--------- ----------- --------- ---
11932 Dexon Plating Base Etch $254,319 $ 42,620
12883 SVG Coater & Developer 160,747 91,607
12933 Misc. Equipment 6 Inch 271,572 154,552
13769 Update CU Plating Bench 58,213 38,809
14018 Exhaust Bench w/Hot Plates 55,272 42,900
14078 Exhaust Bench w/Hot Plates 55,096 44,383
14136 Upgrade-Dexon Wet Bench 55,620 47,895
<PAGE>
Maybank
Our Ref: CBD/IS/TCE/jl/AMM-LO
PRIVATE & CONFIDENTIAL
APRIL 19, 1995
APPLIED MAGNETICS (M) SDN BHD
(HEREINAFTER ALSO REFERRED TO AS THE "COMPANY" OR "AMM")
Plot 201, Phase 3
Bayan Lepas Free Trade Zone
11900 Bayan Lepas, Penang
ATTN: RN. MOHAMMAD NASIR HANIFAH
---------------------------------
Dear Sir,
RE: BANKING FACILITIES
-----------------------
Following a review of your account, we are pleased to advise that our Bank
(hereinafter also referred to as "the Bank" or "Maybank") will continue to
extend banking facilities to your COMPANY under the following terms and
conditions:
TYPE OF FACILITIES/LIMIT:
TYPE LIMIT
---- -----
Overdraft ("OD") ]
Bankers Acceptance (180 days) ("BA") ]
Islamic Accepted Bills (180 days) ("IAB") ]
Export Credit Refinancing ]
(Pre & Postshipment) ("ECR") ]
Interest Free Export Credit Refincing ]
(Pre & Postshipment) ("IECR") ] RM120,000,000.00
Foreign Bills of Exchange Purchased ]
(180 days) ("FBEP") ]
Onshore Foreign Currency Loan ("OFCL") ]
Bankers Guarantee ("BG") ]
Foreign Exchange Contract RM 40,000,000.00
(Spot & Forward) ("FEC")
Note: RM denotes Malaysian Ringgit currency
MALAYAN BANKING BERHAD
45th Floor, Komtar, 100000 Pulau Pinang
Tel: (Regional Manager) 04-612441 (General) 04-610117, 616507, 616509, 616529
Fax: 04-618042
1
<PAGE>
INTEREST/COMMISSION: OD Our Bank's Base Lending Rate ("BLR")
BA/IAB 0.75% p.a. Acceptance Commission
ECR/IECR Bank Negara Malaysia ("BNM")
Discount Rate +0.5% p.a.
FBEP Our Bank's Foreign Centre Rate
OFCL US$ Currency
------------
1.25% + Singapore Interbank Offered Rate
("SIBOR") for 1, 3, or 6 month deposit
Other Currencies
----------------
1.5% + Bank's Cost of Fund for the particular
currency
BG 0.125% per mensem subject to a minimum of RM25-00
FEC Our Bank's Treasury Quotes
Currently, our BLR is at 6.80% p.a. (w.e.f. 18/03/95)
The Bank reserves the right to vary from time to time the
rate of interest, commission and/or charges at its
absolute discretion
PURPOSE OD For working capital
BA/IAB To finance sales/purchases to/from
resident/non-residents
ECR/IECR To finance export of goods eligible under the
BNM ECR scheme
FBEP For purchase of foreign bills or cheques
OFCL To finance importation of raw materials and/or
exports in accordance with approval from BNM
2
<PAGE>
BG For issue of guarantees in lieu of earnest moneys
or deposits for utilities, custom duties, supply
performance and other guarantee requirements in
connection with the operation of the business
FEC For forward purchases and sales of foreign
currencies in connection with trade transactions
REPAYMENT Subject to yearly review
The Bank reserves the right to recall/cancel the facility
at any time it deems fit without assigning any reason
thereto and is repayable on demand.
SECURITY a) Fresh corporate guarantee by Applied Magnetics
Corporation, USA (hereinafter also referred to as
"AMC") for RM 124.0 million on the Bank's prescribed
format
b) Negative Pledge on the Bank's prescribed format
c) Lienholder's caveat on the factory land at Bayan Lepas
Industrial Estate, Penang held under the following
document title particulars:
H.S. (D) 2745-MK12
P.T. No: PTBP/A/23/80
DAERAH BARAT DAYA PULAU PINANG
OTHER TERMS AND
CONDITIONS a) The OD utilization is subject to a sublimit of RMO.1
million provided always that the total outstanding
utilization of the combined trade facilities
(excluding FEC) at any point in time does not exceed
RM 120.0 million
3
<PAGE>
b) The ECR/IECR utilization is subject to a sublimit of
RM 50.0 million specified under BNM guidelines
provided always that the total outstanding utilization
of the combined trade facilities (excluding FEC) at
any point in time does not exceed RM 120.0 million
c) The execution of the corporate guarantee and negative
pledge and all related necessary legal documentation
are to be completed within 6 weeks from the date
hereof
The executed negative pledge is to be registered with
the Registrar of Companies within 6 weeks from the
date hereof
Registration of the Lienholder's caveat with the
relevant statutory authorities is to be completed not
later than 3 months from the date hereof. In any
event, all documents required for the lodgement of the
caveat as advised by the Bank's panel solicitor are to
be executed in escrow and deposited with the Bank's
panel solicitor within 6 weeks from the date hereof.
