69
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
{X}Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 26, 1994
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or
{ }Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file Number: 0-14016
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Maxtor Corporation
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(Exact name of registrant as specified in its charter)
Delaware 77-0123732
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 River Oaks Parkway, San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(408) 432-1700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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As of June 3, 1994, 30,452,111 shares of the registrant's Common
Stock, $.01 par value, and 19,480,000 shares of the registrant's
Class A Common Stock, $.01 par value, were issued and
outstanding, respectively. The aggregate market value of the
registrant's voting stock held by nonaffiliates of the registrant
as of June 3, 1994 was $160,024,578, based on the closing price
on NASDAQ National Market System reported for such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1994 Annual Meeting of
Stockholders (the Proxy Statement), to be filed within 120 days
of the end of the fiscal year ended March 26, 1994, are
incorporated by reference in Part II, Item 10 and Part III, Items
11, 12 and 13 hereof. Except with respect to information
specifically incorporated by reference in this Form 10-K, the
Proxy is not deemed to be filed as part hereof.
This Annual Report on Form 10-K contains 116 pages of which this
is number 1. The Index to Exhibits begins on page 57.
PART I
Item 1. BUSINESS
Maxtor Corporation (Maxtor or the Company) was organized in
1982 and develops, manufactures and markets mass-storage products
for desktop and mobile computer systems. Products range from low-
capacity flash cards to 546 megabyte (MB) Winchester disk drives
in 1.8-inch and 3.5-inch form factors and include ATA, SCSI and
PCMCIA (Personal Computer Memory Card International Association)
interfaces.
The Company owns 62% of Maxoptix Corporation (Maxoptix) which
develops, manufactures and markets optical disk drive products.
Maxoptix was formed in March 1989 as a joint venture with Kubota
Corporation (Kubota).
In August 1993, the Company signed a letter of intent for the
creation of a strategic relationship with Hyundai Electronics
Industries Co., Ltd. and several related members of the Hyundai
Business Group (Hyundai). In September 1993, the Company signed
the Stock Purchase Agreement (the Agreement) with Hyundai.
Conclusion of the transaction was conditional upon approval of
the U.S. and Korean governments, Maxtor stockholders and a number
of other conditions. In November 1993, the U.S. government
provided all necessary approvals. In December 1993, Maxtor
stockholders approved all matters submitted to them regarding the
proposed investment. At the end of January 1994, Korean
government approval was granted. The transaction closed on
February 3, 1994. Under the terms of the Agreement, Hyundai
invested approximately $150 million in the Company and received
approximately 19.5 million shares of Class A common stock,
representing a per share price of $7.70, and constituting
approximately 40% of the Company's outstanding voting stock at
that date. The stock issued to Hyundai is a special series of
common stock, entitling Hyundai to representation on the
Company's Board of Directors proportionate to its share of
ownership and certain voting rights. In addition, the Agreement
requires the Company's Board of Directors to elect the director
designated by Hyundai as Chairman of the Board, which occurred in
February 1994. The Agreement also provides that Hyundai may not
acquire more than 45% of the Company except in a tender for all
outstanding shares or in certain other cases.
PRODUCTS
The disk drive industry is subject to rapid technological
change and short product life cycles as data storage
manufacturers continually strive for smaller form factors, larger
storage capacities, higher performance and lower cost. Short
product life cycles dictate the importance of the Company's
ability to successfully manage product transitions. The failure
to adequately manage product transitions could result in the loss
of market opportunities, decreased sales of existing products,
cancellation of products or product lines, the accumulation of
obsolete and excess inventory, and unanticipated charges related
to obsolete capital equipment.
During the fourth quarter of fiscal year 1994, the Company
announced a major shift in strategy to devote Company resources
primarily to the design, manufacture and sale of its 7000 Series
of 3.5-inch disk drives and its new family of mobile computing
products, including the MobileMaxTM family of PCMCIA-based mobile
computing data storage products. In keeping with the Company's
product strategy, the Company will concentrate its research and
development (R&D) efforts on new products targeted at the desktop
personal computing market and the emerging mobile computing
market.
Desktop Personal Computer Products
The 7000 Series of 3.5-inch, low profile disk drives addresses
the demand for desktop PC drives. This Series presently includes
four capacity points: the 171MB product, the 7171, is designed
for entry level PCs; the 273MB product, the 7273, is designed for
mid-range PCs; and the 345MB and 546MB products, the 7345 and
7546, respectively, are designed for high-end PCs and entry-level
workstations. The newest products, the 273MB and 546MB versions,
were announced in November 1993 and are both currently in volume
production. Both the 7273 and 7546 share a common mechanical and
electronic platform and manufacturing process with previously
introduced 7000 Series products. The 7000 Series continues to
account for a substantial portion of the Company's revenue and
gross margins.
In April 1993, to service the growing retail market, the
Company began packaging the 3.5-inch 7000 Series hard drive
family into complete kits designed for end users. The retail
kits are available in 245MB, 345MB, and 546MB capacities, and
feature an IDE/AT interface. The 345MB version also supports
SCSI.
Mobile Computing Products
Introduced in the third quarter of fiscal year 1994, the
MobileMaxTM Family of products is a line of data storage products
that addresses the needs of the emerging mobile computing market.
The MobileMax Family includes MobileMaxTM Hard Drives, the
MobileMaxTM DeskRunnerTM and MobileMaxTM Flash Memory Cards.
MobileMax Hard Drives presently include 1.8-inch, PCMCIA Type
III drives in 105MB and 131MB capacities. They are designed for
use in notebook, subnotebook and desktop computers equipped with
PCMCIA Type III interface card slots, as well as for emerging non-
computer applications. The Company initially announced the MXL-
105-III disk drive product in January 1993; it is now marketed as
the MobileMax 105 Hard Drive (MobileMax 105). The MobileMax 105
was the Company's first entry into the PCMCIA market. Volume
production commenced in the third quarter of fiscal year 1994.
In April 1994, the Company announced the MobileMax 131 Hard Drive
(MobileMax 131). The MobileMax 131 is currently in volume
production.
The MobileMax DeskRunner, announced in November 1993, is a
PCMCIA Type III reader/writer socket designed for the large
installed base of desktop PCs that are not equipped with PCMCIA
technology. The DeskRunner is fully PCMCIA compatible with Type
I, Type II or Type III cards, including popular modems and
network attachments.
MobileMax Flash Memory Cards are a series of flash-memory
based PCMCIA Type I cards ranging in capacity from 2MBs to 20MBs.
These Cards are designed to fit the smaller PCMCIA Type I and
Type II slots found on most personal digital assistants and on
some notebook PCs - as well as the larger Type III slot on the
MobileMax DeskRunner.
The Company believes that the growth of the MobileMax product
line is primarily dependent on the growth of the emerging mobile
computing market, as well as the Company's ability to anticipate
market trends and to successfully develop, manufacture in volume
and sell new products in a timely manner. Although the Company
believes that PCMCIA storage devices are an important part of the
future disk drive marketplace, there can be no assurance that the
Company will be successful in such efforts, and the market has
been in fact slower to develop than some industry analysts had
predicted.
Other Products
Through its subsidiary, Maxoptix, the Company develops,
manufactures and markets high capacity, write once and rewritable
optical disk drives.
MARKETING AND CUSTOMERS
The Company markets and sells its products through a direct
sales force to OEMs (original equipment manufacturers),
distributors and retailers. As the market for Maxtor's products
has become increasingly segmented, diverse sales channels have
developed for different products.
Direct sales to OEM customers accounted for approximately one-
half of total revenue for both fiscal years 1994 and 1993. As a
result of volatile business conditions in the PC industry,
including the trend toward consolidation among PC manufacturers,
sales to the major PC manufacturers have become increasingly
important to the success of the disk drive industry participants.
In the last quarter of fiscal year 1994, the Company announced
OEM design wins for its MobileMax Hard Drives with both Hewlett-
Packard Company and Toshiba America Information Systems, Inc.
Although the Company intends to continue in its efforts to
increase its share of the OEM market for disk drives,
particularly in the marketing of its new products, there can be
no assurance that the Company will be successful in such efforts.
In addition to selling its products to OEMs and through
distributors, the Company is also pursuing the consumer retail
channel, which directly targets end-users. As end users become
more technically sophisticated, these users are upgrading their
own systems and adding peripherals. The Company has concentrated
on establishing its presence in this channel and offers
comprehensive end-user support services. Maxtor sells its retail-
packaged products directly and through distributors to major
retail computer dealers, superstores, warehouse clubs,
aggregators and mass merchants nationwide. In April 1994, the
Company announced that its MobileMax family is available through
Maxtor's comprehensive retail sales program, and that it expanded
its retail offerings to include the 7546 and the 7273 3.5-inch
disk drives. The Company believes that distributors and
retailers are important in supporting the large aftermarket. In
addition, the Company believes that the market for replacement
drives will result in the growth of retail sales. Sales to
distributors and retailers accounted for approximately one-half
of total revenue in fiscal years 1994 and 1993.
During fiscal years 1994 and 1993, sales to International
Business Machines accounted for approximately 24% and 14% of the
Company's revenue, respectively; however, this percentage may
fluctuate in future periods and the Company expects it will
decline substantially in fiscal year 1995. The Company did not
have any customer that accounted for 10% or more of its revenue
in fiscal year 1992.
As of June 3, 1994, the Company has 27 direct sales persons
located in ten offices in the United States, 12 direct sales
persons in the Far East located in six offices, and 12 direct
sales persons in Europe located in three offices. The Company's
export sales represented 43%, 50% and 37% of total revenue in
fiscal years 1994, 1993 and 1992, respectively.
For financial data relating to major customers and geographic
information refer to Part II, Item 8, Footnote 3 on pages 28 and
29.
MANUFACTURING AND SUPPLIERS
The Company has sought to maintain the flexibility necessary
to accommodate the continuous changes in product mix and volume
requirements resulting from the short product life cycles
characteristic of the disk drive industry through a relatively
low level of vertical integration and utilizing capital equipment
for the manufacture of multiple product lines.
The Company's disk drive manufacturing operations consist
mainly of the final assembly of high-level subassemblies and
testing of completed products. The Company manufactures all
magnetic disk drive products in volume production at its
manufacturing facility located in Singapore and conducts all
printed circuit board assembly in its facility in Hong Kong. In
addition to risks typically associated with the concentration of
vital operations, foreign manufacturing is subject to additional
risks, including changes in governmental policies, transportation
delays and interruptions, and the impositions of tariffs and
export controls. A disruption of manufacturing operations at the
Company's facilities could have an adverse effect on the
Company's results of operations and customer relations.
Pilot production of the Company's magnetic products and cost
reduction, quality and product improvement engineering on current
products are now conducted in the Company's Longmont, Colorado
facilities, and the San Jose, California R&D facilities have been
closed. When a new product or a design change to a current
product is ready for volume production, it is transferred from
the Longmont, Colorado facilities to the Company's Far East
manufacturing facilities.
Since the Company's manufacturing operations consists
primarily of the final assembly of subassemblies, the quality and
yield of the Company's products is highly dependent on its
ability to obtain high quality components and sub-assemblies.
The Company has implemented a number of programs with its vendors
to improve the quality of its key components and sub-assemblies.
These programs include a rating system for vendors which tracks
such items as on time delivery, quality, technology and pricing
which is then used as a basis for purchasing decisions. In the
past, the Company has nevertheless experienced production delays
due to yield shortfalls and there can be no assurance that the
Company will not experience similar problems in the future.
The Company's manufacturing process uses large volumes of
components supplied by outside suppliers and it is the Company's
goal to have multiple sources for most components. In the past,
the Company's operating results have been adversely affected by
production delays and quality problems resulting from its
inability to obtain certain key components and by the failure of
certain components to meet requisite quality standards. During
the first quarter of fiscal year 1994, the Company temporarily
shut down production of its 3.5-inch MXT product line as a result
of a quality problem related to a particular supplier's
component. Production resumed when it was determined that the
problem was limited to that particular supplier's component and
that an alternate supplier's components were not affected by the
quality problem. The Company's 25252 2.5-inch drive was also
subject to significant and on-going production delays as a result
of both design and vendor problems. The Company has recently
been unable to obtain required volumes of a key component for its
7000 Series product line which is supplied by a sole source
vendor who is experiencing production problems. It is expected
that this shortage will adversely affect the Company's operating
results for the quarter ending June 25, 1994, and that it will
prevent the Company from returning to profitability during this
quarter.
While the Company has qualified and continues to qualify
multiple sources for many components, it is reliant on and will
continue to be reliant on single sources for several semi-custom
and custom integrated circuits and other key components. The
Company does not have long-term supply contracts with most of its
single source vendors, some of which are companies with limited
financial and operational resources. The Company intends to
continue to pursue qualification of alternative sources for
single source components where practicable; the Company believes,
however, that it will have to continue to utilize leading edge
components which may only be available from a single source.
With the expansion of production experienced by the disk drive
industry during the last quarter of fiscal year 1994 and
continuing into the first quarter of fiscal year 1995, shortages
of certain key components for the disk drive industry have
increased and the Company expects it is likely that industry
shortages of key components may continue into future quarters.
The Company will continue to aggressively work with its vendor
base to minimize its exposure. There can be no assurance,
however, that the Company will be successful in such efforts or
that in the future the Company's vendors will meet the Company's
requirements for required volumes of high-quality components in a
timely and cost effective manner. In addition, there can be no
assurance that the Company's operating results or customer
relationships will not be adversely affected by production
delays, including delays in bringing new products into volume
production in a timely manner, resulting from an interruption or
reduction in its supply of any key components, excessive rework
costs associated with defective or substandard components, or its
inability to obtain continued reduction of component costs.
The Company's engineering focus is on developing families of
products from single platforms that have proven to be highly
manufacturable, cost-effective and timely. The 7000 Series and
the MobileMax family are both examples of products that have been
designed around a single architecture. Prior to transferring a
product from pilot line to volume production, engineering is
responsible for proving the manufacturability of the product.
The Company believes that this integration of product design and
manufacturing process development will enable the Company to more
rapidly achieve high volume, high quality production. However,
there can be no assurance that the Company will be able to
achieve volume production of new products in a timely manner
relative to its competitors.
RESEARCH AND DEVELOPMENT
As previously mentioned, the Company participates in an
industry that is characterized by rapid technological change and
short product life cycles. The Company's ability to compete
effectively will depend on, among other things, its ability to
anticipate such change. To compete effectively, the Company has
and will continue to devote substantial resources to producing
high-quality products which address the needs of expanding
segments of the disk drive market and which can be produced in
volume on a cost effective basis. In order to effectively
implement its product strategy, the Company intends to continue
to make significant investments in research and development. A
key element of the Company's strategy is to decrease the time
required to achieve volume production of new products through the
involvement of process engineers in developing manufacturing
processes during the research and development phase. However,
there can be no assurance that the Company will be able to bring
new products to market before its competitors or that such new
products will receive market acceptance.
The Company has focused its efforts on developing products
that incorporate components which may be shared by a broad range
of products, thereby reducing the time to develop a product and
the cost of components. The Company believes that the
integration of low cost manufacturing design into the development
of a broad range of the Company's products, combined with its
ability to utilize common platforms and electronics both within
product families and between different product families will
enable the Company to compete more effectively.
The Company believes that success in developing smaller form
factors, increasing performance and lowering production costs
depends in part on developing and incorporating new data storage
technologies into the Company's products. While the Company
believes that it needs to utilize the new technologies in order
to achieve technology and product leadership, to the extent that
such development efforts result in more advanced technology and
components, it may be more difficult to transition disk drives to
volume manufacturing or to obtain acceptable yields.
In connection with the Company's restructuring plan initiated
in the third quarter of fiscal year 1994, the Company
consolidated its R&D activities in Longmont, Colorado, which
eliminated the need for certain facilities in San Jose,
California, and also resulted in a substantial reduction in
headcount associated with R&D and related activities previously
conducted in San Jose. R&D expenses declined in absolute dollars
in fiscal year 1994 as compared to fiscal year 1993 as a result
of these actions. In fiscal years 1994, 1993 and 1992,
respectively, the Company's R&D expenses amounted to $97.2
million, $112.6 million and $72.4 million, respectively. While
R&D spending in absolute dollars is expected to decrease in
fiscal year 1995, the Company will continue to make substantial
investment in R&D since the timely introduction and transition to
volume production of new products is essential to its success.
In February 1994, the Company announced a major shift in product
strategy devoting Company resources primarily to the design,
manufacture and sale of its 7000 Series disk drives and its new
family of mobile computing products, including the MobileMax
family of PCMCIA-based mobile computing data storage products.
The Company's efforts will focus on new products targeted at the
desktop personal computing and mobile computing markets.
COMPETITION
The disk drive industry is intensely competitive and is
characterized by rapid technological change which can cause
substantial shifts in product capabilities and prices. The
principal competitive factors in the industry include time to
volume production, price, customer service, storage capacity and
performance. In addition, smaller form factors, height, power
consumption, ruggedness and interfaces are important competitive
factors.
Many of the Company's competitors have greater financial,
marketing and technological resources than the Company, which may
have enabled them to better withstand the intense price
competition most recently experienced during the last four months
of fiscal year 1993 which continued into the third quarter of
fiscal 1994. In February 1994, the Company received
approximately $150 million upon the closing of a stock purchase
agreement with Hyundai, as previously discussed. This cash
infusion is intended to be used for working capital needs,
including developing new products and technologies. However,
there can be no assurance that the Company will be able to
compete more effectively as a result of this cash infusion.
The disk drive industry is also subject to short product life
cycles, which increase the importance of the Company's ability to
successfully manage product transitions. The failure to
adequately manage product transitions could result in the loss of
market opportunities, decreased sales of existing products,
cancellation of products or product lines and the accumulation of
obsolete and excess inventory. As previously mentioned, the
Company announced a major shift in strategy in February 1994. As
a result of this shift in strategy, the Company's financial
results will be heavily dependent on the success of certain
products, namely its 7000 Series of 3.5-inch disk drives and its
new family of mobile computing products, including the MobileMax
family of PCMCIA-based mobile computing data storage products.
In the past, the Company has been less successful than its
competitors in managing product transitions, and successful new
products introduced by competitors have tended to displace older
products, including the Company's products. The Company's
ability to anticipate market trends and to successfully develop,
manufacture in volume and sell new products in a timely manner
and at favorable gross margins will be important factors
affecting the Company's future results, and there can be no
assurance that the Company will be successful in such efforts.
Significant price erosion is typical during the life of a disk
drive product. Industry participants include both independent
suppliers and large computer manufacturers that both supply their
own internal requirements and sell disk drives to third parties.
Sales by such large computer manufacturers to third parties are
an important factor in the market. Bringing new products to
market on a timely basis is critical to competing in this market
environment. When a new product is not brought to market on a
timely basis, the selling prices of older products must be
reduced in order to compete effectively with competitors' new
products, which are being produced at lower costs. If
competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these
factors, or if certain customers produce more disk drives for
internal use, the Company's results of operations would be
adversely affected.
As a result of volatile business conditions in the PC
industry, including the trend toward consolidation among PC
manufacturers, sales to the major PC manufacturers have become
increasingly important to the success of the disk drive industry
participants. Although the Company intends to continue in its
efforts to increase its share of this large OEM market,
particularly in the marketing of its new products, there can be
no assurance the Company will be successful in such efforts.
Furthermore, fluctuations in demand for computer systems, or
other end-user demand, can result, and have in the past resulted,
in deferral or cancellation of orders for the Company's products.
The Company presently competes primarily with independent
manufacturers of 3.5-inch disk drives, including companies such
as Conner Peripherals, Quantum, Seagate Technology and Western
Digital. The Company also competes directly and indirectly with
disk drive divisions of large computer manufacturers such as
Digital Equipment, Fujitsu, Hewlett-Packard, Hitachi, NEC,
Toshiba and IBM. Should other major OEMs develop disk drive
manufacturing capabilities, the demand for the Company's products
could be reduced. The Company competes for sales of optical disk
drives with such companies as Canon, Hitachi, Ricoh, Sharp
Electronics, Sony and Hewlett-Packard.
BACKLOG
The Company's sales are primarily made for delivery of
standard products according to standard purchase orders.
Delivery dates are specified by purchase orders, such orders may
be subject to change or cancellation by the customer without
significant penalties. The quantity actually purchased, as well
as the shipment schedules, therefore, are frequently revised to
reflect changes in the customer's needs. At times when industry-
wide production is believed to be insufficient to meet demand,
the Company believes that certain customers may place purchase
orders beyond their projected needs in order to maintain a
greater portion of product allocation. Conversely, at times when
price competition is intense and price moves are frequent, the
Company believes that most customers may place purchase orders
below their projected needs, or delay placing or even cancel
purchase orders with the expectation that future price reductions
may occur. In light of these factors, backlog as of any
particular date may not be indicative of the Company's actual
revenues for any succeeding period, and, therefore, are not
material to an evaluation of the Company's future revenue.