d) AMM is to provide the Bank with a copy of the formal
application to Penang Development Corporation
requesting for consent for the creation of a
Lienholders' Caveat on the COMPANY's factory land in
favour of Maybank, not later than 3 weeks from the
date hereof.
e) A certification by the external legal counsel firm of
--------
AMC stating to the effect of the following is to
accompany the executed corporate guarantee:
1. AMC under its bylaws and the laws of the State of
California, USA is empowered to provide the
corporate guarantee for the credit facilities
extended to AMM by Maybank
4
<PAGE>
2. AMC has taken all the necessary and appropriate
actions to obtain authorization for the execution
and the performance of the corporate guarantee.
3. The signatories (names) are authorized by the
relevant laws of the State of California, USA and
bylaws of AMC to execute the corporate guarantee
on behalf of AMC.
4. The manner of execution of the corporate guarantee
is in compliance with the relevant laws of the
State of California, USA and bylaws of AMC.
5. The corporate guarantee is legally valid, binding
and enforceable against AMC under the laws and in
the courts of law of the State of California, USA
f) Applied Magnetics (M) Sdn Bhd is to remain a wholly
owned subsidiary of AMC either directly or through
intermediate holding companies, and any dilution or
restructure of AMC's shareholdings in AMM requires the
specific written consent of Maybank.
g) Quarterly submissions of financial results not later
than 2 weeks from the quarterly closing date
h) Maybank is to be registered as loss payee of existing
insurance policy covering the assets and earnings of
AMM, within 1 month from the date hereof, evidenced by
a written confirmation from the insurance COMPANY, and
a certified true copy of the insurance policy.
i) As per Annexure I & II attached
Please confirm your acceptance of the above terms and conditions by:
5
<PAGE>
a. signing and returning to us the enclosed copy of this letter within fourteen
(14) days from the date of this letter, failing which this offer will lapse,
and the bank reserves the right to recall and cancel the facilities;
b. forwarding to us two certified true copies of your Board's resolution
accepting the facilities herein and authorizing the execution of the
necessary documents in connection therewith;
c. forwarding to, or arranging for, receipt by us, of the Corporate Guarantee
by Applied Magnetics Corporation, USA for RM 124.0 million; and
d. forwarding to us the Negative Pledge, in the terms of the form enclosed, on
your letterhead and executed by your duly authorized signatory(ies).
Upon receipt of your acceptance of the Bank's offer we shall advise the Bank's
solicitors to prepare the necessary documentation, if any, with such terms as
the solicitors may advise and to take the necessary steps to perfect the Bank's
security. The obligation of the Bank to make available the banking facilities
shall be subject to execution of such documentation and the steps as advised by
the Bank's solicitors having been taken.
We look forward to your acceptance of the offer.
Thank you.
Yours faithfully,
for Maybank
s/Toh Cheng Eng s/Tham Chin Choy
------------------------------------ ----------------------------------
Manager Account Manager
Corporate Business Unit Corporate Business Unit
Penang/Kedah/Perlis Penang/Kedah/Perlis
cc The Branch Manager
Maybank
Bayan Lepas
6
<PAGE>
We hereby confirm acceptance of all the above terms and conditions.
s/ Ian Stuart Footer
--------------------
IC No.
duly authorized signatory of Applied Magnetics (M) Sdn. Bhd.
s/ Muhammad Nasir Hanifah
-------------------------
IC No.
duly authorized signatory of Applied Magnetics (M) Sdn. Bhd.
7
<PAGE>
ANNEXURE I
----------
SPECIFIC TERMS AND CONDITIONS
-----------------------------
1. CONDITIONS PRECEDENT
The utilization of the banking facilities shall be subject to the
satisfactory completion of documentation and of any further conditions as
advised by solicitors of the Bank which may be necessary to perfect the
security of the Bank or which a reasonable, prudent bank may require.
2. FOR OVERDRAFT FACILITY
(a) A commitment fee of 1% p.a. or such higher rate as shall be imposed by
the Bank at any time and from time to time shall be levied on any part
of the overdraft which is unutilized.
(b) In the event the Bank shall demand repayment of the facility, or, the
amount outstanding on the facility shall exceed the limit of the
facility (whether such excess shall arise as permitted from time to
time by the Bank or by any debit to the account of the Borrower which
the Bank is entitled to make) the Borrower shall be liable, without
prejudice to any other right or remedy of the Bank, to pay
additional interest upon the amount outstanding and unpaid upon demand
for repayment of the facility, or, the amount in excess of the limit of
the facility as the case may be, at the rate of one percentum (1%) per
annum, or such other higher rate as shall be imposed by the Bank at any
time and from time to time, above the Prescribed Rate of interest.
Additional interest shall accrue from day to day (both before and after
any demand for repayment of the facility or any judgment in respect
thereof) and remaining unpaid shall be debited to the account of the
Borrower at the end of every calendar month and be liable thereupon to
additional interest as herein provided.
3. FOR ONSHORE FOREIGN CURRENCY LOAN
Condition
---------
(a) Each drawdown must be for a minimum of US$50,000.00 or its Ringgit
equivalent in other currencies.
(b) The eligible amount of financing is 100% the value of the
invoice/import bill or part thereof.
8
<PAGE>
(c) Period of financing for each drawdown are as follows:
US Dollar: Should not be less than fourteen (14) days (from date of
drawdown) or more than six (6) months (from date of
drawdown).
For Other
Currency: Should not be less than one (1) month (from date of
drawdown) or more than six (6) months (from date of
drawdown).
(d) Financing under usance term is also eligible (for both US Dollar and
other currencies). The aggregate maximum period of financing inclusive
of the usance period should not be more than 180 days.
(e) That a Letter of Undertaking (as per specimen enclosed) be executed
giving authority to the Bank to debit your current account with Ringgit
equivalent of the principal plus interest sum on maturity date of OFCL
(at the prevailing exchange rate) and to charge a penalty interest at
the rate of 1% above the prevailing OD rate should the account be
overdrawn or in excess of the OD limit as a result of the said debit.
(NOTE: This Letter of Undertaking is to be executed once only)
(f) That a Notice of drawdown (as per specimen enclosed) in writing and
duly signed shall be given to the Bank two (2) business days (excluding
Saturday) before the date on which any drawing is to be made.
(g) Each specific advance shall be repaid only on maturity date. However,
extension up to a maximum period of twenty-one (21) business days from
maturity date of OFCL outstanding is allowed if the exports proceeds is
not received in time (on maturity date of OFCL).
(h) Likewise, prepayment of OFCL is allowed if the export proceeds is
received prior to maturity date of OFCL. We will charge any related
cost incurred on the prepayment to your account.
(I) That the OFCL is to be repaid on the maturity date by buying FC at
value spot from the Bank.
----
(j) That the Bank is advised on details of the foreign exchange deal if the
booking is done direct with our Forex and Money Market Dealer latest
------
two (2) business days before the maturity date of OFCL.
9
<PAGE>
(k) Each drawdown must be supported by transport documents e.g.
import/export documents, namely, Invoices and Bill of Lading and any
other supporting documents such as Packing List, Insurance, etc. which
may be furnished.
(l) Proceeds of the OFCL must be utilized for the purpose intended or as
per BNM Exchange Control approval as the case may be.
(m) For financing on Open Account Basis, the payments/receipts must be
channeled through Maybank.
4. FOR BANKERS GUARANTEE
(a) Commission of 0.125% per mensem subject to a minimum of RM25-00 shall
be charged for full liability period inclusive of the claims period of
the Guarantee issued.
In the event that any guarantee (without specific claims period) issued
by the Bank shall not be returned to the Bank for cancellation within
one month from its expiry date herein called the grace period) the Bank
shall be entitled to charge an additional commission of 0.125% per
mensem (min. RM25-00) from the expiry date of the grace period to the
date of return of the guarantee or on receipt of notification from the
beneficiary that the bank is no longer liable under the guarantee. (b)
The Bank shall at all times be entitled to make any payment under any
guarantee for which a demand has been made without further
investigation or enquiry and need not concern itself with the propriety
of any claim made or that the Bank was or might have been justified in
refusing payment, in whole or in part, of the amount so demanded.
5. FOR ECR (PRESHIPMENT)
The facility shall be available subject to and in accordance with Bank
Negara Malaysia guidelines, as such guidelines may be varied from time to
time.
In particular, in the event of non-performance by the Borrower in respect of
pre-shipment financing, interest on monthly rests on the daily amount
outstanding from drawdown date will be recomputed at the rate of 4% + BLR
and the additional interest due as a result of such recomputation shall on
demand be paid by the Borrower to the Bank. "Non-Performance" means any
failure or delay in the shipment of the goods or a shortfall in the amount
shipped (being goods in respect of which advances had been granted under
pre-shipment financing) and the determination by the Bank of such non-
performance shall be final and conclusive.