PATENTS AND LICENSES
The Company has been granted approximately 70 U.S. and foreign
patents related to disk drive products and technology. The
Company has additional patents pending in the United States and
foreign countries. The Company has entered into cross-license
agreements with certain of its competitors and has discussed
entering into cross-licenses with others.
As in other sectors of the electronics industry, the disk
drive industry has been characterized by significant litigation
relating to patent and other intellectual property rights. Many
patents have been issued in the United States and foreign
countries covering disk drive products and their manufacture.
These patents have been issued both to competitors of the Company
and to parties who are not disk drive vendors. The Company has
received notices from competitors and other patent holders
claiming infringement by the Company and litigation has been
commenced related to one such claim, made by Rodime plc (Rodime)
and described below, with respect to which the Company believes
it has a license. See Legal Proceedings. There can be no
assurance that other litigation will not be commenced based upon
such claims or that additional claims of patent infringement will
not be made against the Company in the future, nor can there be
any assurance that the Company would be able to obtain a license
under the patents asserted or that any such license, if
available, would be offered on terms acceptable to the Company.
Adverse resolution of litigation based upon claims of patent
infringement could subject the Company to substantial liabilities
and require the Company to refrain from manufacturing or selling
certain of its products in the country where the patents were
issued.
As part of the acquisition of the MiniScribe business in June
1990, the Company was assigned a patent license agreement between
MiniScribe and Rodime covering patents related to 3.5-inch disk
drives. The Company believes that the assignment was valid;
however, Rodime has taken the position that the assignment was
invalid and would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of
MiniScribe's assets. See Legal Proceedings.
WARRANTY AND SERVICE
The Company currently warrants its products against defects in
parts and labor for varying periods from the date of shipment
with an additional 3 months allowed for distributors to account
for "shelf life". The 7000 Series of disk drives are warranted
for a period of 12 or 24 months after shipment depending on the
model. The MobileMax disk drives are warranted for a period of
12 months after shipment.
Products are generally repaired or refurbished by the
Company's Singapore facility. The Company operates a European
drive exchange center in Ireland, a domestic drive exchange
center in San Jose, California and an Asian drive exchange center
in Singapore.
EMPLOYEES
As of June 3, 1994, the Company had approximately 6,400
employees, of whom approximately 1,100 were located in the United
States, 100 in Europe and 5,200 in the Far East. Of the
employees, approximately 5,400 were engaged in manufacturing and
quality assurance and 200 in research and development.
The Company believes that its future success will depend on
its ability to continue to attract and retain a team of highly
motivated and skilled individuals. None of the Company's
employees are represented by a labor organization. The Company
believes that its employee relations are good.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES, AND FINANCIAL INFORMATION
The Company operates in a single industry segment: the
design, manufacture and marketing of data storage products for
desktop and mobile computer systems. It has a worldwide sales,
service and distribution network. The Company markets and sells
its products through a direct sales force to OEMs, distributors
and other emerging sales channels. For financial information
relating to foreign and domestic operations and export sales
refer to Part II, Item 8, Footnote 3, on pages 28 and 29.
Item 2. PROPERTIES
The Company's administrative offices are located in San Jose,
California and its research and development facilities are
located in Longmont, Colorado. These facilities are all leased.
The Company's manufacturing facilities include a disk drive
manufacturing facility in Singapore and a printed circuit board
manufacturing facility in Hong Kong. The Company owns and
occupies a 384,000 square-foot building in Singapore which is
situated on land leased through the year 2016 (subject to an
option to renew for an additional 30 years). All other
facilities located in Singapore and Hong Kong are leased. The
corporate offices for Maxoptix are located in San Jose,
California and are held under lease.
All of the Company's facilities are well maintained, suitable
for the advanced technological products and services of the
Company. The Company believes that its current facilities are
sufficient to meet its expected requirements.
Item 3. LEGAL PROCEEDINGS
As part of the acquisition of the MiniScribe business in June
1990, the Company was assigned a patent license agreement between
MiniScribe and Rodime covering patents related to 3.5-inch disk
drives. The Company believes that the assignment was valid;
however, Rodime has taken the position that the assignment was
invalid and would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of
MiniScribe's assets. In February 1993, Maxtor commenced an
action for declaratory relief in U. S. Bankruptcy Court in
Denver, Colorado seeking a judgment that the assignment was
valid. Rodime filed a denial and counterclaim for patent
infringement. In April 1994, the relevant claims of the Rodime
patent at issue in Rodime's counterclaims were declared invalid
in litigation between Rodime and another disk drive manufacturer.
The Company's litigation with Rodime has been stayed pending
Rodime's appeal of the finding of invalidity. Certain other
patent infringement claims against the Company have arisen in the
course of its business. There is presently no litigation
involving such claims, and the Company believes the outcome of
these claims will not have a material adverse effect, if any, on
the Company's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the last quarter of its fiscal year ended March
26, 1994.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Maxtor has two classes of stock issued and outstanding: common
stock, with a $.01 par value; and Class A common stock, also with
a $.01 par value. Maxtor common stock is designated on the
National Market System of NASDAQ under the symbol MXTR.
As of June 3, 1994, Maxtor had approximately 1,906
stockholders of record.
For the dividend policy of the Company, refer to Part II, Item
7, Dividend Policy, on page 20.
Item 6. SELECTED FINANCIAL INFORMATION
<TABLE>
SELECTED FINANCIAL INFORMATION (In thousands, except per share amounts)
ANNUAL
- - ------------------------------------------------------------------------
<CAPTION>
Fiscal Period March 26, March 27, March 28, March 30, March 31,
Ended 1994 1993 1992 1991 <F1> 1990
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------
Revenue $1,152,615 $1,442,546 $1,037,481 $ 871,305 $491,134
Income (loss)
from operations (247,921) 53,968 12,304 (49,077) 25,810
Net income (loss) (257,589) 46,112 7,149 (45,429) 18,943
Net income (loss)
per share
-primary (8.00) 1.46 0.27 (1.89) 0.90
-fully diluted (8.00) 1.46 0.24 (1.89) 0.90
Total assets 492,375 579,113 445,182 453,856 384,542
Long-term debt and
capital lease
obligations due
after one year 107,393 119,868 110,744 128,066 126,575
Minority interest - - 1,023 8,201 11,666
- - ------------------------------------------------------------------------
</TABLE>
<TABLE>
QUARTERLY (unaudited)
- - --------------------------------------------------------------------------
<CAPTION>
Fiscal Period March 26, Dec. 25, Sept. 25, June 26,
Ended 1994 1993 1993 1993
<S> <C> <C> <C> <C>
- - --------------------------------------------------------------------------
Revenue $ 260,397 $ 318,098 $ 313,546 $ 260,574
Gross margin 29,696 (53,633) (10,453) (18,009)
Net loss (4,482) (121,305) (59,623) (72,179)
Net loss per
share:
-primary (0.11) (4.12) (2.02) (2.50)
-fully diluted (0.11) (4.12) (2.02) (2.50)
Price range per
common share* $5.4375-$8.3125 $4.625-$6.75 $4.5-$6.6875 $6.0625-$8.0625
- - --------------------------------------------------------------------------
</TABLE>
<TABLE>
- - ---------------------------------------------------------------------------
<CAPTION>
Fiscal Period March 27, Dec. 26, Sept. 26, June 27,
Ended 1993 1992 (F2) 1992 (F2) 1992 (F2)
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------
Revenue $ 345,567 $ 402,614 $ 357,198 $ 337,167
Gross margin 17,458 80,743 80,426 86,459
Net income (loss) (19,692) 18,630 18,656 28,518
Net income (loss)
per share
-primary (0.69) 0.61 0.63 0.98
-fully diluted (0.69) 0.59 0.61 0.93
Price range per
common share* $6.875-$15.375 $12.625-$19.625 $9.25-$15.25 $8.375-$14.00
- - ---------------------------------------------------------------------------
* Price range is based on the quarterly high and low closing prices as
quoted from NASDAQ
</TABLE>
[FN]
<F1> Fiscal year ended March 30, 1991 results include the acquisition of
substantially all of the assets of MiniScribe on June 30, 1990. See Note
2 of Notes to Consolidated Financial Statements for additional
information.
<FN2> Income used in the fully diluted net income per share calculation is
$19,493, $19,519 and $29,381 for the quarterly periods ended December 26,
1992, September 26, 1992 and June 27, 1992, respectively, each of which
includes the addition of interest related to convertible subordinated
debentures.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
(Tabular information: Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS
General
Since its inception in 1982, Maxtor Corporation (Maxtor or the
Company) has been subject to the highly cyclical nature of the disk
drive industry. In fiscal year 1993, as a result of an industry-wide
increase in demand and the related stabilization in prices, the
Company grew its revenue to over $1.4 billion. However, during the
last four months of fiscal year 1993 and continuing into the third
quarter of fiscal year 1994, the disk drive industry was experiencing
intense price competition and excess industry capacity, which
resulted in lower revenue for the Company. The Company began to
experience an increase in demand in the third quarter of fiscal year
1994, with most products in short supply, as well as concurrent
easing of price reductions and price increases on certain products.
In the fourth quarter of fiscal year 1994, revenue declined in
connection with the Company's decision in the third quarter of fiscal
year 1994 to discontinue certain unprofitable products, as described
below. In all quarters of fiscal year 1994, revenues were below the
levels in the same quarters of the prior fiscal year. In fiscal year
1994, the Company reported revenue of approximately $1.2 billion.
The Company reported net income of $46.1 million for fiscal year
1993. For fiscal year 1994, the Company reported a net loss of
$257.6 million. The Company incurred quarterly losses in each of
the five consecutive quarters beginning with the fourth quarter of
fiscal year 1993 and continuing through the fourth quarter of fiscal
year 1994. Such losses through the second quarter of fiscal year
1994 and continuing into the third quarter of fiscal year 1994 were
primarily the result of negative industry conditions and the
Company's inability to bring certain products to market in a timely
and cost effective manner. The negative industry conditions were
primarily the result of intense price competition and excess
industry capacity. In addition, the Company's losses were the
result of insufficient differentiation between the products of the
Company and its competitors, and efforts by better financed
competitors to increase market share. As noted above, the Company
began to experience an increase in demand in the third quarter of
fiscal year 1994, with most products in short supply, as well as
concurrent easing of price reductions and price increases on certain
products. Although general industry conditions improved during the
third and fourth quarters of fiscal year 1994, the Company continued
to incur losses as a result of continuing cost and time-to-market
issues with regard to its new products. The high start-up costs
associated with developing and commencing volume production on the
new 1.8-inch form factor products also contributed to the quarterly
losses during that period. In addition, the Company recorded
special and restructuring charges totaling $88.4 million during the
third quarter of fiscal year 1994, as described below, which
contributed significantly to the loss incurred during that period.
During the first three quarters of fiscal year 1994, the Company
experienced significant production delays with certain product lines
as a result of both design and vendor problems. Due to continuing
production and sales issues, the Company assessed its competitive
position and determined that it was unable to bring to market
profitable successor products to certain existing products. The
Company therefore decided to discontinue certain products, reduce
manufacturing capacity and write down inventory and equipment that
were no longer productive. The Company recorded special charges
amounting to $68.9 million in cost of revenue in the third quarter
of fiscal year 1994 as a result of these decisions. These decisions
reduced the scope of the Company's product and manufacturing
activities and, as a result, the Company then initiated a
restructuring plan and recorded a restructuring charge of $19.5
million in the third quarter of fiscal 1994. The restructuring plan
provides for the consolidation and streamlining of certain
operations and administration, including a reduction in worldwide
headcount by approximately 500 employees. At the same time, the
Company announced a major shift in strategy to devote Company
resources primarily to the design, manufacture and sale of its 7000
Series disk drives and its new family of mobile computing products,
including the MobileMax family of PCMCIA-based mobile computing data
storage products. The Company's research and development efforts
will focus on new products targeted at the desktop personal
computing and mobile computing markets.
The disk drive industry is subject to rapid technological change and
short product life cycles as data storage manufacturers continually
strive for smaller form factors, larger storage capacities, higher
performance and lower cost. As a result, Maxtor expects that the
Company's new products will replace the products which accounted for
a majority of the Company's revenues in fiscal years 1993 and 1994.
Shorter product life cycles also increase the importance of the
Company's ability to successfully manage product transitions. The
failure to adequately manage product transitions could result in the
loss of market opportunities, decreased sales of existing products,
cancellation of products or product lines, the accumulation of
obsolete and excess inventory and unanticipated charges related to
obsolete capital equipment. As previously mentioned, the Company
announced a major shift in strategy, devoting Company resources
primarily to the design, manufacture and sale of its 7000 Series of
inch-high, 3.5-inch disk drives and its new family of mobile
computing products, including the MobileMax family of PCMCIA-based
mobile computing data storage products. As a result of this shift
in strategy, the Company's financial results will be heavily
dependent on the success of these products. The Company's ability to
anticipate market trends and to successfully develop, manufacture in
volume and sell new products in a timely manner and at favorable
gross margins will be important factors affecting the Company's
future results and there can be no assurance that the Company will
be successful in such efforts. The Company has been less successful
than its competitors in managing product transitions, and successful
new products introduced by competitors have tended to displace older
products, including the Company's products. If the Company does not
successfully manage new product transitions in the near-term,
further losses will be incurred.
The disk drive industry is intensely competitive and significant
price erosion is typical during the life of a product. Industry
participants include both independent suppliers and large computer
manufacturers that both supply their own internal requirements and
sell disk drives to third parties. Sales by such large computer
manufacturers to third parties are an increasingly important factor
in the market. Bringing new products to market on a timely basis
has become increasingly critical to competing in this market
environment. When a new product is not brought to market on a
timely basis, the selling price of older products must be reduced in
order to compete effectively with competitors' new products, which
are being produced at lower costs. If competitors introduce
products which offer greater capacity, better performance, lower
prices or any combination of these factors, or if certain customers
produce more disk drives for internal use, the Company's results of
operations would be adversely affected.
As a result of volatile business conditions in the personal computer
(PC) industry, including the trend toward consolidation among PC
manufacturers, sales to the major PC manufacturers have become
increasingly important to the success of the disk drive industry
participants. Although the Company intends to continue in its
efforts to increase its share of this large OEM market, particularly
in the marketing of its new products, there can be no assurance that
the Company will be successful in such efforts. Furthermore,
fluctuations in demand for computer systems, or other end-user
demand, can result, and have in the past resulted, in deferral or
cancellation of orders for the Company's products.
The Company's manufacturing process requires large volumes of high
quality components supplied by outside suppliers. The Company
periodically receives communication from vendors that they may be
unable to supply required volumes of certain key components. During
the first quarter of fiscal year 1994, the Company temporarily shut
down production of its MXT product line as a result of a quality
problem related to a particular supplier's component. Production
resumed when it was determined that the problem was limited to that
particular supplier's component and that an alternate supplier's
components were not affected by the quality problem. The Company's
25252 2.5-inch drive has also been subject to significant and on-
going production delays as a result of both design and vendor
problems. The Company is currently unable to obtain required
volumes of a key component for its 7000 Series product line which is
supplied by a sole source vendor who is experiencing production
problems. It is expected that this shortage will adversely affect
the Company's operating results for the forthcoming quarter ending
June 25, 1994 and that it will prevent the Company from returning to
profitability during that quarter.
While the Company has qualified and continues to qualify multiple
sources for many components, it is reliant on, and will continue to
be reliant on, single sources for many semi-custom and custom
integrated circuits and other key components. The Company does not
have long-term supply contracts with most of its single source
vendors, some of which are companies with limited financial and
operational resources. The Company intends to continue to pursue
qualification of alternative sources for single source components
where practicable; the Company believes, however, that it will have
to continue to utilize leading edge components which may only be
available from a single source. With the expansion of production
experienced by the disk drive industry during the last quarter of
fiscal year 1994 and continuing into the first quarter of fiscal
year 1995, shortages of certain key components for the disk drive
industry have increased and the Company expects it is likely that
industry shortages of key components may continue into future
quarters. The Company will continue to aggressively work with its
vendor base to minimize its exposure. There can be no assurance,
however, that the Company will be successful in such efforts or that
in the future the Company's vendors will meet the Company's
requirements for required volumes of high-quality components in a
timely and cost effective manner. In addition, there can be no
assurance that the Company's operating results or customer
relationships will not be adversely affected by production delays,
including delays in bringing new products into volume production in
a timely manner, resulting from an interruption or reduction in its
supply of any key components, excessive rework costs associated with
defective or substandard components or its inability to obtain
continued reduction of component costs.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
- - -------------------------------------------------------------------
Year Ended March 26, March 27, Change
1994 1993
- - -------------------------------------------------------------------
Revenue $ 1,152.6 $ 1,442.5 $ (289.9)
Gross margin $ (52.4) $ 265.1 $ (317.5)
As a percentage of revenue (4.5%) 18.4%
Net income (loss) $ (257.6) $ 46.1 $ (303.7)
As a percentage of revenue (22.3%) 3.2%
Net income (loss) per share. $ (8.00) $ 1.46 $ (9.46)
- - -------------------------------------------------------------------
Revenue
Unit sales of the Company's 7000 Series disk drives accounted for a
significant portion of the Company's revenue during both the current
fiscal year and the prior fiscal year, and increased modestly during
fiscal year 1994 over fiscal year 1993. However, these product
offerings, particularly 100-200 megabyte products, were subject to
intense price competition and excess industry capacity during most
of the first nine months of fiscal year 1994, which negatively
impacted per unit revenue in fiscal year 1994 despite the increase
in unit volumes. The Company began to experience an increase in
demand during the third quarter of fiscal year 1994, which continued
through the fourth quarter of fiscal year 1994 with most products in
short supply, as well as concurrent easing of price reductions and
certain price increases. While there was a significant shift in
product mix from the older, lower capacity 3.5-inch and 5.25-inch
product offerings to the higher capacity 7000 Series and MXT product
offerings, average unit selling prices, in terms of megabyte per
dollar, declined substantially between fiscal years 1993 and 1994.
Revenue for fiscal year 1993 included approximately $61 million
generated by the Company's wholly-owned subsidiary, Storage
Dimensions, Inc. (SDI); no such revenue was recognized in fiscal
year 1994 due to the sale of SDI on December 26, 1992. In addition,
revenue for fiscal year 1994 did not include $16.1 million, net, of
non-recurring revenue recognized in fiscal year 1993 related to
certain royalty and licensing agreements.
During fiscal year 1994, the Company had one customer which
accounted for approximately 24% of the Company's revenue. This
percentage may fluctuate in future periods and the Company expects
it will decline substantially in fiscal year 1995.
As a result of the Company's shift in strategy, as discussed above,
the Company will be heavily dependent on the success of certain
products. During the third and fourth quarters of fiscal year 1994,
the Company announced several new products, including additions to
the MobileMax family of PCMCIA-compatible storage products for
mobile computing applications. These new products did not
contribute significantly to revenue in the fourth quarter of fiscal
year 1994, and the Company anticipates that these new products will
not contribute significantly to revenue during fiscal year 1995. The
Company's ability to increase revenues is dependent on its ability
to anticipate market trends and to successfully develop, manufacture
in volume and sell new products in a timely manner. There can be no
assurance that the Company will be successful in such efforts.
Gross Margin
Gross margin as a percentage of revenue decreased significantly to
(4.5)% in fiscal year 1994 from 18.4% in fiscal year 1993. As
discussed previously, the Company recorded special charges amounting
to $68.9 million in cost of revenue in the third quarter of fiscal
year 1994. The charges consist of estimated costs associated with
the termination of certain products, a reduction in manufacturing
capacity, write downs of inventory and equipment that are no longer
productive, and related future commitments to third parties.
Excluding the special charges of $68.9 million, gross margin for
fiscal year 1994 was 1.4%. Excluding the non-recurring revenue of
approximately $16.1 million, gross margin was 17.5% for fiscal year
1993.
Excluding the impact of the special charges, the significant decline
in gross margin during fiscal year 1994 is primarily attributable to
the prevailing negative business conditions in the disk drive
industry, including intense price competition and excess industry
capacity, as well as to cost and time-to-market issues with regard
to the Company's new products. During the last four months of
fiscal year 1993 and continuing into the third quarter of fiscal
year 1994, gross margin declined significantly due to increased
price competition on 100-200 megabyte 3.5-inch products, price
erosion on older products as they were being phased out, and costs
associated with the startup and initial production of the Company's
MXT products. Gross margin began to improve during the third and
fourth fiscal quarters of fiscal year 1994 from (3.3%) for the
second quarter to 4.8% for the third quarter, excluding the special
charges of $68.9 million, to 11.4% for the fourth quarter as a
result of increased unit sales volumes of certain products for which
average unit selling prices were relatively constant while average
unit manufacturing costs declined from quarter to quarter.