10
<PAGE>
6. FOREIGN EXCHANGE CONTRACTS (FEC)
I. Authorized Persons to Transact FEC
----------------------------------
You are required to provide the Bank with a List of personnel who are
-----------------
authorized to transact/enter into FEC deals over the telephone with the
Bank.
For this purpose, you are also required to advise the Bank in writing
of any changes to the above list.
ii. Purpose of FEC
--------------
The conditions under which the FEC is to be utilized must comply with
the requirements specified in Exchange Control Act, 1953 and ECM 6.
iii. Confirmation on FEC Contracts
-----------------------------
(a) All FEC contracts concluded will be followed by telex/fax
confirmation from the Bank. In the event of any errors in the
telex/fax, you are to notify the Bank of the same forthwith and in
any event at the latest by the close of the following business day
failing which it shall be deemed that there are no errors.
(b) Confirmation letters (Contract Notes) will also subsequently be
sent to you. You are required to check its contents and (without
prejudice to iii (a) above) return the acknowledgment copy duly
signed by your authorized signatory and stamped with your
COMPANY's chop within seven (7) days of receipt.
iv. Utilization of FEC
------------------
(a) You are required to quote the Contract Number everytime a
contract is taken up.
(b) For multiple optional date contract(s), the minimum amount allowed
per contract is RM500,000. Partial take-up is allowed but the
minimum amount per take-up should NOT be less than RM100,000.
---
v. Extension of FEC
----------------
(a) Valid reasons should be provided should you wish to extend the
maturity date of the contract(s). Extension is at the Bank's
discretion subject to Exchange Control Regulations.
11
<PAGE>
(b) A request for extension of a forward contract must be made at the
latest within 5 days after its maturity date failing which the
Bank may cancel the contract and charge your Account for any cost
incurred.
vi. Cancellation of FEC
-------------------
(a) Written notice together with valid reasons must be given to the
bank for any cancellation of FEC Contracts. Any cost incurred
shall be charged to your Account.
vii. Month-End Statements
--------------------
(a) Statements will be sent at the end of each month detailing all
outstanding FEC Contracts to date.
(b) You are required to check its contents and notify the Bank of any
errors, irregularities within fourteen (14) days of receipt. The
duplicate copy of the month end Statements must be duly
acknowledged and returned to the Bank within 14 days of receipt.
(c) You agree that should you fail to advise us in writing of the non-
receipt of the statement and obtain the statement from us or
notify the Bank of any errors within fourteen (14) days from the
date of the statement, the Bank's accounts and records should be
conclusive evidence of the transaction/balances. You should be
deemed conclusively to have accepted all matters contained in the
statement as true and accurate in all respects.
12
<PAGE>
ANNEXURE II
-----------
GENERAL TERMS AND CONDITIONS
----------------------------
1. UTILIZATION OF BANKING FACILITIES
Any request for utilization of any of the banking facilities shall be in
writing, given in accordance with the requirements as to form, timing and
accompanying documents as may be specified by the Bank and otherwise
generally in accordance with the Bank's standard terms and conditions
applicable to the relevant facility.
Where applicable, the banking facilities shall also be available according
to the guidelines of BNM or the ABM as such guidelines are revised from time
to time.
2. DEBITS TO ACCOUNT
Any monies due and payable to the Bank, or advanced by the Bank on behalf of
the Borrower, may be debited to such accounts as the Bank deems fit with
interest to accrue accordingly and, if debited to the Borrower's Current
Account, may be treated as an advance on an/the overdraft facility.
3. CHANGES IN CIRCUMSTANCES
The obligation of the Bank to continue to make available to the Borrower the
banking facilities shall, in addition to the terms and conditions herein and
there being no default by the Borrower, be subject to there being no change
in circumstances which may affect the ability of the Bank to grant the
banking facilities or which may increase the cost to the Bank of doing so.
4. COVENANTS
I. An active and satisfactory account must be operated and the approved
limit observed at all times.
ii. All legal and incidental fee/charges incurred in the preparation of
all documentation and perfection of the Bank's security shall be borne
by the Borrower. In the event the Borrower, having accepted the Bank's
letter of offer, fails for any reason whatsoever to proceed with the
banking facilities, all costs and expenses of the Bank and any
solicitors instructed by the Bank shall be borne by the Borrower.
iii. The Borrower shall be liable to pay all fees and expenses including the
Bank's solicitor's fees (on a solicitor-client basis) if any monies
shall be required to be recovered by any process of law or by the Bank's
solicitors.
13
<PAGE>
iv. Annual quit rent on all real property is to be promptly paid by the
Borrower and a copy of the receipt is to be submitted to the Bank not
later than 31st May of each year.
v. The Bank is to be immediately informed should there be any change in
residential status of the Borrower.
vi. Audited yearly Profit and Loss Accounts and Balance Sheets are to be
submitted not later than 1 month after financial year end closing.
vii. The Borrower will carry on its business with due diligence and
efficiency and in accordance with sound financial and business standards
and practices and will furnish to the Bank all information which the
Bank may reasonably request in connection with such business.
viii. In the event that you (if applicable) and/or any of your existing or
future subsidiaries, if any, are planning to be listed in the Kuala
Lumpur Stock Exchange or require any merchant banking services, we shall
be informed of such plans and requirements and our subsidiary
Aseambankers Malaysia Berhad shall then be given the first right of
refusal to undertake the listing exercise and/or provide any merchant
banking services required by you or your subsidiaries.
5. EXCHANGE CONTROL ACT
The Borrower is responsible to obtain any exchange control approval which
may be required
6. RIGHTS OF THE BANK TO INTEREST
Interest at the rate prescribed herein or such higher rate as the Bank may
impose from time to time shall continue to accrue and be payable,
notwithstanding any termination of the relationship of banker and customer
or any judgment or order obtained by the Bank, and such interest may
continue to be capitalized from when such balance shall have been
ascertained until full payment is received by the Bank.
7. CROSS DEFAULT
If any indebtedness of the Borrower becomes due or capable of being declared
due before its stated maturity, any guarantee of the Borrower is not
discharged at maturity or when called, then and in such event, the
facilities herein together with all monies payable under such accounts or
any other banking facilities shall immediately become due and payable.
14
<PAGE>
8. INDEMNITY
The Borrower shall fully indemnify the Bank against any loss or expenses
(including legal fees) which the Bank may incur as a consequence of any
default by the Borrower in due performance of any of the obligations
expressed to be assumed by the Borrower in relation to the facilities.
9. SET-OFF
The Bank may without notice to the Borrower combine, consolidate or merge
all or any of its accounts with, and liabilities to, the Bank and may set
off or transfer any sum outstanding to the credit of any such accounts in or
towards the satisfaction of any of the Borrower's liabilities to the Bank
under the facilities.
10. EVIDENCE OF INDEBTEDNESS
In any legal action or proceedings relating to the facilities, a certificate
of the Bank as to any amount due to it under the facilities shall, in the
absence of manifest error, be conclusive evidence that such amount is in
fact due and payable.
11. SERVICE OF NOTICE AND LEGAL PROCESS
I. The service of any Notice and Legal Process may be given by prepaid
registered or ordinary post sent to the Borrower at its address herein
stated and such Notice and Legal process shall be deemed to have been
duly served after the expiration of five (5) days from the date it is
posted.
ii. No change in the address of the Borrower herein stated howsoever
brought about shall be effective or binding on the Bank unless actual
notice of the change of address has been given to the Bank.
12. WAIVER
No delay in exercising nor any omission to exercise any right, power or
remedy accruing to the Bank upon any default shall affect impair or
prejudice any right, power or remedy or be construed to be a waiver thereof
or any acquiescence in such default, nor shall any action of the Bank in
respect of any default affect impair or prejudice any right, power or remedy
of the Bank in respect of any subsequent default.
13. CAPITAL ADEQUACY
If the introduction of or change in any law, regulation, directive or
request from any governmental or regulatory authority (whether or not having
the force of law) imposes or modifies any capital adequacy or similar
requirement (including, without limitation,
15
<PAGE>
a requirement which affects the Bank's allocation of capital resources to
its obligations) and, as a result, the cost to the Bank of making or
maintaining amounts available under the Facility is increased or the Bank
is, in its sole opinion, unable to obtain the rate of return on its capital
that it would have been able to achieve but for its obligations hereunder
and/or their performance, then the Bank shall be entitled to vary the
interest rates on the Facility and/or the Borrower shall pay to the Bank on
demand such additional amounts which will, in the sole opinion of the Bank,
compensate the Bank in this respect. The Bank will endeavour to mitigate the
effects of such event. A certificate of the Bank specifying the rate varied
and/or amount of such compensation shall, in the absence of manifest error,
be conclusive.
14. DISCLOSURES
The Borrower irrevocably authorizes the Bank:
a. to disclose to its guarantor or potential assignee or transferee of the
banking facilities or any guarantors any information concerning its
affairs or the state of its accounts with, and liabilities to the Bank
as the Bank shall from time to time consider reasonable or necessary;
b. to furnish all relevant information pertaining to these banking
facilities to the Central Credit Bureau of Bank Negara Malaysia
15. BANKING & FINANCIAL INSTITUTIONS ACT 1989 (ACT 372)
Pursuant to Section 62 (1) of the Banking and Financial Institutions Act
1989 (Act 372), the Bank is prohibited from granting any credit facilities
to any person or corporation if any of the directors, managers, agents or
guarantors of the Borrower is related to any director, or officer of the
Bank currently or at any time in the future. The Bank reserves the right to
recall the above facilities, and the borrower undertakes to notify the bank
immediately, if any of the above relationships are established or discovered
at any time.