During most of the first nine months of fiscal year 1994, gross
margin was negatively impacted by the Company's failure to produce
planned unit volumes of its MXT product line due to a quality
problem involving a particular supplier's component, plus higher
costs than planned due to related design and manufacturing issues,
in addition to failure to produce planned unit volumes of its 2.5-
inch product line due to design and component issues. A temporary
shutdown of production of the MXT product occurred during the first
quarter and resulted in an estimated loss of $25.0 million of
revenue and an accompanying negative gross margin for this product
offering during that quarter. This first quarter production
shutdown of the MXT product also adversely affected production costs
in the second quarter of fiscal year 1994 until efficient production
levels were achieved. The design and component issues related to
the 2.5-inch product line resulted in a negative gross margin for
this product line during most of fiscal year 1994.
The Company believes that the reduced rate of decline in average
unit selling prices experienced in the latter months of fiscal year
1994 will continue through the first quarter of fiscal year 1995.
The Company will continue its efforts to reduce its average unit
manufacturing costs and to introduce and produce in volume new
higher margin products in an effort to improve gross margin during
fiscal year 1995. However, there can be no assurance that average
unit selling prices will not decline at a more rapid rate or that
the Company will be successful in its efforts to improve gross
margin.
Operating expenses
- - -------------------------------------------------------------------
Year Ended March 26, March 27, Change
1994 1993
- - -------------------------------------------------------------------
Research and development $ 97.2 $ 112.6 $ (15.4)
As a percentage of revenue 8.4% 7.8%
Selling, general and
administrative $ 78.9 $ 98.5 $ (19.6)
As a percentage of revenue 6.8% 6.8%
Restructuring $ 19.5 - $ (19.5)
As a percentage of revenue 1.7% n/a
- - -------------------------------------------------------------------
Research and Development
Research and development (R&D) expenses decreased from the prior
fiscal year in absolute dollars due primarily to the consolidation
of the Company's R&D activities in Longmont, Colorado in connection
with the Company's restructuring plan. This consolidation
eliminated the need for certain facilities in San Jose, California,
and also resulted in a substantial reduction in headcount associated
with R&D and related activities previously conducted in San Jose.
R&D increased as a percentage of revenue as a result of the
decreased revenue base between fiscal years 1993 and 1994. While
R&D spending in absolute dollars is expected to decrease during
fiscal year 1995, the Company must continue to make substantial
investments in R&D since the timely introduction and transition to
volume production of new products is essential to its future
success. In addition, R&D expenses may fluctuate in the future
resulting from the cost of acquiring rights to new technologies.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses declined in
absolute dollars primarily due to the sale of the assets of SDI, and
were relatively unchanged as a percentage of revenue for fiscal year
1994 compared to the prior fiscal year given the decline in the
revenue base during that period. SG&A for the first nine months of
fiscal year 1993 included expenses incurred by SDI until December
1992 at which time the Company sold the assets of SDI. The decline
in SG&A expenses also reflects the Company's efforts to control and
reduce expenditures. The Company has ongoing efforts to control
costs and expenditures and reduce SG&A expenses in future quarters,
however, there can be no assurance that the Company will be
successful in such efforts.
Restructuring
The Company recorded a restructuring charge of $19.5 million in the
third quarter of fiscal year 1994. The restructuring plan provides
for the consolidation and streamlining of certain operations and
administration, including a reduction in the Company's worldwide
headcount, and is expected to be completed within the twelve-month
period from the date of the charge. The charge consists of
approximately $11.8 million in estimated costs related to the
worldwide reduction in headcount and approximately $7.7 million
associated with facility consolidations, including lease and other
obligations on certain facility leases, none of which extend beyond
calendar year 1994. The plan provides for a worldwide headcount
reduction of approximately 500 employees, which was substantially
completed during February 1994. The Company's research and
development activities will be consolidated at its Longmont,
Colorado facilities, which will eliminate the need for certain
facilities in San Jose, California. In addition, the Company's
actions will eliminate the need for certain manufacturing facilities
in Singapore. The Company anticipates that these restructuring
actions will require the expenditure of approximately $9.0 million
of cash over the first nine months of fiscal year 1995, which will
be provided by cash flow from operations or capital infusions. As
of March 26, 1994, approximately $9.0 million of the $19.5 million
charge remained in current liabilities. As a result of these
activities, the Company has eliminated an estimated $9.0 million per
quarter of operating costs, beginning with the fourth quarter of
fiscal year 1994.
Interest expense, interest income, and minority interest in loss of
joint venture
- - ----------------------------------------------------------------
Year ended March 26, March 27, Change
1994 1993
- - ----------------------------------------------------------------
Interest expense $ 10.1 $ 10.1 $ -
Interest income $ 2.3 $ 2.6 $ (.3)
Minority interest $ - $ 1.0 $ (1.0)
- - ----------------------------------------------------------------
The Company's minority interest account is related to Maxoptix
Corporation (Maxoptix), a joint venture formed in March 1989 with
Kubota Corporation (Kubota), 62% owned by Maxtor and 34% owned by
Kubota, subject to certain adjustments. All operating losses
incurred by Maxoptix from March 31, 1990 through June 27, 1992 were
allocated to the minority interest account and, therefore, did not
impact Maxtor's net income (loss). During the fiscal quarter ended
September 26, 1992, the minority interest account was reduced to
zero. Thereafter, all future operating losses incurred by Maxoptix
were and will continue to be fully allocated to Maxtor. See Note 2
to Notes to Consolidated Financial Statements.
Provision for income taxes and effective tax rate
- - -------------------------------------------------------------------
Year ended March 26, March 27, Change
1994 1993
- - -------------------------------------------------------------------
Provision for income taxes $ 1.9 $ 1.3 $ .6
Effective tax rate n/a 2.7%
- - -------------------------------------------------------------------
The provision for income taxes consists primarily of foreign taxes.
The Company's effective tax rate for fiscal year 1994 differs from
the combined federal and state rate due to the repatriation of
foreign earnings absorbed by current year losses, the Company's U.S.
operating losses not providing current tax benefits, and valuation
of temporary differences, offset in part by the tax savings
associated with the Company's Singapore operations. Income from the
Singapore operations is not taxable in Singapore as a result of the
Company's pioneer tax status, and those earnings which are
permanently reinvested outside the United States are not taxable in
the United States. The Company's effective tax rate for fiscal year
1993 was 2.7%, which is below the combined federal and state rate
due to the tax benefits associated with the Company's Singapore
operations, valuation of temporary differences and the non-recurring
reduction of taxes provided in prior periods, offset by the
Company's U.S. operating losses not providing current tax benefits.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Under SFAS No. 109, the liability
method is used in accounting for income taxes. For purposes of this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets
and liabilities and are measured by applying enacted tax rates and
laws to the taxable years in which such differences are expected to
reverse. The Company adopted the provisions of SFAS No. 109 in its
financial statements effective March 28, 1993 for fiscal year 1994.
Adoption of SFAS No. 109 had no financial impact on the Company's
consolidated financial position or results of operations.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
- - -----------------------------------------------------------------
Year ended March 27, March 28, Change
1993 1992
- - ------------------------------------------------------------------
Revenue $ 1,442.5 $ 1,037.5 $ 405.1
Gross margin $ 265.1 $ 189.0 $ 76.0
As a percentage of revenue 18.4% 18.2%
Net income $ 46.1 $ 7.1 $ 39.0
As a percentage of revenue 3.2% .1%
Net income per share:
- Primary $ 1.46 $ 0.27 $ 1.19
- Fully diluted $ 1.46 $ 0.24 $ 1.22
- - --------------------------------------------------------------------
Revenue
The Company's revenue increased to $1.4 billion in fiscal year 1993,
an increase of 39% over the prior fiscal year. This increase was
primarily due to strong unit sales of the Company's 7000 Series of
one-inch high 3.5-inch products, partially offset by a decrease in
unit sales of the Company's full height, 3.5-inch products and 5.25-
inch products. In addition, revenue increased due to a shift in
product mix to higher capacity, higher price drives within certain
product series, partially offset by a decline in the latter part of
the fiscal year in the average unit selling prices of the Company's
products, particularly with respect to the 100-200 megabyte 3.5-inch
products. Revenue also increased during fiscal year 1993 as a
result of $16.1 million, net, of non-recurring revenue related to
certain royalty and licensing agreements. This compares to
approximately $8.0 million of non-recurring revenue recognized in
fiscal year 1992 in connection with a patent cross license agreement
and the gain on the sale of certain manufacturing rights and assets.
Revenue increases during fiscal year 1993 over fiscal year 1992 were
impacted by the sale of the assets of the Company's wholly-owned
subsidiary, Storage Dimensions, Inc. (SDI) at the end of the
Company's third fiscal quarter. Fiscal year 1993 revenues include
only nine months of revenues generated by SDI, whereas a full year
of SDI revenues were included in the fiscal year 1992 results of
operations, a decline of approximately $26.8 million.
Gross Margin
Gross margin as a percentage of revenue increased to 18.4% in fiscal
year 1993 from 18.2% in fiscal year 1992. Excluding the non-
recurring revenue of approximately $16.1 million recognized in
fiscal year 1993, gross margin was 17.5%, as compared to 17.4% for
fiscal year 1992, which excludes non-recurring revenue of
approximately $8.0 million and an aggregate net reduction to cost of
revenue of approximately $2.3 million related to special charges and
certain non-recurring reductions to cost of revenue.
Over a nine-month period through September 28, 1991, the Company
experienced downward pressure on gross margins as a result of
difficult business conditions and intense price competition which
forced the Company to decrease average unit selling prices more
quickly than it could reduce manufacturing costs. Beginning in the
quarter ended December 28, 1991, there was an industry-wide increase
in demand for disk drive products which led to a stabilization in
prices. This increase in demand, combined with a shift in the
product mix to higher capacity, higher gross margin products, led to
improved gross margins during the first eight months of fiscal year
1993 over the prior fiscal year. In addition, gross margins
improved during that eight-month period as a result of manufacturing
efficiencies resulting from the consolidation and reorganization of
the Company's manufacturing organization, decreased material costs
and increased unit volume, which helped to lower fixed costs per
unit. During the four-month period ended March 27, 1993, however,
gross margins declined significantly due to increased price
competition for the 100-200 megabyte 3.5-inch products, price
erosion on older products as they are being phased out, and costs
associated with the startup and initial production of the 3.5-inch
MXT products.
Operating expenses
- - -------------------------------------------------------------------
Year ended March 27, March 28, Change
1993 1992
- - -------------------------------------------------------------------
Research and development $ 112.6 $ 72.4 $ 40.2
As a percentage of revenue 7.8% 7.0%
Selling, general and
administrative $ 98.5 $ 104.3 $ (5.8)
As a percentage of revenue 6.8% 10.1%
- - --------------------------------------------------------------------
Research and Development
R&D expenses increased in fiscal year 1993 over the prior fiscal
year primarily due to planned expenses to support the development
and engineering production of new products, including increased
headcount and new product/technology expenditures.
Selling, General & Administrative
SG&A expenses as a percentage of revenue declined in fiscal year
1993 from the prior fiscal year primarily due to relatively flat
spending in absolute dollars over a significantly increased revenue
base in fiscal year 1993 compared to the prior fiscal year. In
addition, fiscal year 1992 expenses included special charges of $3.8
million which were not incurred in fiscal year 1993. Exclusive of
these special charges, SG&A expenses would have been 9.7% of revenue
in fiscal year 1992.
Interest expense, interest income, and minority interest in loss of
joint venture
- - --------------------------------------------------------------------
Year ended March 27, March 28, Change
1993 1992
- - --------------------------------------------------------------------
Interest expense $ 10.1 $ 12.6 $ (2.4)
Interest income $ 2.6 $ 1.4 $ 1.2
Minority interest $ 1.0 $ 7.2 $ (6.2)
- - --------------------------------------------------------------------
Interest expense decreased in fiscal year 1993 compared to the prior
fiscal year primarily due to average short-term bank borrowings
being significantly lower during fiscal year 1993.
Interest income increased in fiscal year 1993 compared to the prior
fiscal year due to an improved cash and cash equivalents position,
partly offset by a decrease in interest rates.
Provision for income taxes and effective tax rate
- - -------------------------------------------------------------------
Year ended March 27, March 28, Change
1993 1992
- - -------------------------------------------------------------------
Provision for income taxes $ 1.3 $ 1.1 $ .2
Effective tax rate 2.7% 13.8%
- - -------------------------------------------------------------------
The Company's effective tax rate for fiscal year 1993 was 2.7%,
which is below the combined federal and state rate due to the tax
benefits associated with the Company's Singapore operations,
valuation of temporary differences and the non-recurring reduction
of taxes provided in prior periods, offset by the Company's U.S.
operating losses not providing current tax benefits. Income from
the Singapore operations is not taxable in Singapore as a result of
the Company's pioneer tax status, and earnings which are permanently
reinvested outside the United States are not taxable in the United
States. The effective tax rate for fiscal year 1992 was also below
the combined federal and state statutory rate due to the tax
benefits associated with the Company's Singapore operations and the
Company's U.S. operating loss.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------------------------------------------
March 26,
Year ended 1994
- - -------------------------------------------------------------------
Cash and cash equivalents $ 144.5
Short-term investments $ 74.9
Net cash used in operating activities $ 16.5
Net cash used in investing activities $ 103.7
Net cash provided by financing activities $ 129.4
- - --------------------------------------------------------------------
During fiscal year 1994, the Company's losses impacted its financial
position by decreasing available cash and requiring the Company to
seek alternative financing, including replacing its existing
revolving line of credit and seeking other long-term financing. In
February 1994, the Company received approximately $150 million from
Hyundai Electronics Industries Co., Ltd. and several related members
of the Hyundai Business Group (Hyundai) pursuant to the Stock
Purchase Agreement described below.
As of March 26, 1994, the Company had net cash and cash equivalents
of $114.5 million, excluding $30.0 million of short-term borrowings,
as compared to $102.3 million as of March 27, 1993, an increase of
$12.2 million. In addition, the Company had short-term investments
of $74.9 million at the end of fiscal year 1994. The combined
increase in the Company's cash and cash equivalents, and short-term
investments of $87.1 million was primarily the result of the $150
million investment by Hyundai in February 1994 offset by debt
repayments, capital expenditures and operating activities.
Of the net cash used in operating activities during fiscal year
1994, net loss less non-cash depreciation and amortization accounted
for approximately $171.7 million. This was offset in part by the
decreases in accounts receivable and inventories, and increases in
current liabilities which totaled approximately $151.3 million. The
decline in accounts receivable primarily reflects lower sales levels
in the quarter ending March 26, 1994 than in the quarter ending
March 27, 1993 and improved days sales outstanding. Days sales
outstanding improved to 34 days at the end of fiscal year 1994 from
39 days at the end of fiscal year 1993. Inventories decreased
primarily because of the Company's efforts to balance production
with demand and control inventory purchases. Despite the Company's
efforts to tightly control inventory levels, inventories may
increase in the future based on changes in market demand or industry-
wide production. Current liabilities increased by approximately $42
million primarily as a result of the special and restructuring
charges recorded by the Company in the third quarter of fiscal year
1994.
Net cash used in investing activities was primarily attributable to
the $74.9 million of short-term investment purchases and $29.7
million of capital expenditures. A significant portion of the
capital expenditure activity was related to the acquisition of
manufacturing equipment. Depending on business conditions, the
Company currently expects to make capital expenditures of
approximately $35 to $40 million during fiscal year 1995, as
compared to approximately $30 million during fiscal year 1994.
Net cash provided by financing activities during fiscal year 1994
primarily reflects the issuance of approximately 19.5 million shares
of Maxtor Class A common stock to Hyundai pursuant to the Stock
Purchase Agreement described below, offset in part by cash used to
reduce outstanding debt.
In September 1992, the Company established a $70.0 million domestic
unsecured revolving line of credit. In April 1993, in consideration
of the amendment of certain financial covenants, the Company agreed
to grant the lenders a security interest in the Company's
inventories and receivables which would automatically become
effective under certain circumstances. In July 1993, the Company
obtained a waiver and second amendment of certain financial
covenants through September 27, 1993, and in connection with the
waiver, agreed to grant the lenders a security interest in the
Company's inventories and receivables and agreed to limit its
borrowings to the $27.0 million of current borrowings at that time.
During fiscal year 1993, the Company also established a $48.0
million term loan facility in Singapore with several banks. In July
1993, the Company repaid in full the outstanding borrowings on that
term loan facility and terminated the agreement.
On September 17, 1993, the Company obtained a secured, asset-based
revolving line of credit of $76.0 million. This line of credit
replaced the existing $70.0 million line of credit from different
lenders, as well as $6.0 million of equipment term loans. This
asset-based revolving line of credit provides for borrowings up to
$76.0 million based on eligible receivables at various interest
rates over a two-year term and is secured by receivables, certain
inventories and other assets. As of March 26, 1994, $30.0 million
of borrowings and $2.9 million of letters of credit were
outstanding. The $30.0 million of borrowings was fully repaid
during the first fiscal week of April 1994. The availability of
this line of credit in the future depends on the Company meeting
certain covenants. The line of credit expires in September 1995.
In August 1993, the Company signed a letter of intent for the
creation of a strategic relationship with Hyundai. In September
1993, the Company then signed the Stock Purchase Agreement (the
Agreement) with Hyundai. The transaction closed on February 3, 1994
and was recorded in the fourth quarter of fiscal year 1994. Under
the terms of the Agreement, Hyundai invested approximately $150
million in Maxtor and received approximately 19.5 million shares of
common stock, representing a per share price of $7.70, and
constituting approximately 40% of the Company's outstanding voting
stock at the time. The stock issued to Hyundai is a special series
of common stock, entitling Hyundai to representation on the
Company's Board of Directors proportionate to its share of ownership
and certain voting rights. In addition, the Agreement requires the
Company's Board of Directors to elect the director designated by
Hyundai as Chairman of the Board, which occurred in February 1994.
The Agreement also provides that Hyundai may not acquire more than
45% of Maxtor except in a tender for all outstanding shares or in
certain other cases. These provisions could deter a third party
from making a tender or exchange offer for the stock of the Company.
The Company believes that the $150 million of funding generated by
the Hyundai investment, and the Company's expected cash flow from
operations, equipment financing and available lines of credit will
be sufficient to fund the Company's working capital and capital
expenditure requirements through fiscal year 1995.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. It
is the present policy of the Board of Directors to retain earnings
for use in the business. The Company does not anticipate paying
cash dividends in the near future. Under the terms of the Company's
line of credit and term loan facilities, the Company may not declare
or pay any dividends without the prior consent of its lenders.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Financial Statements:
Consolidated Balance Sheets -
March 26, 1994 and March 27, 1993 21
Consolidated Statements of Income (Loss) -
Years ended March 26, 1994,
March 27, 1993 and March 28, 1992 22
Consolidated Statements of Stockholders' Equity -
Years ended March 26, 1994,
March 27, 1993 and March 28, 1992 23
Consolidated Statements of Cash Flows -
Years ended March 26, 1994,
March 27, 1993 and March 28, 1992 24 - 25
Notes to Consolidated Financial Statements 25 - 36
Report of Ernst & Young, Independent Auditors 37
Financial Statement Schedules:
The following consolidated financial statement schedules of
Maxtor Corporation are filed as part of this Report and
should be read in conjunction with the Consolidated Financial
Statements of Maxtor Corporation.