16. GOVERNING LAW
Laws of Malaysia
16
<PAGE>
EXHIBIT 10.(d)
CORPORATE GUARANTEE
TO:
MALAYAN BANKING BERHARD
In consideration of your having opened opening or continuing an account
with and having made making or continuing to make advances loans or otherwise
giving credit or accommodation or granting time to Applied Magnetics (M) Sdn.
Bhd. of Plot 201, Phase 3, Bayan Lepas Free Trade Zone, 11900 Bqyon Lepas,
Penang, Malaysia (hereinfter called "the Customer") at our request, for as long
as you may at your sole discretion deem fit, we Applied Magnetics Corporation of
75 Robin Hill Road, Goleta, California 93117, U.S.A. the undersigned hereby
agree with and guarantee you as follows, that is to say:
1. We will pay you on demand:
(i) all moneys which now are or may during the operation of this Guarantee
be owing to you from the Customer or remain unpaid on the general
balance of the Customer's account with you anywhere and on any account
whatsoever whether from the Customer alone of from the Customer jointly
with or as surety for any other person or persons of for any firm or
company including advances overdrafts discounts bills or notes held by
you on or in respect of which the Customer may be or have been liable
to you in any manner together with commission and other ordinary
banking expenses including interest at such rates as may be from time
to time be agreed between the Customer and you with monthly rests
although the relation of banker and customer may have ceased;
(ii) all amounts which now are or may during the operation of this Guarantee
become owing to you by the Customer in respect of indemnities and/or
guarantees given to the owners agents charterers or masters of ships or
in respect of any other kinds of indemnities and/or guarantees
whatsoever entered into by you at the request of or on behalf of the
Customer or in respect of any bills accepted by the Customer;
(iii) all amounts which now are or may during the operation of this Guarantee
become owing to you by the Customer arising out of any agreement in
writing made with you or otherwise howsoever in respect of Bankers
Acceptances or Letters of Credit or any Letter of Credit irrevocable or
<PAGE>
otherwise opened or established through you upon the application of the
Customer and either with you or any agent or branch of yours wherever
situated; and
(iv) all costs charges and expenses which you may incur in enforcing or
seeking to enforce any security for or obtaining or seeking to obtain
payment of all or any part of the money or amounts hereby guaranteed.
2. All moneys received from or on account of the Customer or from any other
person or estate or from the realisation of any security or otherwise for the
purpose of being applied in reduction of the moneys in Clause 1 above mentioned
shall be treated for all purposes as payments in gross and not as appropriated
or attributed to any specific part or item of the said moneys even if
appropriated thereto by the person otherwise entitled so to appropriate. All
securities now or at any time held by you shall be treated as securities for the
said general balance and other amount owing. We will make no claim to such
securities or any part thereof or any interest therein unless and until we have
paid all moneys due from us under this Guarantee and you shall have received the
full amount of such general balance and other amounts if any.
3. You shall be at liberty (whether before or after the insolvency or
bankruptcy of the Customer) to place any moneys received hereunder in a suspense
account for so long as you deem fit without any obligation in the meantime to
apply the same or any part thereof towards discharge of any money or liabilities
due or incurred by the Customer to you.
4. Should the Customer bankrupt or insolvent or being an incorporated company
be wound up, you may prove in the bankruptcy insolvency or winding up of the
Customer for the whole amount outstanding against the Customer to the exclusion
of our rights to be subrogated to you in respect of any part payments made by us
hereunder and no money or dividend so received by you shall be treated as
received in respect of this Guarantee or otherwise in relation to us, but the
full amount hereby guaranteed shall be payable by us until you shall have
received from all sources one hundred sen in the ringgit on the ultimate balance
outstanding against the Customer. After you have received such ultimate balance
in full any claim on our part to any excess or any securities remaining in your
hands shall be a matter of adjustment between you, us and any other person or
persons laying claim thereto.
5. This Guarantee shall be continuing guarantee to you to the extent of
Ringgit one Hundred Twenty-Four Million ($124,000,000.00) for the purpose of
securing not merely an equivalent amount but (subject always to the said limit
of Ringgit one
<PAGE>
hundred twenty-four million) the whole of the moneys or general balance in
Clause 1 hereof mentioned notwithstanding any such payments receipts or
dividends as are hereinbefore mentioned with interest on the sum claimable from
us at the rate which is levied on the Customer from time to time from the date
of our receiving demand for payment thereof.