Schedule I Short-term investments S-1
Schedule II Amounts receivable from related
parties and underwriters,
promoters and employees other S-2,
than related parties S-3
Schedule V Property, plant and equipment S-4
Schedule VI Accumulated depreciation and
amortization of property,
plant and equipment S-5
Schedule VIII Valuation and qualifying accounts S-6
Schedule IX Short-term borrowings S-7
Schedules not listed above have been omitted since they are
not applicable or are not required or the information
required to be set therein is included in the Consolidated
Financial Statements or notes thereto.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
- - --------------------------------------------------------------------
March 26, March 27,
ASSETS 1994 1993
- - --------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 144,520 $ 135,324
Short-term investments 74,911 -
Accounts receivable, net of
allowance for doubtful accounts
of $3,653 at March 26, 1994 and
$4,190 at March 27, 1993 99,806 149,397
Inventories:
Raw materials 51,419 77,039
Work-in-process 19,196 32,650
Finished goods 25,408 45,654
- - -------------------------------------------------------------------
96,023 155,343
Prepaid expenses and other 7,936 10,675
- - -------------------------------------------------------------------
Total current assets 423,196 450,739
Property, plant and equipment, at cost:
Buildings 21,387 8,585
Machinery and equipment 195,820 204,090
Furniture and fixtures 18,195 19,214
Leasehold improvements 17,506 17,940
- - -------------------------------------------------------------------
252,908 249,829
Less accumulated depreciation
and amortization (191,750) (130,713)
- - -------------------------------------------------------------------
Net property, plant and equipment 61,158 119,116
Other assets 8,021 9,258
- - -------------------------------------------------------------------
$ 492,375 $ 579,113
===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 30,000 $ 33,000
Accounts payable 137,566 130,192
Income taxes payable 7,530 4,664
Accrued payroll and payroll-
related expenses 11,720 16,516
Accrued warranty 27,281 16,089
Accrued special and restructuring 21,777 -
Accrued expenses 25,700 21,753
Long-term debt and capital lease
obligations due within one year 4,155 16,373
- - -------------------------------------------------------------------
Total current liabilities 265,729 238,587
Long-term debt and capital lease
obligations due after one year 107,393 119,868
Deferred tax liabilities 66 1,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value,
5,000,000 shares authorized;
no shares issued or outstanding - -
Class A common stock, $0.01 par value,
19,480,000 shares authorized;
issued and outstanding:
March 26, 1994 - 19,480,000 shares 195 -
Common stock, $0.01 par value,
180,520,000 shares authorized;
issued and outstanding:
March 26, 1994 - 30,425,242 shares;
March 27, 1993 - 28,809,277 shares 304 288
Additional paid-in capital 320,564 163,747
Retained earnings (deficit) (201,749) 55,840
- - -------------------------------------------------------------------
119,314 219,875
Less notes receivable from stockholders (127) (217)
- - -------------------------------------------------------------------
Total stockholders' equity 119,187 219,658
- - -------------------------------------------------------------------
$ 492,375 $ 579,113
===================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
Year ended
- - --------------------------------------------------------------------
March 26, March 27, March 28,
1994 1993 1992
- - --------------------------------------------------------------------
Revenue $ 1,152,615 $ 1,442,546 $ 1,037,481
Cost of revenue 1,205,014 1,177,460 848,435
- - --------------------------------------------------------------------
Gross margin (52,399) 265,086 189,046
- - --------------------------------------------------------------------
Operating expenses:
Research and development 97,168 112,621 72,417
Selling, general and
administrative 78,854 98,497 104,325
Restructuring 19,500 - -
- - --------------------------------------------------------------------
Total operating expenses 195,522 211,118 176,742
- - --------------------------------------------------------------------
Income (loss) from operations (247,921) 53,968 12,304
Interest expense (10,087) (10,140) (12,584)
Interest income 2,283 2,557 1,387
Minority interest in loss of
joint venture - 1,014 7,187
- - --------------------------------------------------------------------
Income (loss) before income
taxes (255,725) 47,399 8,294
Provision for income taxes 1,864 1,287 1,145
- - --------------------------------------------------------------------
Net income (loss) $ (257,589) $ 46,112 $ 7,149
====================================================================
Net income (loss) per share
-primary $ (8.00) $ 1.46 $ 0.27
-fully diluted $ (8.00) $ 1.46 $ 0.24
====================================================================
Shares used in computing net
income (loss) per share
-primary 32,203 31,534 26,721
-fully diluted 32,203 31,599 29,215
====================================================================
See accompanying notes.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
- - ---------------------------------------------------------------------------
<CAPTION>
Common Notes
Stock Addi- Receiv-
tional Retained able Total
----------------- Paid-in Earnings From Stock-
Shares Amount Capital (Deficit) Stock- holders'
holders Equity
<S> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------
Balance, March
30, 1991 23,096,417 $232 $137,157 $ 2,579 $(325) $139,643
Issuance of
common stock
under stock
option plans 349,929 3 2,034 - (291) 1,746
Payments on and
forgiveness of
notes
receivable from
stockholders - - - - 187 187
Issuance of
common stock
under stock
purchase plan 565,885 5 1,437 - - 1,442
Adjustment to
common stock
held by
Standard
Chartered Bank - - 5,618 - - 5,618
Net income - - - 7,149 - 7,149
- - ---------------------------------------------------------------------------
Balance, March
28, 1992 24,012,231 240 146,246 9,728 (429) 155,785
Issuance of
common stock
under stock
option plans
and related
tax benefit 2,075,738 21 12,767 - (167) 12,621
Payments on and
forgiveness of
notes
receivable from
stockholders - - - - 379 379
Issuance of
common stock
under stock
purchase plan 721,308 7 3,249 - - 3,256
Adjustment to
common stock
held by
Standard
Chartered Bank - - 1,505 - - 1,505
Issuance of
common stock
from exercise
of stock rights 2,000,000 20 (20) - - -
Net income - - - 46,112 - 46,112
- - ---------------------------------------------------------------------------
Balance, March
27, 1993 28,809,277 288 163,747 55,840 (217) 219,658
Issuance of
common stock
under stock
option plans
and related
tax benefit 792,920 8 3,362 - - 3,370
Payments on
and forgiveness
of notes
receivable from
stockholders - - - - 90 90
Issuance of
common stock
under stock
purchase plan 823,045 8 4,307 - - 4,315
Issuance of
Class A
common stock 19,480,000 195 149,148 - - 149,343
Net loss - - - (257,589) - (257,589)
- - ---------------------------------------------------------------------------
Balance, March
26, 1994 49,905,242 $499 $320,564 $(201,749) $(127) $119,187
===========================================================================
See accompanying notes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended
- - --------------------------------------------------------------------
March 26, March 27, March 28,
1994 1993 1992
- - --------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents
Cash flows from operating
activities:
Net income (loss) $(257,589) $ 46,112 $ 7,149
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 85,865 62,028 55,190
Forgiveness of notes
receivable from
stockholders 61 74 72
Change in non-current
deferred tax
liabilities (934) 1,000 -
Gain on sale of facility - - (5,500)
Loss on disposal of
property, plant
and equipment 2,135 2,301 4,920
Minority interest in
loss of joint venture - (1,023) (7,187)
Other, net - (796) -
Change in assets and
liabilities:
Accounts receivable 49,591 (17,248) (16,953)
Inventories 59,320 (45,740) 21,418
Prepaid expenses and
other 2,739 (6,256) 449
Accounts payable 7,374 20,020 12,772
Income taxes payable 2,866 (3,894) 2,077
Accrued payroll and
payroll-related
expenses (4,796) (1,066) 4,894
Accrued warranty 11,192 1,657 (3,409)
Accrued special and
restructuring 21,777 - -
Accrued expenses 3,947 12,706 3,922
- - --------------------------------------------------------------------
Total adjustments 241,137 23,763 72,665
- - --------------------------------------------------------------------
Net cash provided by (used
in) operating activities (16,452) 69,875 79,814
- - --------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from sale of
subsidiary, net of costs - 15,842 -
Purchase of short-term
investments (74,911) - -
Purchase of property, plant
and equipment, net (29,746) (91,700) (36,833)
Proceeds from disposal of
property, plant and equipment 1,013 1,930 12,969
Proceeds from sale of facility - - 7,600
Other assets (72) (1,686) (509)
- - --------------------------------------------------------------------
Net cash used in investing
activities (103,716) (75,614) (16,773)
- - --------------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from issuance of debt,
including short-term borrowings 2,870 79,798 3,006
Principal payments of debt,
including capital lease
obligations (30,563) (30,092) (35,977)
Proceeds from issuance of
Class A common stock 149,343 - -
Proceeds from issuance of
common stock, net of
issuance of notes
receivable, stock
repurchase and tax benefits 7,685 15,193 3,188
Payments on notes receivable
from stockholders 29 305 115
- - --------------------------------------------------------------------
Net cash provided by (used
in) financing activities 129,364 65,204 (29,668)
- - --------------------------------------------------------------------
Net change in cash and cash
equivalents 9,196 59,465 33,373
Cash and cash equivalents at
beginning of period 135,324 75,859 42,486
- - --------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 144,520 $ 135,324 $ 75,859
====================================================================
See accompanying notes.
Supplemental disclosures of cash flow information:
(In thousands) Year ended
- - -------------------------------------------------------------------
March 26, March 27, March 28,
1994 1993 1992
- - -------------------------------------------------------------------
Cash paid (received) during
the year for:
Interest $ 9,985 $ 9,250 $ 12,820
Income taxes 1,337 4,661 298
Income tax refunds (1,824) (292) (1,504)
- - -------------------------------------------------------------------
Supplemental information on noncash investing and financing
activities:
Capital lease obligations of approximately $122,000, $520,000 and
$695,000 were incurred when the Company entered into capitalized
leases for new equipment in fiscal years 1994, 1993 and 1992,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and its wholly owned
subsidiaries, after elimination of all intercompany accounts and
transactions. The consolidated financial statements also include
the accounts of Maxoptix Corporation (Maxoptix), a majority owned
joint venture (see Note 2). In connection with the sale of the
assets of SDI, Maxtor acquired a 32.8% interest in the company
formed for the purpose of purchasing the net assets of SDI. Maxtor
accounts for its investment under the equity method (see Note 2).
Cash and cash equivalents
The Company considers all highly liquid instruments, which are
purchased with a maturity of three months or less, to be cash
equivalents. Cash equivalents are stated at cost, which
approximates market. A substantial portion of the Company's cash
and cash equivalents is held by foreign subsidiaries and is
generally in U.S. dollar-denominated holdings. Certain amounts held
by foreign subsidiaries would be subject to U.S. income taxation
should repatriation to the United States to meet domestic cash needs
become necessary (see Note 8).
Fair value of financial instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying value reported in the Company's balance sheet as cash
and cash equivalents approximates its fair value.
Short-term investments
The carrying value reported in the Company's balance sheet as short-
term investments approximates its fair value.
Note receivable
The carrying value of the note receivable, which is classified in
other assets on the Company's balance sheet, approximates its fair
value.
Short and long-term debt
The fair value of the Company's fixed rate debt is estimated based
on the current rates offered to the Company for similar debt
instruments of the same remaining maturities. The fair value of the
Company's variable rate debt approximates its carrying value as
these instruments are repriced frequently at market rates.
Convertible subordinated debentures
The fair value of the Company's convertible subordinated debentures
is based on the quoted market price at March 26, 1994.
Foreign currency contracts
The fair value of foreign currency contracts used for hedging
purposes is estimated based on the quoted market price at the end of
the quarter.
The carrying value and fair values of the Company's financial
instruments at March 26, 1994, are as follows:
(In thousands) Carrying Value Fair Value
- - -----------------------------------------------------------------
Cash and cash equivalents $ 144,520 $ 144,520
Short-term investments 74,911 74,911
Note receivable 4,000 4,000
Short and long-term debt
-fixed rate 7,405 7,350
-variable rate 33,368 33,368
Convertible subordinated debentures 100,000 66,000
Foreign currency contracts - 2
- - -----------------------------------------------------------------
Accounting for certain investments in debt and equity securities
The Company considers all highly liquid instruments, which are
purchased with a maturity between three and twelve months, to be
short-term investments. The Company is required to adopt Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115), on or
before the end of the first quarter of fiscal year 1995. SFAS No.
115 superseded Statement of Financial Accounting Standards No. 12,
"Accounting for Certain Marketable Securities", and requires
unrealized holding gains and losses on securities classified as
available-for-sale to be reported as a separate component of
stockholders' equity, and unrealized holding gains and losses on
securities classified as trading to be reported as earnings. The
Company has evaluated the impact of SFAS No. 115 on its financial
statements, and believes if SFAS No. 115 were adopted in fiscal year
1994, its impact would have been immaterial to the Company's fiscal
year 1994 financial condition and results of operations.
Inventories
Inventories are stated at the lower of cost (computed on a first-in,
first-out basis) or market.
Depreciation and amortization
Depreciation and amortization are provided on the straight-line
basis over the estimated useful lives of the assets, which are
generally from three to five years, except for buildings which are
depreciated over thirty years. Assets under capital leases and
leasehold improvements are amortized over the shorter of the asset
life or the remaining lease term. Capital lease amortization is
included with depreciation expense.
Revenue recognition & product warranty
Revenue is recognized upon product shipment. Revenue from sales to
certain distributors is subject to agreements providing limited
rights of return, as well as price protection on unsold merchandise.
Accordingly, the Company records reserves upon shipment for
estimated returns, exchanges and credits for price protection. The
Company also provides for the estimated cost to repair or replace
products under warranty at the time of sale.
Off balance sheet risk and concentration of credit risk
The Company's products are sold worldwide to original equipment
manufacturers (OEMs) through a direct sales force and to an
extensive network of domestic and international industrial
distributors, as well as to end users and retail sales outlets via
commercial distributors. Concentration of credit risk with respect
to the Company's trade receivables is limited by the Company's
credit evaluation process and the geographical dispersion of sales
transactions, therefore the Company generally requires no collateral
from its customers. The Company also has cash equivalent and short-
term investment policies that limit the amount of credit exposure to
any one financial institution and restrict placement of these
investments to financial institutions evaluated as highly credit-
worthy.
Foreign exchange gains and losses
The functional currency for all foreign operations is the U.S.
dollar. As such, all material foreign exchange gains or losses are
included in net income (loss). Approximately $865,000, $659,000 and
$2,300,000 of foreign exchange losses were included in net income
(loss) in fiscal years 1994, 1993 and 1992, respectively.
The Company enters into foreign currency forward exchange contracts
to reduce the impact of currency fluctuations on monetary asset and
liability positions. The cash flows related to gains and losses on
these contracts are classified as operating activities in the
Consolidated Statements of Cash Flows.
The foreign currency forward exchange contracts described above
require the Company to exchange U.S. dollars for foreign currencies
at rates agreed to at the inception of the contract. These
contracts generally have maturities that do not exceed three months.
At March 26, 1994, the Company had approximately $18,026,000 of
foreign currency forward exchange contracts outstanding.
Accounting for income taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Under SFAS No. 109, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are
measured by applying enacted tax rates and laws for the taxable
years in which those differences are expected to reverse.
The Company adopted the provisions of SFAS No. 109 in its financial
statements effective March 28, 1993 for fiscal year 1994. The
adoption of SFAS No. 109 did not have a material effect on the
Company's consolidated financial position or results of operations
in fiscal year 1994. Prior years were accounted for under Statement
of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" (SFAS No. 96), and have not been restated.
Net income (loss) per share
Net loss per share is based upon the weighted average number of
shares of common stock outstanding during fiscal year 1994. For
fiscal years 1993 and 1992, net income per share is based upon the
weighted average number of shares of common stock and common stock
equivalents outstanding during the fiscal year. Common stock
equivalents include shares issuable upon the assumed exercise of
stock options reflected under the treasury stock method. The
convertible subordinated debentures are excluded from the
calculation of primary and fully diluted earnings per share as they
had an anti-dilutive impact on net income per share in fiscal years
1993 and 1992.
Fiscal year
The Company maintains a 52/53-week fiscal year cycle. Fiscal years
1994, 1993 and 1992 were each comprised of 52 weeks.
2. JOINT VENTURE, ACQUISITION AND INVESTMENT IN AFFILIATE
Maxoptix Corporation
In March 1989, the Company entered into an agreement with Kubota
Corporation (Kubota), a Japanese company based in Osaka, Japan, to
organize a jointly-owned corporation. Maxtor retains a 62%
interest, subject to adjustment upon exercise of Maxoptix employee
stock options, in the resulting corporation, Maxoptix. Maxoptix is
engaged in research, development, manufacturing and marketing of
optical storage products.
Effective March 31, 1990, the Company's net investment in Maxoptix
was reduced to zero as a result of its share of accumulated losses
of Maxoptix. All operating losses incurred by Maxoptix from March
31, 1990 through June 27, 1992 were allocated to the minority
interest account and, therefore did not impact Maxtor's net income
(loss). During the second quarter of fiscal year 1993, the minority
interest account was reduced to zero. Thereafter, all future
operating losses were and will continue to be fully allocated to
Maxtor until such time as the total profits of Maxoptix exceed the
aggregate accumulated losses fully absorbed by Maxtor. After such
time, profits will then be fully allocated to the minority interest
account until the total profits of Maxoptix exceed the excess
aggregate losses allocated to the minority interest account. In
fiscal year 1994, approximately $5,363,000 of Maxoptix losses have
been fully allocated to Maxtor.
MiniScribe Acquisition
On June 30, 1990, the Company acquired substantially all of the
assets and certain liabilities of MiniScribe from the U.S.
Bankruptcy Court. Payment to the bankruptcy court and to receivers
for such assets totaled approximately $41,500,000, which consisted
of $21,500,000 in cash, 1,423,488 shares of the Company's common
stock with an estimated value of approximately $6,932,000 and a note
estimated at approximately $13,068,000. The acquisition was
accounted for as a purchase.
In fiscal year 1992, the Company repaid $2,500,000 on the note. In
addition, in fiscal years 1992 and 1993, the 1,423,488 shares were
registered and subsequently sold resulting in proceeds to Standard
Chartered Bank of $4,545,000 and $9,510,000 in fiscal years 1992 and
1993, respectively. Adjustments of $5,618,000 and $1,505,000 in
fiscal years 1992 and 1993, respectively, were recorded to increase
additional paid-in capital to reflect the changes in the fair market
value of the shares of common stock.
In October 1992, the Company repaid in full the note of
approximately $3,445,000 due to Standard Chartered Bank afterwhich
no further obligation existed between the Company and Standard
Chartered Bank related to the acquisition of the net assets of
MiniScribe. The Company also issued rights to certain of the
vendors of MiniScribe's foreign subsidiaries to receive
approximately 2 million shares of the Company's common stock at no
cost to the vendors. The related shares were issued on March 30,
1992.
Investment in Affiliate
On December 26, 1992, the Company sold the assets and liabilities of
its wholly-owned subsidiary, SDI. The consideration received by the
Company in connection with the transaction consisted of $17,400,000
in cash, a $4,000,000 three-year subordinated promissory note and a
minority interest of 32.8% in the company formed for the purpose of
purchasing the assets of SDI. The Company recognized a nominal gain
on the transaction. Terms of the note include principal payments
due in three equal installments on the first, second, and third
anniversary dates, and interest payments due monthly at rates of 8%,
10%, and 12% per annum through the first, second and third
anniversary dates, respectively. The terms of the note were amended
in fiscal year 1994 to provide for an additional six-month period
from the first anniversary date for payment of the first principal
installment. If SDI had not been included in the consolidated
financial statements during the fiscal years 1993 and 1992, the
Company's results of operations would have been as follows:
Year ended March 27, March 28,
(In millions , except percentages 1993 1992
and per share amounts)
- - --------------------------------------------------------------------
Revenue $ 1,388.2 $ 971.8
Gross margin 246.2 167.1
As a percentage of revenue 17.7% 17.2%
Income from operations $ 50.3 $ 13.7
Net income 43.5 8.0
Net income per share -primary $ 1.38 $ 0.30
-fully diluted $ 1.38 $ 0.27
- - --------------------------------------------------------------------
Maxtor's investment in the company formed for the purpose of
purchasing the assets of SDI amounted to $1,095,000 at March 26,
1994. Maxtor's share of the loss of the affiliate was $594,000 and
$138,000 in fiscal years 1994 and 1993, respectively.
3. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design,
manufacture and sale of data storage products. It has a world-wide
sales, service and distribution network. The Company markets and
sells its products through a direct sales force to OEMs,
distributors and other emerging sales channels such as computer
specialty retailers and computer superstores. Retail sales started
to grow in the first quarter of fiscal year 1994.
During fiscal years 1994 and 1993, one customer accounted for
approximately 24% and 14% of the Company's revenue, respectively.
During fiscal year 1992, no customer accounted for more than 10% of
the Company's revenue.
The Company had export sales of approximately 43%, 50% and 37% of
revenue in fiscal years 1994, 1993 and 1992, respectively.
Approximately 35%, 57% and 51% of export sales were to the Far East
in fiscal years 1994, 1993 and 1992, respectively. The balance of
export sales was primarily to Europe in each of the three fiscal
years.
Operations outside the United States consist of manufacturing plants
in Singapore and Hong Kong that produce subassemblies and final
assemblies for the Company's disk drive products. The geographic
breakdown of the Company's activities for each of the three fiscal
years in the period ended March 26, 1994 is presented in the
following table:
<TABLE>
<CAPTION>
(In thousands) U.S. Far East Eliminations Consolidated
- - ------------------------------------------------------------------------
Fiscal Year 1994
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------
Revenue from
unaffiliated customers $1,150,146 $ 2,469 $ - $1,152,615
Transfers between
geographic locations 75,233 1,169,240 (1,244,473) -
- - ------------------------------------------------------------------------
Revenue 1,225,379 1,171,709 (1,244,473) 1,152,615
- - ------------------------------------------------------------------------
Income (loss) from
operations (305,824) 57,903 - (247,921)
- - ------------------------------------------------------------------------
Identifiable assets 470,787 306,574 (284,986) 492,375
- - ------------------------------------------------------------------------
Fiscal Year 1993
- - ------------------------------------------------------------------------
Revenue from
unaffiliated customers $1,440,737 $ 1,809 $ - $1,442,546
Transfers between
geographic locations 81,412 1,265,548 (1,346,960) -
- - ------------------------------------------------------------------------
Revenue 1,522,149 1,267,357 (1,346,960) 1,442,546
- - ------------------------------------------------------------------------
Income (loss) from
operations (55,882) 109,257 593 53,968
- - ------------------------------------------------------------------------
Identifiable assets 619,439 464,697 (505,023) 579,113
- - ------------------------------------------------------------------------
Fiscal Year 1992
- - ------------------------------------------------------------------------
Revenue from
unaffiliated customers $ 873,976 $ 163,505 $ - $1,037,481
Transfers between
geographic locations 33,633 667,360 (700,993) -
- - ------------------------------------------------------------------------
Revenue 907,609 830,865 (700,993) 1,037,481
- - ------------------------------------------------------------------------
Income (loss) from
operations (53,218) 101,192 (35,670) 12,304
- - ------------------------------------------------------------------------
Identifiable assets 252,393 380,961 (188,172) 445,182
- - ------------------------------------------------------------------------
</TABLE>
Revenue from unaffiliated customers is based on the location of the
customer. Transfers between geographic locations are accounted for
at amounts that are above cost. Such transfers are eliminated in
the consolidated financial statements. Identifiable assets are
those assets that can be directly associated with a particular
geographic location through acquisition and/or utilization. In
determining each of the geographic locations' income (loss) from
operations and identifiable assets, the expenses and assets relating
to general corporate or headquarter activities are included in the
amounts for the geographic locations where they were incurred,
acquired or utilized.
4. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the
following:
March 26, March 27,
(In thousands) 1994 1993
- - --------------------------------------------------------------------
5.75% Convertible Subordinated
Debentures due March 1, 2012 $100,000 $100,000
Short-term borrowings, interest payable
at a rate of 1.75% above bank's prime
rate per annum (6.0% at March 26, 1994) 30,000 33,000
Term loans, principal payable in varying
monthly, quarterly and semi annual
installments through October 1996;
interest payable at rates ranging from
5.5% to 8.46% per annum; secured by
equipment 3,139 23,834
Term loans, principle payable in varying
monthly, bi-monthly and quarterly
installments through December 1996;
interest payable at rates ranging from
7.15% to 9.5% per annum; secured by
equipment 7,634 10,729
Capital lease obligations 775 1,678
- - ------------------------------------------------------------------
141,548 169,241
Less amounts due within one year 34,155 49,373
- - ------------------------------------------------------------------
Due after one year $107,393 $119,868
==================================================================
Future aggregate maturities (exclusive of capital lease obligations)
are as follows:
Fiscal Year Ending (In thousands)
- - ----------------------------------------------------------------
1995 $ 33,729
1996 3,647
1997 2,599
1998 798
1999 -
Later years 100,000
- - ---------------------------------------------------------------
Total $140,773
===============================================================
The 5.75% Convertible Subordinated Debentures (Debentures) are
convertible at any time prior to maturity, unless previously
redeemed, into shares of common stock of the Company at a conversion
rate of 25 shares per each $1,000 principal amount of Debentures
(equivalent to a conversion price of $40 per share), subject to
adjustment in certain events. Interest on the Debentures is payable
on March 1 and September 1 of each year. The Debentures, at the
option of the Company, are redeemable at 101.725% of the principal
amount as of March 26, 1994 and thereafter at prices adjusting to
the principal amount on or after March 1, 1997, plus accrued
interest. The Debentures are entitled to a sinking fund of
$5,000,000 principal amount of Debentures, payable annually
beginning March 1, 1998, which is calculated to retire at least 70%
of the Debentures prior to maturity. The Debentures are
subordinated in right to payment to all senior indebtedness.
In September 1993, the Company replaced its existing secured credit
facility and certain equipment term loans and obtained a new secured
asset-based revolving line of credit with several banks providing
for borrowings of up to $76,000,000 over a two-year term. This
revolving line of credit includes sublines for letters of credit and
bears interest at various rates. Borrowings under this line of
credit are limited to a percentage of eligible receivables. The
agreement includes covenants to maintain certain financial ratios
and precludes the Company from paying cash dividends. The Company
was in compliance with such ratios during the most recent quarter
ended March 26, 1994. The balance available for additional
borrowings under this line of credit at March 26, 1994 was
approximately $9.8 million using the March 26, 1994 borrowing base.
As of March 26, 1994, $30.0 million of borrowings and $2.9 million
of letters of credit were outstanding. The $30.0 million of
borrowings were repaid the first week after fiscal year end.
The Company leases certain equipment under long-term leases. These
leases have been accounted for as installment purchases and,
accordingly, capitalized costs of $4,317,000 and $4,452,000 have
been included in machinery and equipment at March 26, 1994 and March
27, 1993, respectively. Accumulated amortization of the leased
equipment amounted to $3,558,000 and $3,153,000 at March 26, 1994
and March 27, 1993, respectively.
The future minimum lease payments under capital lease obligations
and the present value of the minimum lease payments as of March 26,
1994 are as follows:
Fiscal Year Ending (In thousands)
- - ----------------------------------------------------------------
1995 $ 503
1996 263
1997 56
1998 43
- - ----------------------------------------------------------------
Minimum lease payments 865
Less amount representing interest 90
- - ----------------------------------------------------------------
Present value of minimum lease payments $ 775
================================================================
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its principal facilities and certain
machinery and equipment under operating lease arrangements. The
future minimum annual rental commitments as of March 26, 1994 are as
follows:
Fiscal Year Ending (In thousands)
- - --------------------------------------------------------------
1995 $ 12,136
1996 7,628
1997 2,134
1998 495
1999 486
Later years 8,747
- - --------------------------------------------------------------
Total $ 31,626
==============================================================
The above commitments extend through fiscal year 2017. Rental
expense was approximately $15,668,000, $12,804,000 and $11,297,000
for fiscal years 1994, 1993 and 1992, respectively.
As part of the acquisition of the MiniScribe business in June 1990,
the Company was assigned a patent license agreement between
MiniScribe and Rodime plc (Rodime) covering patents related to 3.5-
inch disk drives. The Company believes that the assignment was
valid; however, Rodime has taken the position that the assignment
was invalid and would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of
MiniScribe's assets. In February 1993, Maxtor commenced an action
for declaratory relief in the U. S. Bankruptcy Court in Denver,
Colorado seeking a judgment that the assignment was valid. Rodime
filed a denial and counterclaim for patent infringement. In April
1994, the relevant claims of the Rodime patent at issue in Rodime's
counterclaims were declared invalid in litigation between Rodime and
another disk drive manufacturer. The Company's litigation with
Rodime has been stayed pending Rodime's appeal of the finding of
invalidity. Certain other patent infringement claims against the
Company have arisen in the course of its business. There is
presently no litigation involving such claims, and the Company
believes the outcome of these claims will not have a material
adverse effect, if any, on the Company's financial position or
results of operations.
6. HYUNDAI INVESTMENT
In August 1993, the Company signed a letter of intent for the
creation of a strategic relationship with Hyundai Electronics
Industries Co., Ltd. and several related members of the Hyundai
Business Group (Hyundai). In September 1993, the Company signed the
Stock Purchase Agreement (the Agreement) with Hyundai. Conclusion
of the transaction was conditional upon approval of the U.S. and
Korean governments, Maxtor stockholders and a number of other
conditions. In November 1993, the U.S. government provided all
necessary approvals. In December 1993, Maxtor stockholders approved
all matters submitted to them regarding the proposed investment. At
the end of January 1994, Korean government approval was granted.
The transaction closed on February 3, 1994.
Under the terms of the Agreement, Hyundai invested approximately
$150 million in the Company and received approximately 19.5 million
shares of Class A common stock, representing a per share price of
$7.70, and constituting approximately 40% of the Company's
outstanding voting stock at that date. Each share of Class A common
stock converts, at the option of the holder, into one share of the
Company's common stock, subject to certain adjustments. Further,
automatic conversion into shares of the Company's common stock will
occur upon the sale or other disposition of Class A common stock to
a person or entity other than Hyundai, as defined in the Agreement.
The stock issued to Hyundai is a special series of common stock,
entitling Hyundai to representation on the Company's Board of
Directors proportionate to its share of ownership and certain voting
rights. In addition, the Agreement requires the Company's Board of
Directors to elect the director designated by Hyundai as Chairman of
the Board, which occurred in February 1994. The Agreement also
provides that Hyundai may not acquire more than 45% of the Company
except in a tender for all outstanding shares or in certain other
cases.
7. STOCKHOLDERS' EQUITY
Stock options
At March 26, 1994, the Company has approximately 2,806,000 shares
available for grant under the Fiscal 1985, 1988 and 1992 Stock
Option Plans (the Plans). Since inception of the Plans, the Company
has reserved 13,800,000 shares of common stock for issuance under
the Plans. The Plans generally provide for non-qualified stock
options to be granted to eligible employees, consultants,
contractors and employee directors of the Company at a price not
less than 85% of the fair market value at the date of grant, as
determined by the Board of Directors. Under the 1992 Plan, officers
and directors of the Company are not eligible for stock option
grants. The 1985 Plan also provides for incentive stock options to
be granted to key employees at the fair market value at the date of
grant, as determined by the Board of Directors.
Options granted under the Plans are generally immediately
exercisable, and shares purchased on the exercise thereof are
subject to monthly vesting over a one, three or four year period.
Shares that are not vested at the date of termination of employment
may be repurchased by the Company at the lower of the original
purchase price or the fair market value at the time of repurchase.
Options granted prior to September 1991 may be exercised within five
years from the date of grant and options granted thereafter may be
exercised within ten years from the date of grant.
The Company has reserved 250,000 shares of common stock for issuance
under the 1986 Outside Directors Stock Option Plan (the 1986 Plan).
The 1986 Plan provides for nonqualified stock options to be granted
to non-employee directors of the Company at fair market value at the
date of grant. Options are exercisable 90 days from the date of
grant and vest monthly over a four year period provided the grantee
remains in service as a director. Options may be exercised within
ten years from the date of grant.
The following table summarizes option activity through March 26,
1994:
Options Outstanding
-------------------------------
(In thousands, except Shares Average
share and per share Available Price Aggregate
amounts) for Grant Shares Per Share Value
- - --------------------------------------------------------------------
Balance at March 30, 1991 1,114,536 4,248,985 $ 6.08 $ 25,823
Shares reserved 3,525,000 - - -
Options granted (6,195,565) 6,195,565 4.33 26,834
Options exercised - (349,929) 5.63 (1,971)
Options canceled 1,993,529 (1,993,529) 5.56 (11,086)
- - --------------------------------------------------------------------
Balance at March 28, 1992 437,500 8,101,092 4.89 39,600
Shares reserved 1,388,439 - - -
Options granted (1,604,129) 1,604,129 10.92 17,517
Options exercised - (2,075,738) 5.61 (11,636)
Options canceled 808,709 (808,709) 5.65 (4,571)
- - --------------------------------------------------------------------
Balance at March 27, 1993 1,030,519 6,820,774 6.00
40,910
Shares reserved 1,600,000 - - -
Options granted (1,566,031) 1,566,031 6.32 9,891
Options exercised - (792,920) 4.24 (3,365)
Options canceled 1,742,008 (1,742,008) 5.80 (10,104)
- - --------------------------------------------------------------------
Balance at March 26, 1994 2,806,496 5,851,877 $ 6.38 $ 37,332
====================================================================
Of the options outstanding, 2,915,116 were vested as of March 26,
1994. There were no shares outstanding subject to repurchase as of
March 26, 1994, March 27, 1993 and March 28, 1992.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan provides that substantially all
employees may purchase the Company's common stock at a price equal
to 85% of its fair market value on certain specified dates via a
payroll deduction plan. The number of shares reserved for future
issuance under this Plan totals approximately 1,356,000 shares.
Stockholder's Rights Plan
In January 1988, the Board of Directors adopted a stockholder rights
plan which granted to holders of record one stock purchase right per
share of common stock which becomes exercisable upon the occurrence
of certain triggering events. Such events would include the
acquisition of 20% or more of the Company's outstanding shares or
the commencement of a tender or exchange offer for 25% or more of
the Company's outstanding shares of common stock.
Should a triggering event occur, holders of such rights would be
entitled to purchase Maxtor common stock at an exercise price of $50
per share. If the Company is acquired in a merger or other business
combination, each right then exercisable will entitle its holder to
purchase that number of shares of the acquiring company's common
stock that has a market value equal to twice the right's exercise
price. If a 20% or greater stockholder acquires the Company through
a transaction in which the Company and its common stock survive, or
engages in certain self-dealing transactions with the Company, each
holder of a right, other than the 20% stockholder, will have the
right to receive, upon payment of the exercise price, that number of
shares of the Company's common stock having a market value at the
time of the transaction equal to two times the exercise price. Such
rights do not extend to any holder whose action triggered the
rights. The stockholder rights plan was amended effective upon the
closing of the transaction with Hyundai to provide for certain
provisions applicable to Hyundai.
The rights expire in January 1998 and may be redeemed prior to that
time at the option of the Board of Directors for nominal
consideration subject to certain time limitations. Until a
triggering event occurs, the rights will not trade separately from
the related Maxtor common shares.
8. INCOME TAXES
The provision for income taxes consists of the following:
Year ended March 26, March 27, March 28,
(In thousands) 1994 1993 1992
- - --------------------------------------------------------------------
Current
Federal $ - $ (4,018) $ 179
State - 1,326 -
Foreign 2,798 2,979 966
- - --------------------------------------------------------------------
2,798 287 1,145
Deferred
Foreign (934) 1,000 -
- - --------------------------------------------------------------------
Total $ 1,864 $ 1,287 $ 1,145
====================================================================
The provision for income taxes differs from the amount computed by
applying the statutory rate of 35% for fiscal year 1994 (34% for
fiscal years 1993 and 1992) to income (loss) before income taxes.
The principal reasons for this difference are listed in the
following table:
Year ended March 26, March 27, March 28,
(In thousands) 1994 1993 1992
- - --------------------------------------------------------------------
Tax at federal statutory rate $(89,504) $ 16,116 $ 2,820
State income tax, net of
federal benefit - 875 -
Tax costs (savings) from
foreign operations (19,281) (16,035) 966
Benefit of net operating loss
carryforwards - - (2,735)
Repatriated foreign earnings
absorbed by current year losses 74,855 - -
U.S. loss not providing current
tax benefit 14,627 8,064 -
Valuation of temporary differences 18,995 (3,965) 70
Reduction of taxes provided in
prior years - (4,018) -
Other 2,172 250 24
- - --------------------------------------------------------------------
Total $ 1,864 $ 1,287 $ 1,145
====================================================================
Deferred income taxes reflect the tax effect of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
taxes purposes. The significant components of the Company's
deferred tax assets and liabilities under SFAS No. 109 as of March
26, 1994 are as follows:
(In thousands)
- - --------------------------------------------------------------
Deferred tax assets:
Inventory valuation account $ 10,940
Depreciation 9,079
Sales related reserves 10,842
Net operating loss carryforwards 59,978
Tax credit carryforwards 5,963
Accrued special and restructuring 8,938
Other 3,921
- - --------------------------------------------------------------
Total deferred tax assets 109,661
Valuation allowance for deferred tax assets 96,847
- - --------------------------------------------------------------
Net deferred tax assets $ 12,814
==============================================================
Deferred tax liabilities:
Unremitted earnings of certain foreign entities $ 12,814
- - --------------------------------------------------------------
Total deferred tax liabilities $ 12,814
==============================================================
Total net deferred tax liabilities $ -
==============================================================
The change in the valuation allowance was a net increase of
$38,252,000 from the effective date of the adoption of SFAS No. 109
on March 27, 1993. Approximately $10,226,000 of the valuation
allowance is attributable to stock options, the benefit of which
will be credited to additional paid-in capital when realized.
Pretax income from foreign operations was approximately $61,000,000,
$110,000,000 and $100,200,000 in fiscal years 1994, 1993 and 1992,
respectively. The Company enjoys a tax holiday for its operations
in Singapore. This holiday will expire in fiscal year 1998. The
net impact of this tax holiday was to increase net income by
approximately $15,000,000 in fiscal year 1994, $28,000,000 in fiscal
year 1993 and $30,600,000 in fiscal year 1992. This equates to
$0.47, $0.89 and $1.05 per share fully diluted, for fiscal years
1994, 1993 and 1992, respectively. At March 26, 1994, accumulated
earnings of approximately $30,000,000 are intended to be permanently
reinvested outside of the United States and no tax has been provided
on these earnings. Repatriation of these earnings would result in
no additional taxes.
At March 26, 1994, for federal income tax purposes, the Company had
net operating loss carryforwards of $171,000,000 which will expire
beginning in fiscal year 1997 and tax credit carryforwards of
approximately $6,000,000 which will expire beginning in fiscal year
1995. Certain changes in stock ownership can result in a limitation
on the amount of net operating loss and tax credit carryovers that
can be utilized each year. The Company determined it has undergone
such an ownership change. Consequently, utilization of
approximately $147,000,000 of net operating loss carryforwards and
the deduction equivalent of approximately $6,000,000 of tax credit
carryforwards will be limited to approximately $12,000,000 per year.
The Company has reached settlement of certain issues with the
Internal Revenue Service. As a result of this settlement, the
Company's fiscal year 1993 provision for income taxes reflects a
$4,000,000 reduction of taxes provided in prior periods.
9. SPECIAL ITEMS AND RESTRUCTURING
During fiscal year 1994, the Company experienced significant
production delays with certain product lines as a result of both
design and vendor problems. Due to continuing production and sales
issues, the Company assessed its competitive position during the
third quarter of fiscal year 1994 and determined that it was unable
to bring to market profitable successor products to certain existing
products. The Company therefore decided to discontinue certain
products and manufacturing activities, and recorded special charges
amounting to $68.9 million in cost of revenue in the third quarter
of fiscal year 1994. The charges consist of estimated costs
associated with the termination of certain products, a reduction in
manufacturing capacity, write downs of inventory and equipment that
were no longer productive, and related future commitments to third
parties. The charges are comprised of approximately $45.4 million
of inventory-related expenses, approximately $19.8 million of
equipment-related expenses, and approximately $3.7 million of other
associated expenses. The Company anticipates that the net
expenditure of approximately $7.5 million of cash will be required
during the first nine months of fiscal year 1995 to fund the
expenses accrued. Such expenditures are expected to be funded by
cash flow from operations and capital infusions. As of March 26,
1994, current liabilities included accruals related to these special
charges totaling approximately $24.0 million.
The decisions described above reduced the scope of the Company's
product and manufacturing activities and, as a result, the Company
then initiated a restructuring plan which provides for the
consolidation and streamlining of certain operations and
administration. The Company recorded a restructuring charge of
$19.5 million in the third quarter of fiscal year 1994 related to
these activities, which are expected to be completed within the
twelve-month period from the date of the charge. The plan provides
for a worldwide headcount reduction of approximately 500 employees,
which was substantially completed during February 1994. The
Company's research and development activities will be consolidated
at its Longmont, Colorado facilities, which will eliminate the need
for certain facilities in San Jose, California. In addition, the
Company's actions will eliminate the need for certain manufacturing
facilities in Singapore. The charge consists of approximately $11.8
million in estimated costs related to the worldwide reduction in
headcount and approximately $7.7 million associated with facility
consolidations, including lease and other obligations on certain
facility leases, none of which extend beyond calendar year 1994.
The Company anticipates that these restructuring actions will
require the expenditure of approximately $9.0 million of cash during
the first nine months of fiscal year 1995, which are expected to be
funded by cash flow from operations and capital infusions. As of
March 26, 1994, approximately $9.0 million of the $19.5 million
charge remained in current liabilities. As a result of these
activities, the Company has eliminated an estimated $9.0 million per
quarter of operating costs, beginning with the quarter ended March
26, 1994.
Fiscal year 1993 consolidated income from operations includes non
recurring revenue of approximately $10.0 and $6.1 million recognized
in the first and third quarters of fiscal year 1993, respectively,
which was primarily related to certain royalty and licensing
agreements.
Fiscal year 1992 consolidated income from operations includes a net
pretax gain of approximately $6.5 million which is comprised of non
recurring revenue and other special gains offset by certain special
charges. Non recurring revenue of approximately $8.0 million was
recognized in the fourth quarter from patent cross license fees and
the gain on sale of certain manufacturing rights and assets. In
addition, a net gain of approximately $5.5 million was recorded
against cost of revenue in the third quarter from the sale of the
Company's Penang, Malaysia headstack assembly operation. Special
charges totaling approximately $7.0 million were recorded in the
first half of fiscal year 1992 to cost of revenue and selling,
general and administrative expenses for write-downs of obsolete and
excess assets, costs to consolidate certain facilities and
functions, and other charges.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxtor Corporation
We have audited the accompanying consolidated balance sheets of
Maxtor Corporation as of March 26, 1994 and March 27, 1993, and the
related consolidated statements of income (loss), stockholders'
equity and cash flows for each of the three fiscal years in the
period ended March 26, 1994. Our audits also included the financial
statement schedules listed in the Index at Item 14 (a). These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Maxtor Corporation at March 26, 1994 and March
27, 1993, and the consolidated results of its operations and its
cash flows for each of the three fiscal years in the period ended
March 26, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
San Jose, California
April 22, 1994
/s/ ERNST & YOUNG
-----------------
ERNST & YOUNG
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their
ages as of June 3, 1994 are as follows:
Name Age Position with the Company
---- --- -------------------------
Mong Hun Chung 45 Chairman of the Board
Laurence R. Hootnick * 52 President, Chief Executive
Officer and Director
In Baik Jeon 46 Vice President, Strategic
Development and Director
J. Larry Smart 46 Executive Vice President and
Chief Operating Officer
Walter D. Amaral 42 Vice President, Finance and
Chief Financial Officer
Mark Chandler 38 Vice President, Corporate
Development, General Counsel
and Secretary
Gary Galusha 49 Vice President, Worldwide Sales
William M. Hake 41 Vice President, Product Management
Skip Kilsdonk 50 Vice President, Strategic Planning
Gregory M. Gallo 52 Director
Charles Hill 58 Director
James M. McCoy 47 Director
Juan A. Rodriguez 53 Director
Dr. Chong Sup Park 46 Director
* On June 15, 1994, Laurence R. Hootnick announced he will
resign as President, Chief Executive Officer and Director
effective upon completion of the Company's annual meeting
scheduled on August 18, 1994.