6. This Guarantee shall be without prejudice to and shall not be affected nor
shall we or any of us be released or exonerated by any of the matters following:
(i) any securities negotiable or otherwise including other guarantees
which you may now or any time hereafter hold in respect of the
Customer from us or any person or persons for any moneys whether
hereby guaranteed or otherwise;
(ii) the variation exchange renewal release or modification of any such
securities or the refusal or neglect to complete enforce or assign any
judgment specialty or other instrument negotiable or otherwise and
whether satisfied by payment or not;
(iii) any time given or extended to the Customer and/or any other person or
persons including ourselves and the parties to any negotiable or other
security instrument guarantee or contract or any other indulgence
granted to or compromise or arrangement made with the Customer and/or
any other person or persons whether with or without consent or notice
to us;
(iv) the continuing and/or the opening and operation of any other account
or accounts current or otherwise with the Customer at any of your
branch or branches; and
(v) the granting of any other banking facility or facilities to the
Customer and/or variation of any existing banking facilities granted
to the Customer by way of (but not limited to) substitution addition
increase or reduction whatsoever.
7. You are to be at liberty but not bound to resort for your own benefit to
any other means of payment at any time and in any order as you think fit without
in consequence diminishing our liability to you hereunder and you may enforce
this Guarantee for the payment of the ultimate balance after resorting to other
means of payment or for the balance due at any time notwithstanding that other
means of payment have not been resorted to and in the latter case, without
entitling us to any benefit from such other
<PAGE>
means of payment so long as any money remains due or payable (whether actually
or contingently) from the Customer to you.
8. This Guarantee shall not be determined or affected by the insolvency or
liquidation of any of the undersigned but shall in all respects and for all
purposes be binding and operative until determined as to future transactions by
fourteen (14) days' notice in writing given to you by any one of us or our
successors in title. During the pendency of such notice you may subject always
to the aforesaid limit of our liability hereunder fulfil any requirements of the
Customer based on agreements express or implied prior to the receipt of such
notice and you may afford the Customer such further accommodation as you would
have done had you not received such notice and any moneys thereby due or
remaining unpaid at or after the expiration of such notice shall form part of
the aforesaid general balance.
9. In the event of the determination of our liability under this Guarantee you
shall be at liberty without thereby affecting your rights hereunder to open a
new account or accounts and to continue any then existing accounts with the
Customer and no moneys credited to such accounts by or on behalf of the Customer
and subsequently withdrawn by him/it/them shall on settlement of our liability
on this Guarantee be appropriated towards or have the effect of repayment of any
of the moneys due from the Customer at the time when this Guarantee is
determined unless the persons paying in such moneys direct you in writing at the
time to appropriate them to that purpose.
10. You shall so long as any moneys remain owing hereunder by the Customer have
a lien on all stock, shares, securities and property belonging to us now or
hereafter held by you for safe custody or otherwise and on all moneys now or
hereafter standing to our credit with you whether on any account or accounts
current or otherwise at any of your branch or branches.
11. Any admission or acknowledgment in writing by the Customer or any person
authorised by the Customer of the amount of indebtedness of the Customer to you
and any judgment recovered by you against the Customer in respect of such
indebtedness shall be binding and conclusive against us. A statement signed by
your manager, sub-manager, secretary or any one of your officers as to the
moneys and liabilities for the time being due or incurred to you from or by the
Customer shall be final and conclusive evidence against us for all purposes
including legal proceedings.
12. Until and unless determined as herein this Guarantee provided, our
guarantee herein shall be a continuing guarantee notwithstanding that the
Customer may at any time or times cease to be indebted to you for any period or
periods and notwithstanding
<PAGE>
any settlement of account or accounts or otherwise.
13. This Guarantee shall not be determined or in any way prejudiced by:
(i) any change in the constitution of the Customer or any of the
undersigned, whether by retirement expulsion death or admission of any
partner or partners amalgamation reconstruction or otherwise but shall
enure and be available for all intents and purposes as if the resulting
firm company or concern had been the one whose obligations were
originally guaranteed or who had given the Guarantee herein, as the
case may be; or
(ii) any absorption of or by you or any amalgamation by you with any other
company or concern, but shall enure and be available for and by the
absorbing or amalgamated company or concern.
14. We hereby declare that no security has been received by any of us from the
Customer or any other guarantor/s for the giving of this Guarantee and we hereby
agree that we will not, as long as this Guarantee remains in force, take any
security in respect of our liability hereunder without first obtaining your
written consent. We further agree that any security taken or held by us
(whether before or after the date hereof) for the giving of this Guarantee shall
be held in trust for you as security for the fulfilment of our obligations to
you hereunder and shall be deposited with you immediately upon the execution of
this Guarantee or our receipt of the said security for the aforesaid purpose.
15. We hereby agree that you shall be at liberty without any further consent
from us and without thereby affecting our liability under this Guarantee at any
time to determine enlarge or vary any credit to the Customer. You may enforce
this Guarantee against us at any time notwithstanding that any bills or other
instruments covered by it may be in circulation or outstanding and include the
amount of the same or any of them in the said general balance or not at your
option and this Guarantee shall not be determinable by us or our successors in
title except on the terms of our making full provision up to the limit of our
Guarantee for any then outstanding liabilities or obligations on your part and
on the Customer's account.
16. You shall also be at liberty to release or discharge us from the
obligations of this Guarantee or to compound with or accept any composition from
or make any other arrangements with without thereby releasing or discharging any
others of us from this Guarantee or otherwise prejudicing or affecting your
rights and remedies against the other or others of us.
<PAGE>
17. As a separate and independent stipulation, we agree that any sum or sums of
money which may not be recoverable from us on the footing of a guarantee whether
by reason of any legal limitation disability or incapacity on or of the Customer
or by any other fact or circumstances and whether known to you or not shall
nevertheless be recoverable from us or each of us as sole or principal debtors
and shall be paid by us on demand.
18. No delay or omission on your part in exercising any right power privilege
or remedy in respect of this Guarantee shall impair such right power privilege
or remedy or be construed as a waiver of it nor shall any single or partial
exercise of any such right power privilege or remedy preclude any further
exercise of it or the exercise of any other right power privilege or remedy.
The rights powers privileges and remedies provided in this Guarantee are
cumulative and not exclusive of any rights powers privileges or remedies
provided by law.
19. This Guarantee shall be binding and enforceable against each guarantor who
executes the same notwithstanding the fact that one or more of any intended
guarantors whether referred to herein or otherwise may not have executed the
Guarantee.
20. If this Guarantee is executed by or on behalf of more than one company
(such companies being hereinafter referred to as "the Original Signatories") and
any one or more of the Original Signatories is not bound by the provisions
herein contained (whether by reason of their lack of capacity or improper
execution of this Guarantee or for any other reason whatsoever), the remaining
Original Signatories shall continue to be bound by the provisions of this
Guarantee as if such other Original Signatory or Signatories had never been a
party/parties hereto.
21. No assurance security or payment which may be avoided under Section 293 or
294 of the Companies Act or by any provisions of the Bankruptcy Act 1967 and no
release settlement or discharge which may have been given on the faith of any
such assurance security or payment shall prejudice or affect your right to
recover from us to the full extent of this Guarantee as if such assurance
security payment release settlement or discharge (as the case may be) had never
been granted given or made.
22. Any demand for payment or service of any legal process may be made or
effected by prepaid registered or ordinary post addressed to us or each of us at
our address specified herein or at our last known place of business or
registered address and such demand or legal process shall be deemed to have been
duly served on the Fifteenth (15th) day following that on which it is posted,
notwithstanding that the said demand or legal process may subsequently be
returned undelivered by the postal authorities.
<PAGE>
"Legal process" shall mean all forms of originating process, pleadings,
interlocutory applications of whatever nature, affidavits, orders and such
documents, other than the aforesaid, which are required to be served under any
legislation or subsidiary legislation or by the terms of this Guarantee.
23. We shall and hereby undertake to pay and bear all whatsoever costs,
charges, fees, stamp duty and other disbursements (including the professional
charges of your solicitors on a full indemnity basis) in any way connected with
or arising out of this Guarantee or in the enforcement of your rights hereunder.
24. This Guarantee and all rights obligations and liabilities arising hereunder
shall be construed and determined under and be enforced in accordance with the
laws of Malaysia and we agree that the Courts of Malaysia shall have
jurisdiction over all disputes arising under this Guarantee.
25. In this Guarantee unless there is something in the subject or context
inconsistent with such construction or unless it is otherwise expressly
provided:
(i) words in the singular include the plural and words in the plural
include the singular; and
(ii) where this Guarantee is given or executed by two(2) or more companies
the agreements covenants stipulations and undertakings expressed to be
made by and on the part of such companies be and are binding upon such
companies jointly and severally.
26. This paper on which this Guarantee is written shall at all times remain
your property.
Dated the 8th day of June 1995
The Common Seal of )
)
was duly affixed in the presence of: )
------------------------------------- -------------------------------
DIRECTOR, President & Chief SECRETARY
Executive Officer
Name: Craig D. Crisman Name: Raymond P.Le Blanc
Applied Magnetics Corporation
I/C No.:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED AS OF JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 37,130
<SECURITIES> 0
<RECEIVABLES> 40,069
<ALLOWANCES> 0
<INVENTORY> 36,170
<CURRENT-ASSETS> 126,483
<PP&E> 257,591
<DEPRECIATION> (154,952)
<TOTAL-ASSETS> 241,765
<CURRENT-LIABILITIES> 141,097
<BONDS> 0
<COMMON> 2,220
0
0
<OTHER-SE> 92,490
<TOTAL-LIABILITY-AND-EQUITY> 241,765
<SALES> 200,152
<TOTAL-REVENUES> 200,152
<CGS> 179,417
<TOTAL-COSTS> 179,417
<OTHER-EXPENSES> 29,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,432)
<INCOME-PRETAX> (7,240)
<INCOME-TAX> 444
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,684)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