All other information required by this Item related to the
directors of the Company is incorporated herein by reference to
the Proxy Statement.
Laurence R. Hootnick joined the Company as President, Chief
Executive Officer and a Director in May 1991. Prior to joining
the Company, Mr. Hootnick was employed by Intel Corporation
(Intel), a semiconductor manufacturer, from 1973 through May
1991. Mr. Hootnick held a variety of management positions while
at Intel, most recently President of the Embedded Controller and
Memory Group from 1988 to May 1991; General Manager of the
Microcomputer Components Group from 1987 to 1988; Senior Vice
President, Worldwide Sales and Marketing from 1984 to 1987; and
Senior Vice President, Finance and Administration from 1979 to
1984. Mr. Hootnick also serves as a director of Network General
Corporation and Net Manage, Inc.
J. Larry Smart joined the Company as Executive Vice President
and Chief Operating Officer in March 1994. Prior to joining
Maxtor, Mr. Smart was President and Chief Executive Officer of
Southwall Technologies Inc., a thin film technology company, and
from November 1987 to July 1991, he was a Senior Vice President
at SCI Systems, a contract manufacturer. Mr. Smart is also
Chairman of the Board of Southwall Technologies, Inc.
Walter D. Amaral joined the Company as Vice President, Finance
and Chief Financial Officer in April 1992. For a period of 15
years prior to joining the Company, Mr. Amaral held various
finance and marketing positions at Intel, where most recently he
served as Corporate Controller from April 1991 to April 1992.
Mark Chandler joined Maxtor in July 1988 as Director of Legal
Affairs and served as Vice President, General Counsel and
Secretary from September 1990 until April 1992. In June 1992, Mr.
Chandler rejoined Maxtor as Vice President, Corporate
Development. In July 1993, he added the positions of General
Counsel and Secretary to his duties. During March - May 1992, he
served as Vice President and Managing Director of European
Operations of Mission Energy Company.
Gary Galusha joined the Company as Vice President, North
American Sales in July 1990 and has served as Vice President,
Worldwide Sales since January 1991. Prior to joining the
Company, Mr. Galusha served as the Vice President of U.S. and
European Sales and other positions, including service as an
officer, at MiniScribe from October 1986 until July 1990, at
which time Maxtor purchased the assets of MiniScribe subsequent
to MiniScribe's bankruptcy filing.
William M. Hake has served as the Company's Vice President,
Product Management since joining the Company in July 1990. From
May 1989 to June 1990, Mr. Hake served as the Vice President of
Sales and Marketing at MiniScribe. From July 1985 to July 1990,
Mr. Hake held various sales, marketing and product management
positions, including service as an officer, at MiniScribe until
July 1990, at which time Maxtor purchased the assets of
MiniScribe subsequent to MiniScribe's bankruptcy filing.
Skip Kilsdonk joined the Company as Vice President, Marketing
in August 1991 and has served as Vice President, Strategic
Planning since January 1994. Prior to joining the Company, Mr.
Kilsdonk served as a Senior Product Line Manager at Apple
Computer, Inc., a computer manufacturer, from October 1990 to
July 1991 and as Vice President of Marketing at SunDisk
Corporation, a flash memory corporation, from October 1989 to
October 1990. Prior to joining SunDisk Corporation, Mr. Kilsdonk
was the President of his own consulting company, Skillstech
Associates, from May 1988 to October 1989. Mr. Kilsdonk served
as Maxtor's Vice President of Marketing from its inception in
1982 to 1988.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein
by reference to the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements and Financial Statement Schedules -
See Index to Consolidated Financial Statements under Item 8 on
page 20 of this report.
(2) Exhibits
See Index to Exhibits on pages 57 to 64 hereof.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, State of
California, on the 22nd day of June, 1994.
MAXTOR CORPORATION
(Registrant)
By /s/Laurence R. Hootnick
-----------------------
Laurence R. Hootnick
President, Director,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Laurence R. Hootnick President, Director, June 22, 1994
- - ------------------------ Chief Executive Officer -------------
Laurence R. Hootnick
/s/ Walter D. Amaral Vice President, Finance, June 22, 1994
- - ------------------------ Chief Financial Officer -------------
Walter D. Amaral (Principal Financial Officer)
/s/ Michael M. Cully Vice President, Finance, June 22, 1994
- - ------------------------ Corporate Controller -------------
Michael M. Cully (Principal Accounting Officer)
/s/ Mong Hun Chung Chairman of the Board June 22, 1994
- - ------------------------ -------------
Mong Hun Chung
/s/ In Baik Jeon Vice President, Strategic June 22, 1994
- - ------------------------ Development, Director -------------
In Baik Jeon
/s/ Gregory M. Gallo Director June 22, 1994
- - ------------------------ -------------
Gregory M. Gallo
/s/ Charles Hill Director June 22, 1994
- - ------------------------ -------------
Charles Hill
/s/ James M. McCoy Director June 22, 1994
- - ------------------------ -------------
James M. McCoy
/s/ Juan A. Rodriguez Director June 22, 1994
- - ------------------------ -------------
Juan A. Rodriguez
s/ Dr. Chong Sup Park Director June 22, 1994
- - ------------------------ -------------
Dr. Chong Sup Park
MAXTOR CORPORATION
SCHEDULE I
SHORT-TERM INVESTMENTS
(In thousands)
Balance at
Year Ended March 26, 1994 End of Period (A)
- - -------------------------------- ------------------
Certificates of Deposit:
- - ------------------------
RaboBank Netherlands Euro $ 9,994
Credit Suisse Yankee 10,004
Scotia Bank Euro 10,020
Nat Westminister Euro 10,068
Societe General Yankee 10,004
Hessen-Thuringen Bank Euro 9,997
---------
60,087
Commercial Paper:
- - -----------------
ATT Capital 7,429
Waste Management 7,395
---------
14,824
---------
Total Short-Term Investments $ 74,911
=========
(A) Stated at cost which approximates its fair value.
S-1
MAXTOR CORPORATION
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
- - -----------------------------------------------------------------
Balance at Collections, Balance
Year Ended Beginning Addi- Repurchases at End of
Name of Debtor of Period tions & Forgive- of
ness Period
- - -----------------------------------------------------------------
Year Ended
March 28, 1992:
S. Kitrosser (note 1) $ 72,756 $291,021 $ 72,756 $291,021
J. Miller (note 1) 114,576 - 114,576 -
J. Seaver (note 1) 114,176 - - 114,176
-------- -------- -------- --------
Total $301,508 $291,021 $187,332 $405,197
======== ======== ======== ========
Year Ended
March 27, 1993:
S. Kitrosser (note 1) $291,021 $ - $291,021 $ -
J. Seaver (note 1) 114,176 - 85,632 28,544
J. McCoy (note 2) - 166,273 - 166,273
T. Burniece (note 3) - 300,000 300,000 -
P. Roboostoff (note 4) - 114,000 19,625 94,375
-------- -------- -------- --------
Total $405,197 $580,273 $696,278 $289,192
======== ======== ======== ========
Year Ended
March 26, 1994:
J. Seaver (note 1) $ 28,544 $ - $ 28,544 $ -
J. McCoy (note 2) 166,273 - 41,568 124,705
P. Roboostoff (note 4) 94,375 - 94,375 -
R. Wilmer (note 5) - 150,000 - 150,000
M. Chandler (note 6) - 100,000 - 100,000
-------- -------- -------- --------
Total $289,192 $250,000 $164,487 $374,705
======== ======== ======== ========
S-2
NOTES:
The Company has granted stock options to certain of its officers
pursuant to the 1985 and 1988 Stock Option Plans to purchase
shares of common stock at prices equal to the fair market value
at the date of grant. The following conditions apply to certain
of these stock options: a) the options are nonqualified and are
exercisable at various dates commencing in October 1986, pursuant
to payment by promissory notes equal to 100% of the exercise
price; b) these notes bear interest rates between 5.98% and
9.00% with principal and interest payable in four equal annual
installments; c) the notes are forgiven over specific periods
of time based upon the years of service completed with the
Company following exercise of the options; and, d) additions
represent promissory notes for options exercised under the 1985
and 1988 Plans including the certain options referred to above.
1) These promissory notes were issued in exchange for the
issuance of common stock to S. Kitrosser, J. Miller and J.
Seaver. In May 1991, when J. Miller terminated his employment
with the Company, he repaid the full principle amount of the
note, $114,576. Amounts forgiven for S. Kitrosser amounted to
$72,756 and $72,755 in fiscal years 1992 and 1993, respectively.
In February 1993, S. Kitrosser's note was repaid as part of his
termination agreement with the Company; principle and interest
amounted to $219,820. J. Seaver repaid $85,632 of his note in
fiscal 1993 and the remaining balance of $31,127 in March 1994,
including principle and interest.
2) This promissory note was issued in exchange for the issuance
of common stock to J. McCoy in September 1992. The note bears
interest at a rate of 5.98% per annum. The note was issued under
the 1985 Stock Option Plan and the principle and interest will be
forgiven in four equal installments commencing on the first
anniversary date of the note, provided that J. McCoy is an
employee of the Company on that date. The amount forgiven in
fiscal year 1994 amounted to $41,568. The note is secured by a
pledge of shares of the Company's common stock.
3) This promissory note was delivered to the Company in November
1992 by T. Burniece in order for him to finance the purchase of
his personal residence. The annual interest rate on the loan was
7% with principle and interest payable in full on February 28,
1993. On December 15, 1992, T. Burniece repaid the entire amount
of principle and interest due on his loan which amounted to
$301,225.
4) This promissory note was delivered to the Company in December
1992 by P. Roboostoff. The annual interest rate on the loan is
5%. As originally required under the terms of the note, P.
Roboostoff made a partial payment towards interest and principle
of $20,000 prior to February 15, 1993. The balance of the note
and accrued interest was payable in equal semi-annual
installments commencing March 15, 1993 and was fully due and
payable on May 2, 1997. In September 1993, the principle balance
due of $94,375 was forgiven for P. Roboostoff.
5) This promissory note was delivered to the Company in May 1993
by R. Wilmer, and was subsequently amended by the Company in
January 1994. The annual interest rate on the loan is 6%. The
amendment stipulates that the principle portion of the note will
be forgiven at a rate of $25,000, plus accrued interest, on the
last day of each full calendar quarter commencing with the first
calendar quarter of 1994 ending March 30, 1994, provided R.
Wilmer is an employee of the Company on that date. R. Wilmer
left the Company in February 1994. According to the amended
promissory note, R. Wilmer will pay the interest due on an annual
basis, and will pay the principle in full and the balance of any
interest accrued thereon on May 28, 1998. The note is secured by
certain property owned by R. Wilmer and by a pledge of shares of
the Company's common stock.
6) This promissory note was delivered to the Company in November
1993 by M. Chandler. The annual interest rate on the loan is 6%
with principle and interest payable in full on November 24, 1994.
The note is secured by a pledge of options to purchase shares of
the Company's common stock.
S-3
<TABLE>
MAXTOR CORPORATION
Schedule V
PROPERTY, PLANT AND EQUIPMENT (In thousands)
- - -------------------------------------------------------------------------
<CAPTION>
Balance at Additions Transfers Balance
Beginning at and at End of
Year Ended Classification of Period Cost Retirements Period
<S> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------
March 28, Buildings $ 13,984 $ 79 $ (5,187) $ 8,876
1992 Machinery and
equipment 175,408 24,438 (47,576) 152,270
Furniture and
fixtures 12,638 10,401 (1,135) 21,904
Leasehold
improvements 16,159 2,610 (4,719) 14,050
--------- -------- --------- ---------
TOTAL $ 218,189 $ 37,528 $(58,617) $ 197,100
========= ======== ========= =========
March 27, Buildings $ 8,876 $ 1,390 $ (1,681) $ 8,585
1993 Machinery and
equipment 152,270 78,957 (27,137) 204,090
Furniture and
fixtures 21,904 6,462 (9,152) 19,214
Leasehold
improvements 14,050 5,411 (1,521) 17,940
--------- -------- --------- ---------
TOTAL $ 197,100 $ 92,220 $(39,491)<F1> $ 249,829
========= ======== ========= =========
March 26, Buildings $ 8,585 $ 12,944 $ (142) $ 21,387
1994 Machinery and
equipment 204,090 14,107 (22,377) 195,820
Furniture and
fixtures 19,214 1,318 (2,337) 18,195
Leasehold
improvements 17,940 1,377 (1,811) 17,506
--------- -------- --------- ---------
TOTAL $ 249,829 $ 29,746 $(26,667) $ 252,908
========= ======== ========= =========
<FN>
<F1> Includes property, plant and equipment disposed of in connection
with the sale of the assets of Maxtor's wholly-owned subsidiary, Storage
Dimensions, Inc., in December 1992.
</TABLE>
S-4
<TABLE>
MAXTOR CORPORATION
Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT, AND EQUIPMENT (In thousands)
- - ------------------------------------------------------------------------
<CAPTION>
Balance Additions
at Charged to Transfers Balance
Beginning Costs and and at End of
Year Ended Classification of Period Expenses Retirements Period
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------
March 28, Buildings $ 1,648 $ 696 $ (243) $ 2,101
1992 Machinery and
equipment 76,759 38,313 (36,374) 78,698
Furniture and
fixtures 5,512 8,261 (853) 12,920
Leasehold
improvements 7,019 4,461 (3,258) 8,222
---------- --------- --------- ---------
TOTAL $ 90,938 $ 51,731 $(40,728) $ 101,941
========== ========= ========= =========
March 27, Buildings $ 2,101 $ 770 $ (107) $ 2,764
1993 Machinery and
equipment 78,698 49,288 (23,172) 104,814
Furniture and
fixtures 12,920 6,045 (6,730) 12,235
Leasehold
improvements 8,222 3,728 (1,050) 10,900
---------- --------- --------- ---------
TOTAL $ 101,941 $ 59,831 $(31,059)<F1> $ 130,713
========== ========= ========= =========
March 26, Buildings $ 2,764 $ 1,636 $ (50) $ 4,350
1994 Machinery and
equipment 104,814 75,441 (20,762) 159,493
Furniture and
fixtures 12,235 3,413 (1,543) 14,105
Leasehold
improvements 10,900 4,066 (1,164) 13,802
---------- --------- --------- ---------
TOTAL $ 130,713 $ 84,556 $(23,519) $ 191,750
========== ========= ========= =========
<FN>
<F1> Includes property, plant and equipment disposed of in connection
with the sale of the assets of Maxtor's wholly-owned subsidiary, Storage
Dimensions, Inc., in December 1992.
</TABLE>
S-5
MAXTOR CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for Doubtful Accounts
- - -----------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Year Ended of Period Expenses(1) Period
- - -----------------------------------------------------------------
March 28, 1992 $ 3,679 $ 6,915 $ 5,694 $ 4,900
March 27, 1993 $ 4,900 $ 2,708 $ 3,418 $ 4,190
March 26, 1994 $ 4,190 $ 253 $ 790 $ 3,653
(1) Uncollectible accounts written off, net of recoveries.
S-6
MAXTOR CORPORATION
SCHEDULE IX
SHORT-TERM BORROWINGS
(In thousands)
Year Ended
- - ------------------------------------------------------------
March 26, March 27, March 28,
1994 1993 1992
- - ------------------------------------------------------------
Short-Term Borrowings:
Balance at end of year $ 30,000 $ 33,000 $ -
Weighted average
interest rate
at end of year 7.75% 6.5% -
Maximum amount
outstanding at
any month end $ 64,842 $ 33,000 $ 43,035
Average amount
outstanding during
the year (1) $ 21,002 $ 2,750 $ 14,690
Weighted average
interest rate
during the year (2) 4.43% 5.85% 11.00%
Short-term borrowings represent obligations payable under line of credit
agreements. Borrowings are arranged on an as-needed basis at various
terms.
(1) The average amount outstanding during the year was computed by
averaging the month-end balances during the year.
(2) The weighted average interest rate during the year was computed by
dividing the average actual interest incurred by the average amount
outstanding during the year.
S-7
INDEX TO EXHIBITS
Exhibit No. Description Sequentially
Numbered Pages
- - ----------- ---------------------------------------- --------------
3.1 (6) Certificate of Incorporation
3.2 (8) Certificate of Amendment of Certificate
of Incorporation of Maxtor
Corporation,dated December 23, 1987
3.3 (8) By-Laws as amended July 21, 1987
3.4 (21) Amended and Restated By-Laws of Maxtor
Corporation, A Delaware Company,
effective February 3, 1994
3.5 (21) Restated Certificate of Incorporation of
Maxtor Corporation effective February 3,
1994
4.1 (3) Form of Certificate of Shares of
Registrant's Common Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 Amendment to Rights Agreement between 65 - 68
Registrant and the First National Bank of
Boston, dated September 10, 1993
10.1 (1) Omnilease Corporation Master Lease
Agreement No. 300362, dated as of January
14, 1983 and addenda thereof
10.2 (1) Lease Agreement between Orchard
Investment Company No. 801, formerly
Nelo, a California general partnership
and Registrant, dated March 23, 1984
10.3 (1) Lease Commitment between Walter E. Heller
& Company and Registrant, dated as of
March 11, 1985
10.4 (1) Stock Purchase Agreement between Steven
P. Kitrosser and Registrant, dated May
21, 1985
10.5 (1) Stock Purchase Agreement between James
McCoy and Registrant, dated May 21, 1985
10.6 (1) Equipment Lease Agreement between Pacific
Western (formerly Pacific Valley) Bank
and Registrant, dated June 26, 1985
10.7 (1) Continuing Guaranty between Maxtor
Singapore Limited and Bank of America
N.T. & S.A., dated July 27, 1985
10.8 (9) Lease Agreement between John Arrillaga,
Separate Property Trust, Richard T.
Perry, Separate Property Trust and
Registrant, dated August 27, 1986
10.9 (3) Marketing and Distribution Agreement
between Ricoh Company, Ltd. and
Registrant, dated October 14, 1986
10.10 (3) Land Lease Agreement between Housing and
Development Board, Singapore and Maxtor
Singapore Limited, dated December 22,
1986
10.11 (3) Indenture dated February 16, 1987
10.12 (8) Stock Bonus Plan and Cash Bonus Plan
between Storage Dimensions, Inc. and
Registrant dated June 15, 1987
10.13 (8) Merger Agreement between MAXSUB II, Inc.,
and Storage Dimensions, Inc. dated
October 26, 1987
10.14 (3) 1986 Outside Directors' Stock Option Plan
10.15 (3) Commitment from Union Bank to Registrant
regarding letters of credit for the
benefit of the officers and directors of
the Registrant
10.16 (4) Agreement and Plan of Reorganization
10.17 (9) Revised Equipment Lease Agreement between
Capital Associates International, Inc.
and Registrant, dated September 28, 1988
10.18 (9) Credit Agreement between Bank of America
National Trust and Savings Association
and Registrant, dated October 18, 1988
10.19 (9) Equipment Lease Agreement between Pitney
Bowes Credit Corporation and Registrant,
dated November 2, 1988
10.20 (9) Equipment Lease Agreement between Concord
Leasing (Asia) Pte Ltd. and Maxtor
Singapore, Limited, dated November 16,
1988
10.21 (9) Lease Agreement between Maxtor Singapore,
Limited and Jurong Town Corporation,
dated November 16, 1988
10.22 (9) Lease Agreement between Greylands
Business Park Phase II and Storage
Dimensions, Inc., dated December 14, 1988
10.23 (8) Stock Purchase Agreement among
Registrant, Storage Dimensions, Inc.,
David A. Eeg, Gene E. Bowles, Jr., David
P. Williams and David Lance Robinson
10.24 (8) Fiscal 1988 Stock Option Plan
10.25 (8) Employee Stock Purchase Plan
10.26 (8) Dual Currency Loan Agreement between
Maxtor Singapore Limited, Maxtor
Delaware, Maxtor California and American
Express Bank Limited
10.27 (8) Amended and Restated Fiscal 1985 Stock
Option Plan, including the Immediately
Exercisable Incentive Stock Option
Agreement and the Immediately Exercisable
Nonqualified Stock Option Agreement
10.28 (9) Loan Agreement between Probo Pacific Pte
Ltd. and Maxtor Singapore Limited, dated
March 20, 1989
10.29 (9) Loan Agreement between Concord Leasing
(Asia) Pte, Ltd. and Maxtor Singapore
Limited, dated April 14, 1989
10.30 (10) Product Discontinuance Agreement between
Matsushita Communication Industrial Co.,
Ltd. (MCI) and Registrant, dated August
23, 1989
10.31 (10) Equipment Lease Agreement between Capital
Associates International, Inc. and
Registrant, dated October 17, 1989
10.32 (10) Maxoptix Corporation 1989 Stock Option
Plan
10.33 (9) Forms for Promissory Note and Amended and
Restated Promissory Note
10.34 (10) Amended and Restated Credit Agreement
between Bank of America National Trust
and Savings Association and Registrant,
dated January 31, 1990
10.35 (10) Amendment to Lease Agreement between
Orchard Investment Company No. 801,
formerly Nelo, a California general
partnership, and Registrant, dated
February 15, 1990
10.36 (10) Sublease Agreement between RACAL-VADIC, a
Division of Racal Data Communications,
Inc. ("Sublessor"), and Storage
Dimensions, Inc. ("Sublessee"), dated
February 16, 1990
10.37 (10) Collateral Sharing and Subordination
Agreement between Registrant and Standard
Chartered Bank, dated April 5, 1990
10.38 (10) Loan and Security Agreement between
Registrant and MiniScribe Corporation,
dated April 5, 1990
10.39 (11) Agreement for the Sale and Purchase of
Shares in Tratford Pte. Ltd. between the
Registrant, MiniScribe Peripherals (Pte)
Ltd. and certain Individuals, dated May
8, 1990
10.40 (11) Agreement for the Sale and Purchase of
Shares in Silkmount Limited between
MaxSub Corporation, Silkmount Limited and
certain Individuals, dated May 18, 1990
10.41 (11) Assignment of Debt between Registrant,
MiniScribe (Hong Kong) Limited and
certain Individuals, dated May 18, 1990
10.42 (10) Asset Purchase Agreement between
Registrant, MiniScribe Corporation and
Standard Chartered Bank, dated May 30,
1990
10.43 (14) License Agreement with Rodime PLC, dated
December 8, 1987 assigned to Registrant
on June 29, 1990
10.44 (14) Patent Cross License Agreement with IBM
dated October 1, 1984 assigned to
Registrant effective June 30, 1990
10.45 (14) Lease Agreement between MiniScribe
Corporation and 345 Partnership dated
June 6, 1990, assigned to the Registrant
effective June 30, 1990
10.46 (14) Lease Agreement between Maxtor Colorado
and Pratt Partnership (Lot 1A), dated
July 5, 1990
10.47 (14) Lease Agreement between Maxtor Colorado
and Pratt Partnership (Lot 1C), dated
July 5, 1990
10.48 (14) Lease Agreement between Maxtor Colorado
and Pratt Partnership (Lot 4), dated July
5, 1990
10.49 (14) Agreement for the Purchase of Land and
Improvements between Registrant and
Nixdorf, dated August 16, 1990
10.50 (15) Grant Agreement dated 25 October 1990
between the Industrial Development
Authority, Maxtor Ireland Limited and
Registrant
10.51 (12) Amendment of Agreement between
Registrant, Maxtor Colorado, Maxtor
California and Standard Chartered Bank,
dated November 6, 1990
10.52 (14) Guarantee for Dastek between Registrant,
Dastek and Silicon Valley Bank, dated
November 30, 1990
10.53 (10) Judgment, William Lubliner vs. Maxtor
Corporation, James M. McCoy, William J.
Dobbin, B.J. Cassin, W. Charles Hazel and
George M. Scalise
10.54 (10) Settlement Agreement, William Lubliner
vs. Maxtor Corporation, et al
10.55 (10) Fiscal 1991 Profit Sharing Plan Document
10.56 (10) Board of Director Compensation Approved
for fiscal 1991
10.57 (14) Resignation Agreement and General Release
of Claims between Alexander E. Malaccorto
and the Registrant, dated January 11,
1991
10.58 (14) Employment Agreement between James M.
McCoy and Registrant, dated January 17,
1991
10.59 (14) Resignation Agreement and General Release
of Claims between James N. Miler and the
Registrant, dated January 20, 1991
10.60 (14) Letter Agreement between George Scalise
and the Registrant, dated February 22,
1991
10.61 (14) Resignation Agreement and General Release
of Claims between Steven Strain and the
Registrant, dated February 22, 1991
10.62 (14) Foothill Capital Credit Facility between
Registrant, certain of its subsidiaries
and Foothill Capital Corporation, dated
April 22, 1991
10.63 (14) Employment Agreement between Laurence
Hootnick and Registrant, dated May 3,
1991
10.64 (14) Employment Agreement between Roger Nordby
and Registrant, dated May 7, 1991
10.65 (14) Employment Agreement between Thomas F.
Burniece and the Registrant, dated May
12, 1991
10.66 (15) Amendment of the Registrant's Continuing
Guarantee in favor of Foothill Capital
Corporation, dated July 10, 1991
10.67 (15) Settlement, Resignation and General
Release of Claims between Registrant and
Taroon C. Kamdar, dated August 2, 1991
10.68 (15) Amendment of Registrant's Continuing
Guarantee in favor Foothill Capital
Corporation, dated August 9, 1991
10.69 (15) Amendment No. 1 to Lease by and between
John Arrillaga, Trustee, and Richard T.
Peery, Trustee, and Registrant, dated
August 23, 1991
10.70 (15) Amendment of Registrant's Continuing
Guarantee in favor of Foothill Capital
Corporation, dated September 20, 1991
10.71 (13) Amendment of Agreement between
Registrant, Maxtor Colorado, Maxtor
California and Standard Chartered Bank,
dated December 27, 1990, and further
amended July 26, 1991 and October 4, 1991
10.72 (15) Lease Agreement between Registrant and
Devcon Associates 31, dated December 6,
1991
10.73 (15) Deed of Partial Discharge and Release
between Barclays Bank PLC and Maxtor
Singapore Limited, dated December 19,
1991
10.74 (15) Agreement for Purchase and Sale of Assets
among Registrant, Read-Rite
International, Read-Rite Corporation and
Maxtor Singapore Limited, dated November
14, 1991, and amended December 20, 1991
10.75 (15) Asset Purchase Agreement among
Registrant, Storage Dimensions, Inc. and
USD Acquisition, Inc., dated December 27,
1991
10.76 (15) Resignation Agreement and General Release
of Claims between Registrant and David S.
Dury, dated January 31, 1992
10.77 (15) Sublease between Registrant and Hauser
Chemical Research, Inc., dated March 23,
1992
10.78 (15) First Amendment to Lease Agreement
between PCA San Jose Associates and
Registrant, dated March 25, 1992
10.79 (15) Asset Purchase Agreement among
Registrant, Maxtor Singapore LTD., and
Sequel, Inc., dated March 12, 1992, and
amended March 25, 1992
10.80 (5) Fiscal 1992 Stock Option Plan
10.81 (15) Form of Indemnity Agreement between the
Registrant and each of its directors and
executive officers
10.82 (15) Maxtor/Sequel 8K/Panther Subcontract
Manufacturing and Warranty Services
Agreement, dated March 23, 1992
10.83 (15) Maxtor Corporation 1992 Employee Stock
Purchase Plan
10.84 (15) Maxtor Corporation 1991 Employee Stock
Purchase Plan
10.85 (15) Maxtor Corporation FY'93 Incentive Plan
Summary
10.86 (15) Fiscal 1992 Profit Sharing Plan Document
10.87 (17) Security Agreement between Registrant and
Chrysler Capital Corporation, dated April
14, 1992
10.88 (17) Subordination, Non-Disturbance, Estoppel
and Attornment Agreement between Loma
Mortgage USA, Inc. and Registrant, dated
June 4, 1992
10.89 (17) Office Lease between Cabot Associates and
Registrant, dated July 23, 1992
10.90 (17) Revolving Credit Agreement among
Registrant, Barclays Bank PLC and The
First National Bank of Boston, dated as
of September 9, 1992
10.91 (17) Security Agreement between Registrant and
the CIT Group/Equipment Financing, Inc.,
dated September 18, 1992
10.92 (17) Deed of Priorities among Maxtor (Hong
Kong) Limited and Registrant and General
Electric Capital Corporation, dated
September 25, 1992
10.93 (17) Lease among Dares Developments (Woking)
Limited, Maxtor Europe Limited and
Registrant, dated October 1992
10.94 (16) Stock Purchase and Asset Acquisition
Agreement among David A. Eeg, Gene E.
Bowles, Jr., CP Acquisition, L.P. No. 4A,
CP Acquisition, L.P. No. 4B, Capital
Partners, Inc., FGS, Inc., Registrant,
Storage Dimensions, Inc. and SDI
Acquisition Corporation, dated December
4, 1992
10.95 (17) Loan and Security Agreement between
Registrant and Household Bank, f.s.b.,
dated December 11, 1992
10.96 (17) Global Master Rental Agreement between
Comdisco, Inc. and Registrant, dated
December 16, 1992
10.97 (17) Amendment No. 1 to Lease between Devcon
Associates 31 and Registrant, dated
December 21, 1992
10.98 (17) Continuing Guaranty among Maxtor
Peripherals (S) Pte., Ltd., Barclays Bank
PLC and Registrant, dated January 26,
1993
10.99 (17) Amendment No. 2 to Lease between Devcon
Associates 31 and Registrant, dated
February 1, 1993
10.100 (17) Instrument of Resignation, Appointment
and Acceptance among Registrant, The
First National Bank of Boston and Bank of
America National Trust and Savings, dated
as of March 22, 1993
10.101 (17) Waiver and First Amendment to Credit
Agreement among Registrant, Barclays Bank
PLC and the First National Bank of
Boston, dated as of April 16, 1993
10.102 (17) Waiver and First Amendment to Continuing
Guaranty Among Registrant, Barclays Bank
PLC and the Lenders dated as of April 19,
1993
10.103 (17) Security Agreement between Registrant and
Barclays Bank PLC, dated April 16, 1993
10.104 (17) Lease Agreement between Registrant and
Pratt Partnership, dated April 30, 1993
10.105 (17) Agreement for Stock Transfer Services
between Registrant and The First National
Bank of Boston, dated May 6, 1993
10.106 (17) Maxtor Corporation CY93 Profit Sharing
Plan
10.107 (17) Maxtor Corporation Management Incentive
Plan for CY93
10.108 (18) Production Agreement between
International Business Machines
Corporation and Registrant, dated July
27, 1993 (with certain information
deleted and indicated by blackout text)
10.109 (19) Letter of Intent between Registrant and
Hyundai Electronics Co., Ltd., dated
August 18, 1993
10.110 (20) Financing Agreement between Registrant
and The CIT Group/Business Credit, Inc.,
dated September 16, 1993
10.111 (21) Form Letter Agreement between Registrant
and all of its named executive officers,
except Laurence Hootnick, dated November
17, 1993
10.112 (21) Waiver to Financing Agreement among
Registrant and The CIT Group/Business
Credit, Inc., dated January 12, 1994
10.113 (21) Stock Purchase Agreement between
Registrant and Hyundai Electronics
Industries Co., Ltd., Hyundai Heavy
Industries Co., Ltd., Hyundai
Corporation, and Hyundai Merchant Marine
Co., Ltd., dated September 10, 1993
10.114 Confidential Resignation Agreement and 69 - 73
General Release of Claims between
Registrant and Thomas F. Burniece III,
dated February 4, 1994
10.115 License Agreement between Registrant and 74 - 78
MiniStor Peripherals Corporation, dated
February 23, 1994
10.116 Confidential Resignation Agreement and 79 - 82
General Release of Claims between
Registrant and John P. Livingston, dated
April 8, 1994
10.117 Tenancy Agreement between Barinet Company 83 - 110
Limited and Maxtor (Hong Kong) Limited,
dated April 26, 1994
11.1 Computation of Net Income (Loss) Per Share 111 - 112
22.1 Subsidiaries of Maxtor Corporation,
Incorporated in Delaware ("Maxtor") 113 - 114
24.1 Consent of Ernst & Young, Independent
Auditors 115 - 116
- - -------------------------------------------------------------------
(1) Incorporated by reference to exhibits to
Registration Statement No. 2-98568 effective
August 7, 1985
(2) Incorporated by reference to exhibits to
Registration Statement No. 33-4092 effective
April 2, 1986
(3) Incorporated by reference to exhibits to
Registration Statement No. 33-12123 effective
February 26, 1987
(4) Incorporated by reference to exhibits to
Registration Statement No. 33-12768 effective
April 23, 1987
(5) Incorporated by reference to exhibits to
Registration Statement No. 33-43172 effective
October 7, 1992
(6) Incorporated by reference to exhibits to
Registration Statement No. 33-8607 effective
September 10, 1986
(7) Incorporated by reference to exhibits to report
on Form 8-K effective February 8, 1988
(8) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective June 24, 1988
(9) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective June 24, 1989
(10) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective June 1, 1990
(11) Incorporated by reference to exhibits of Form 8-
K filed July 13, 1990
(12) Incorporated by reference to exhibits of Form 8
filed November 13, 1990
(13) Incorporated by reference to exhibits of Form 8
filed January 8, 1991
(14) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective July 15, 1991
(15) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective June 25, 1992
(16) Incorporated by reference to exhibits of Form 8-
K filed January 8, 1993
(17) Incorporated by reference to exhibits to Annual
Report on Form 10-K effective May 27, 1993
(18) Incorporated by reference to exhibits of Form 10-
Q filed August 10, 1993
(19) Incorporated by reference to exhibits of Form 8-
K filed August 19, 1993
(20) Incorporated by reference to exhibits of Form 10-
Q filed November 8, 1993
(21) Incorporated by reference to exhibits of Form 10-
Q filed February 7, 1994
AMENDMENT
TO
RIGHTS AGREEMENT
This AMENDMENT TO RIGHTS AGREEMENT (the "Amendment") is
entered into as of the 10th day of September, 1993, between
Maxtor Corporation, a Delaware corporation (the "Company"),
and The First National Bank of Boston (the "Rights Agent").
RECITALS
WHEREAS, pursuant to that certain Rights Agreement dated
as of January 27, 1988 (the "Rights Agreement"), the Board
of Directors of the Company on January 27, 1988 (I)
authorized the issuance and declared a dividend of one right
(a "Right") for each share of the Common Stock (as defined
herein) of the Company outstanding as of the close of
business on February 8, 1988, each Right representing the
right to purchase one share of Common Stock of the Company
upon the terms and subject to the conditions set forth in
the Rights Agreement, and (ii) further authorized the
issuance of one Right with respect to each share of Common
Stock of the Company that shall become outstanding between
February 8, 1988, and the Distribution Date (as defined in
the Rights Agreement);
WHEREAS, in accordance with Section 21 of the Rights
Agreement, Chemical Trust Company of California resigned as
Rights Agent and The First National Bank of Boston was
appointed as the second successor Rights Agent effective May
10, 1993;
WHEREAS, pursuant to Section 4.9 of that certain Stock
Purchase Agreement among the Company and Hyundai Electronics
Industries Co., Ltd., Hyundai Heavy Industries Co., Ltd.,
Hyundai Corporation and Hyundai Merchant Marine Co., Ltd.
(collectively, the "Purchasers"), dated as of September 10,
1993 (the "Purchase Agreement"), the Company agreed to amend
the Rights Agreement as set forth herein.
WHEREAS, the Company has requested that the Rights
Agreement be amended, in accordance with Section 26 of the
Rights Agreement, as set forth herein and the Rights Agent
is willing to amend the Rights Agreement as set forth
herein.
AGREEMENT
NOW, THEREFORE, the parties, intending to be legally
bound, hereby agree as follows:
1. Section 1(a) of the Rights Agreement is hereby
deleted in its entirety and amended to read in full as
follows:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with
all Affiliates (as such term is hereinafter defined) and
Associates (as such term is hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 20% or more of the outstanding
Common Stock; provided, however, that an Acquiring
Person shall not include (1) an Exempt Person (as such
term is hereinafter defined) or (2) upon the closing of
the acquisition of Class A Common Stock (the "Hyundai
Closing") under that certain Stock Purchase Agreement
among the Company and Hyundai Electronics Industries,
Co., Ltd., Hyundai Heavy Industries Co., Ltd., Hyundai
Corporation and Hyundai Marine Co., Ltd. (collectively
the "Purchasers") dated as of September 10, 1993 (the
"Purchase Agreement"), any of the Purchasers or their
Affiliates, so long as (i) the Purchasers and their
Affiliates continue following the Hyundai Closing
collectively to hold shares of Common Stock of the
Company which constitute at least twenty percent (20%)
of the outstanding voting power of the Company and (ii)
no material breach of Section 7.2 of the Purchase
Agreement by Purchaser or any Affiliate of a Purchaser
has occurred.
2. Section 1(g) is deleted in its entirety and amended
to read in full as follows:
(g) "Common Stock" when used with reference to the
Company shall mean the common stock of the Company
whether designated as Common Stock or Class A Common
Stock. "Common Stock" when used with reference to any
Person other than the Company which shall be organized
in corporate form shall mean the capital stock or other
equity security with the greatest per share voting power
of such Person or, if such Person is a Subsidiary of or
is controlled by another Person, the Person which
ultimately controls such first-mentioned Person.
"Common Stock" when used with reference to any Person
other than the Company which shall not be organized in
corporate form shall mean units of beneficial interest
which shall represent the right to participate in
profits, losses, deductions and credits of such Person
and which shall be entitled to exercise the greatest
voting power per unit of such Person.
3. All other provisions of the Rights Agreement shall
remain unchanged.
4. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed themselves or by their respective
duly authorized representatives as of the date first above
written.
MAXTOR CORPORATION
By: /s/ Mark Chandler
------------------
Mark Chandler
Its: Vice President, Corporate
Development and General Counsel
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Geoffrey D. Anderson
-------------------------
Geoffrey Anderson
Its: Senior Account Manager
TFB/MUT
CONFIDENTIAL RESIGNATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Thomas F. Burniece ("Employee") hereby resigns from his
employment with Maxtor Corporation ("Maxtor"), and his
position as an officer of Maxtor, effective February 4,
1994.
2. In exchange for the release of claims set forth below,
upon expiration of the seven-day revocation period described
below, Maxtor shall pay to Employee the sum of $153,749.97.
Of this sum, the parties agree to the following allocation:
a. $113,749.97 for loss of wages.
b. $40,000.00 for pain, suffering, anxiety, emotional
distress, and personal injury allegedly suffered and
incurred by Employee arising from his tort and
discrimination claims.
The payment described in Paragraph 2(a) shall be subject to
applicable withholding, and Maxtor shall report to
appropriate government agencies the payment of $113,749.97
as wage related. Maxtor shall not withhold federal, state
or local employment taxes (e.g. income tax, FICA, SDI) from
the payment provided for in subparagraph 2(b). Maxtor shall
not issue a W-2 or 1099 with respect to the payment of
personal injury compensation (2(b)), since such a report
would be inconsistent with this Agreement. After February
4, 1994, Employee will be eligible to continue his health
coverage at his own expense in accordance with federal law,
provided, however, that if Employee continues to use
Maxtor's health insurance program, Maxtor shall reimburse
Employee his health insurance premiums for a nine month
period after February 4, 1994. Employee shall also receive
from Maxtor all amounts held by Maxtor for him in his 401(K)
account and all amounts withheld to date for his account
under the Maxpurchase 423 Plan. The amounts owing under the
401 (K) and 423 Plans will be paid to Employee in accordance
with Maxtor's customary policy with respect to employees who
leave the company, with 423 Plan funds distributed as of the
date of termination and 401(k) funds disbursed within 90
days thereafter. In addition to the above amounts, Employee
will receive payment for his accrued vacation allowance,
less applicable withholdings. Employee shall be entitled to
exercise as vested, for a period of six months after
February 4, 1994, all of his outstanding stock options, as
shown on the attached schedule, whether or not otherwise
vested as of February 4, 1994.
Employee acknowledges that he shall be entitled to no
compensation or benefits from Maxtor other than those
expressly set forth in this paragraph.
3. In exchange for the benefits described in paragraph 2
above, Employee does hereby for himself and his respective
legal successors and assignees, releases and absolutely
discharges Maxtor and its shareholders, directors,
employees, agents, attorneys, legal successors, and assigns
of and from any and all claims, actions and causes of
action, whether now known or unknown, suspected, or
unsuspected, which Employee now has, owns or holds, or at
any other time had, owned or held or shall or may have, own,
or hold against Maxtor based upon or arising out of any
matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time to and including the date
hereof,
including but not limited to, any claims of wrongful
discharge or age or other discrimination under the Civil
Rights Act, the Americans with Disabilities Act, the Age
Discrimination in Employment Act, the Fair Employment and
Housing Act, or any other applicable law, , or any other
claims or alleged claims (all of which are hereinafter
included within the "Released Matter"). As used herein,
"Maxtor" includes any and all parents, divisions or
subsidiaries of Maxtor Corporation. In consideration for
Burniece's promises and other undertakings herein, Maxtor,
and its Chief Executive Officer, Laurence R. Hootnick, its
officers and directors, successors and assigns, hereby
release Employee, and his heirs, legal representatives,
estates and successors in interest, from all claims, rights,
demands, actions, obligations, and causes of action of any
and every kind, nature and character, known or unknown,
which they may now have against Employee, or have ever had
against him, up to the effective date of this Agreement,
including but not limited to all claims arising from or in
any way connected with his employment relationship with
Maxtor. This release shall not extend, however, to any
claims either party may have in connection with any breach
by the other party of the Agreements described in Section 5
hereof, or regarding the Addendum attached hereto.
4. Each party acknowledges that it is familiar with section
1542 of the California Civil Code which states as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
Each party hereby waives any right or benefit which it
has or may have under Section 1542 of the California Civil
Code to the full extent that it may lawfully waive such
rights and benefits pertaining to the subject matter of this
General Release of Claims (the "Release"). Each party
acknowledges that it may hereafter discover claims or facts
in addition to or different from those that it now knows or
believes to exist with respect to the subject matter of this
Release, and that it is its intention to fully, finally and
forever settle all of the Released Matters in exchange for
the benefits set forth above.
5. Employee acknowledges and agrees that he shall continue
to be bound by and comply with the terms of that certain
Employee Agreement Regarding Confidentiality and inventions
between Maxtor and Employee dated May 14, 1991. Maxtor and
Employee shall continue to be bound by the terms of the
Indemnification Agreement between Maxtor and Employee dated
May13, 1991 for the term stated therein.
6. Employee agrees he shall not make any critical or
disparaging statements or distribute any critical or
disparaging written materials concerning Maxtor, its
officers, employees and/or products; provided, however,
this shall not preclude Employee from giving truthful
testimony in any legal proceeding, nor from engaging in
truthful discussions with Maxtor's Board of Directors.
7. Maxtor will provide Employee with a favorable employment
reference in the form attached hereto as Exhibit A. In the
event Maxtor receives any requests for information regarding
Employee from potential employers, it will direct all such
inquiries to Mark Chandler. No other person will respond to
such inquiries, other than to refer them to the appropriate
person. Mark Chandlershall verbally confirm and discuss the
contents of Exhibit A with any individual seeking an
employment reference, and will make no negative or
derogatory statement about Employee.
8. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and
supersedes all prior negotiations and agreements, whether
written or oral, including but not limited to the Letter
Agreement dated December 1, 1993, with the exception of the
agreements described in paragraph 5 and any stock option
agreements between Employee and Maxtor. The prevailing
party shall be entitled to recover from the losing party its
attorneys' fees and costs incurred in any lawsuit or other
action brought to enforce any right arising out of this
Agreement. This Agreement may not be altered or amended
except by a written document executed by Maxtor and
Employee. Employee agrees that he shall not directly or
indirectly disclose any of the terms of this Agreement to
anyone other than his immediate family or counsel except as
such disclosures may be necessary for accounting or tax
reporting purposes or as otherwise may be required by law.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY
PRIOR TO SIGNING THIS AGREEMENT AND THAT HE IS GIVING UP ANY
LEGAL CLAIMS HE HAS AGAINST MAXTOR BY SIGNING THIS
AGREEMENT, THAT HE MAY CONSIDER THIS AGREEMENT FOR 21 DAYS
AND MAY REVOKE IT AT ANY TIME DURING THE SEVEN DAYS AFTER HE
SIGNS IT AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL THAT
SEVEN DAY PERIOD HAS PASSED. EMPLOYEE FURTHER ACKNOWLEDGES
THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND
VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN
PARAGRAPH 2.
Dated: 2/16/94 /s/ Thomas F. Burniece III
--------------------------
(Employee)
MAXTOR CORPORATION
Dated: 2/16/94 /s/P. M. Roboostoff
-------------------
P. M. Roboostoff
ADDENDUM TO SETTLEMENT AGREEMENT
AND MUTUAL RELEASE OF ALL CLAIMS
In accordance with the parties' Settlement Agreement and
Mutual Release of All Claims dated 2/16/94 Maxtor has agreed
not to make payroll withholdings for certain settlement
payments to Thomas F. Burniece. Because the payments are
intended to compensate Mr. Burniece for his alleged pain,
suffering, anxiety, emotional distress, and personal injury
allegedly suffered and incurred by Employee arising from his
tort and discrimination claims, Mr. Burniece asserts that
such payments are neither taxable nor subject to
withholding. Mr. Burniece understands and agrees that in
the event any taxing authority should reach a contrary
determination, and conclude that all or some portion of the
settlement payments constitute taxable income to Mr.
Burniece, he shall be solely responsible for the payment of
any income and other taxes that may be found to be owing,
except for employer-mandated social security taxes. In the
event any taxing authority seeks and obtains reimbursement
from Maxtor then Mr. Burniece shall fully reimburse and
indemnify Maxtor for any such taxes, including any related
interest, penalties and other costs so assessed.
Maxtor agrees not to issue a W-2, W-9 or 1099 form for
any payment made pursuant to paragraph 2 of the Agreement or
to take any action inconsistent with the characterization of
the payment in paragraph 2.
IT IS SO AGREED:
Dated: 2/16/94 /s/ Thomas F. Burniece III
---------------------------
By: Thomas F. Burniece
MAXTOR CORPORATION
Dated: 2/16/94 /s/ P. M. Roboostoff
---------------------
By: P. M. Roboostoff
4 MiniStor Lic. Agmt. 2/15/94
LICENSE AGREEMENT
THIS AGREEMENT ("Agreement"), dated February 23 , 1994
("Effective Date"), is entered into by Maxtor Corporation (as
defined below, "Maxtor"), a Delaware corporation, having its
principal place of business at 211 River Oaks Parkway, San Jose,
California 95134, and MiniStor Peripherals Corporation, a
California corporation (as defined below, "MiniStor"), having its
principal place of business at 2801 Orchard Parkway, San Jose,
California 95134.
RECITAL
MiniStor desires to acquire a license from Maxtor to use
certain Maxtor patents and the subject matter of certain Maxtor
patent applications in the manufacture of "Licensed Products" as
defined in Section 1.1 of this Agreement. Maxtor desires to
grant such a license to MiniStor in exchange for certain valuable
consideration as recited herein.
Maxtor desires to acquire a license from MiniStor to use
certain MiniStor patents to be issued in the future and the
subject matter of certain MiniStor patent applications in the
manufacture of "Licensed Products" as defined in Section 1.1 of
this Agreement. MiniStor desires to grant such a license to
Maxtor in exchange for certain valuable consideration as recited
herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions
1.1 "Licensed Products" shall mean rotating computer data
storage memory devices primarily designed to record and/or read
digital information on or from a rotating disk, components and
controllers thereof and processes for the manufacture or assembly
thereof.
1.2 "Licensed Patents" shall mean any utility patents,
utility models, and design patents, applicable to the manufacture
or use of Licensed Products, wherever filed or issued which the
parties hereto now own or have or may hereafter during the term
of this Agreement own or have and under which and to the extent
to which the parties hereto have the right to grant licenses of
the scope granted herein without the payment of royalties to or
other consideration to third parties, except for payments to
third parties for inventions made by such third parties while
employed by the parties hereto.
1.3 "Subsidiary" shall mean a business entity which is at
least fifty percent (50%) owned, directly or indirectly, by
either Maxtor or MiniStor. Any right extended to a Subsidiary
shall remain in force only during the time that the business
entity is at least fifty percent (50%) owned, directly or
indirectly, by its parent.
1.4 "MiniStor" shall mean MiniStor Peripherals
International, Limited, a Bermuda Corporation, MiniStor
Peripherals Singapore PTE, Ltd., a Singapore Corporation,
MiniStor Peripherals Corporation, a California Corporation and/or
the subsidiaries of any or all of them.
1.5 "Maxtor" shall mean Maxtor Corporation and/or its
Subsidiaries.
2. Release/Licenses
2.1 Maxtor hereby releases MiniStor from all claims of
infringement for the manufacture, use or sale of Licensed
Products accruing prior to the Effective Date of this Agreement
and based on the Licensed Patents.
2.2 Maxtor hereby grants to MiniStor and MiniStor hereby
grants to Maxtor during the term of this Agreement, a non-
exclusive, non-transferable, royalty-free license under the
Licensed Patents to make, have made, have developed, use or sell
Licensed Products, including the right to have assembled and
tested such Licensed Products. No right is granted to MiniStor
or to Maxtor to sub-license its rights hereunder. The license
granted in this Section 2.2 shall extend only to Licensed
Products that are sold solely under respectively the MiniStor and
Maxtor trade names. This section is not intended to preclude or
limit O.E.M. sales by the parties hereto.
2.3 MiniStor hereby represents that it does not currently
own any patents which would be subject to the license granted
hereunder.
2.4 Notwithstanding anything in this Agreement to the
contrary, no release or license is granted by Maxtor or MiniStor
hereunder either directly, by implication, estoppel or otherwise,
under any patent, copyright, trade secret or maskwork except as
expressly provided herein. In particular, no license or immunity
is granted to make, use or sell any products other than Licensed
Products.
2.5 MiniStor hereby releases Maxtor from all claims of
infringement for the manufacture, use or sale of products or
processes or the manufacture for Maxtor of products covered by
any patents presently owned by MiniStor occurring prior to the
Effective Date of this Agreement.
2.6 Nothing contained in this Agreement shall be construed
as:
(a) a warranty or representation by Maxtor or MiniStor as
to the validity or scope of any patent; or
(b) a warranty or representation by Maxtor or MiniStor
that any manufacture, sale, lease, use or other
disposition of any Licensed Product would be free from
infringement of patents other than those under which and
to the extent to which licenses are granted by Maxtor or
MiniStor hereunder; or
(c) an agreement by Maxtor or MiniStor to bring
or.prosecute actions or law suits against third parties
for infringement or conferring any right to bring or
prosecute actions or law suits against third parties for
infringement; or
(d) conferring any license or right to use in advertising,
publicity or otherwise any trademark, trade or brand name
or names, or corporate name of Maxtor or MiniStor;
(e) an obligation by Maxtor or MiniStor to furnish any
technical information or know-how or further information
regarding the pending patent applications of either party
hereto.
3. Payments
The releases and licenses granted in Section 2 shall be
royalty-free and no payment shall be required by either party to
the other in consideration of the rights granted herein.
4. Assignment
4.1 Neither party hereto may assign this Agreement or any
interest or rights granted hereunder to any third party, except
to a successor, without the prior written consent of the other
party hereto (which consent may be withheld at the non-assigning
party's sole discretion for any reason whatsoever) and any such
purported assignment without such consent shall be null and void.
As used herein, the term "successor" shall mean a person or
entity or any affiliate of such person or entity (a) which
acquires more than 90% of the business (i.e., assets used for
operating purposes) or stock of the assigning party; and (b)
whose revenues derived from selling disk drives in the twelve
full calendar months prior to the acquisition do not exceed the
assigning party's revenues from Licensed Products for the same
period, with such revenues of each party determined on an
aggregate basis together with its affiliates and by generally
accepted accounting principles consistently applied. For
purposes of this Section, "affiliate" shall include, with respect
to a proposed assignee, any entity controlled by, controlling or
under common control with such party, now or in the future. For
purposes of this definition, "control" shall mean having a right
to 50% of the entity's profits or ownership of at least 50% of
the voting rights in the entity.
4.2 Neither party may assign or transfer to a third party
ownership of a patent (including utility models and design
patents) licensed under this Agreement, or an application
therefore except to a third party that provides a written
acknowledgment to the non-assigning/transferring party that the
non-assigning/transferring party's license to such patent or
application shall continue in effect during the term of this
Agreement. Any purported assignment of such a patent or
application that does not comply with this Section 4.2 shall be
null and void.
5. Term and Termination
5.1 The provisions of this Agreement shall become effective
on the Effective Date and shall continue in full force and
effect, unless and until terminated upon ninety (90) days prior
written notice by one of the parties hereto. Notwithstanding the
foregoing, neither party hereto shall give notice to terminate
this Agreement prior to three (3) years after the Effective Date.
5.2 Upon termination or expiration of this Agreement under
Section 5.1 above, the licensed rights granted under this
Agreement with respect to patents issued prior to the termination
of this Agreement and patents issued after the termination date
if the patent applications therefor were filed before the
effective date of termination, shall survive such termination.
Except as specifically set forth in the immediately preceding
sentence, all rights and licenses granted hereunder shall
terminate and each party hereto shall have all legal and
equitable rights for any claims of patent infringement along with
all other remedies or claims.
6. Miscellaneous Provisions
6.1 This Agreement will be governed by and construed in
accordance with the laws of the State of California and the
Federal laws of the United States of America. Maxtor and
MiniStor specifically agree that legal jurisdiction for
enforcement of this Agreement shall properly lie in the State of
California and Maxtor and MiniStor agree that service of legal
process may properly be accomplished by service upon the
respective designated agents for service of process of the
respective parties hereto.
6.2 All notices required to be sent by either party under
this Agreement shall be sent either by prepaid certified or
registered U.S. mail, return receipt requested, or by prepaid
Federal Express Next Business Day Delivery to the addresses set
forth below or such other address as may subsequently be
designated in writing by the parties hereto.
Maxtor:
Maxtor Corporation MiniStor Peripherals Corporation
211 River Oaks Parkway 2801 Orchard Parkway
San Jose, California 95134 San Jose, California 95134
Attention: General Counsel Attention: President
Facsimile: 408/432-4169 Facsimile: 408/434-0784
6.3 This Agreement constitutes the full and complete
understanding and agreement between the parties hereto and
supersedes all prior understandings and agreements relating to
the subject matter hereof. No modifications, alterations or
amendments shall be effective unless in writing and signed by
both parties to this Agreement. No waiver of a breach in a
particular situation shall be held to be a waiver of any other or
subsequent breach.
6.4 Both parties hereto agree that the terms of this
Agreement will not be published or disclosed to any third party
without the other party's written permission except as required
by law or as may be required for reasonable auditing purposes or
Securities and Exchange Commission disclosure.
6.5 Notwithstanding any of the foregoing, Maxtor warrants
that it has acquired certain patents formerly owned by Miniscribe
Corporation of Longmont, Colorado, and is licensing hereby such
patents acquired from MiniScribe to MiniStor.
6.6 If any action at law or in equity is necessary to
enforce the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, expert witness fees,
costs of suit and expenses in addition to any other relief to
which such prevailing party may be entitled.
AGREED TO:
Maxtor: MiniStor:
Maxtor Corporation MiniStor Peripherals Corporation
By: /s/ L. R. Hootnick By: /s/ J. Miller
-------------------- ---------------
Name: Laurence R. Hootnick Name: James N. Miller
-------------------- ---------------
Title: President & Title: President
Chief Exec. Officer
--------------------- ---------------
Date: 2/23/94 Date: 3-9-94
--------------------- ---------------
CONFIDENTIAL RESIGNATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. John P. Livingston ("Employee") hereby resigns from his
employment with Maxtor Corporation ("Maxtor") effective April 8,
1994.
2. In exchange for the release of claims set forth below, upon
expiration of the seven-day revocation period described below,
Maxtor agrees to pay Employee the total sum of $120,000.00, equal
to nine months pay, less applicable withholding. After April 8,
1994, Employee will be eligible to continue his health coverage
at his own expense in accordance with federal law, provided,
however, that if Employee continues to use Maxtor's health
insurance program, Maxtor shall reimburse Employee his health
insurance premiums for a nine month period after April 8, 1994.
Employee shall also receive from Maxtor all amounts held by
Maxtor for him in his 401(K) account and all amounts withheld to
date for his account under the Maxpurchase 423 Plan. The amounts
owing under the 401 (k) and 423 Plans will be paid to Employee in
accordance with Maxtor's customary policy with respect to
employees who leave the company. In addition to the above
amounts, Employee will receive payment for his accrued vacation
allowance, less applicable withholdings. Employee shall be
entitled to exercise as vested, for a period of six months after
April 8, 1994, all of his outstanding stock options, as shown on
the attached schedule, whether or not otherwise vested as of
April 8, 1994. Employee acknowledges that he shall be entitled
to no compensation or benefits from Maxtor other than those
expressly set forth in this paragraph.
3. In exchange for the benefits described in paragraph 2 above,
Employee does hereby for himself and his respective legal
successors and assignees, releases and absolutely discharges
Maxtor and its shareholders, directors, employees, agents,
attorneys, legal successors, and assigns of and from any and all
claims, actions and causes of action, whether now known or
unknown, suspected, or unsuspected, which Employee now has, owns
or holds, or at any other time had, owned or held or shall or may
have, own, or hold against Maxtor based upon or arising out of
any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time to and including the date
hereof, including but not limited to, any claims of wrongful
discharge or age or other discrimination under the Civil Rights
Act, the Age Discrimination in Employment Act, the Fair
Employment and Housing Act, or any other applicable law, or any
other claims or alleged claims (all of which are hereinafter
included within the "Released Matter"). As used herein, "Maxtor"
includes any and all parents, divisions or subsidiaries of Maxtor
Corporation. This Release shall not extend to Employee's right
to continued exercise of his stock options for the term set forth
above. In consideration for Employee's promises and other
undertakings herein, Maxtor, and its Chief Executive Officer,
Laurence R. Hootnick, its officers and directors, successors and
assigns, hereby release Employee, and his heirs, legal
representatives, estates and successors in interest, from all
claims, rights, demands, actions, obligations, and causes of
action of any and every kind, nature and character, known or
unknown, which they may now have against Employee, or have ever
had against him, up to the effective date of this Agreement,
including but not limited to all claims arising from or in any
way connected with his employment relationship with Maxtor. This
release shall not extend, however, to any claims either party may
have in connection with any breach by the other party of the
agreements described in or provisions of Section 5 hereof.
4. Each party acknowledges that it is familiar with section 1542
of the California Civil Code which states as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
Each party hereby waives any right or benefit which it has or may
have under Section 1542 of the California Civil Code to the full
extent that it may lawfully waive such rights and benefits
pertaining to the subject matter of this General Release of
Claims (the "Release"). Each party acknowledges that it may
hereafter discover claims or facts in addition to or different
from those that it now knows or believes to exist with respect to
the subject matter of this Release, and that it is its intention
to fully, finally and forever settle all of the Released Matters
in exchange for the benefits set forth above.
5. Employee acknowledges and agrees that he shall continue to be
bound by and comply with the terms of that certain Employee
Agreement Regarding Confidentiality and inventions between Maxtor
and Employee dated July 30, 1990. Maxtor shall indemnify
Employee with respect to any third party claims brought against
him on the same terms as indemnification is afforded to other non-
officer employees, whether present or former.
6. Employee agrees that he shall not directly or indirectly
disclose any of the terms of this Agreement to anyone other than
his immediate family or counsel except as such disclosures may be
necessary for accounting or tax reporting purposes or as
otherwise may be required by law.
7. Employee agrees he shall not make any critical or disparaging
statements or distribute any critical or disparaging written
materials concerning Maxtor, its officers, employees and/or
products; provided, however, this shall not preclude Employee
from giving truthful testimony in any legal proceeding, nor from
engaging in truthful discussions with Maxtor's Board of
Directors. Maxtor will observe its corporate policy which
restricts employee references to confirmation of title and dates
of employment. In the event Maxtor receives any requests for
information regarding Employee from potential employers, it will
direct all such inquiries to Mark Chandler. No other person will
respond to such inquiries, other than to refer them to the
appropriate person. In no event shall Maxtor make negative or
derogatory statement about Employee.
8. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior negotiations and agreements, whether written or oral,
with the exception of the agreement described in paragraph 5.
The prevailing party shall be entitled to recover from the losing
party its attorneys' fees and costs incurred in any lawsuit or
other action brought to enforce any right arising out of this
Agreement. This Agreement may not be altered or amended except
by a written document executed by Maxtor and Employee.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY
PRIOR TO SIGNING THIS AGREEMENT AND THAT HE IS GIVING UP ANY
LEGAL CLAIMS HE HAS AGAINST MAXTOR
BY SIGNING THIS AGREEMENT, THAT HE MAY CONSIDER THIS AGREEMENT
FOR 21 DAYS AND MAY REVOKE IT AT ANY TIME DURING THE SEVEN DAYS
AFTER HE SIGNS IT AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL
THAT SEVEN DAY PERIOD HAS PASSED. EMPLOYEE FURTHER ACKNOWLEDGES
THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND
VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN PARAGRAPH
2.
Dated: April 11, 1994 /s/ John P. Livingston
----------------------
John P. Livingston
MAXTOR CORPORATION
Dated: April 11, 1994 /s/ Sandy Taylor
----------------
Sandy Taylor
Dated the 26th day of April 1994
BARINET COMPANY LIMITED
AND
MAXTOR (HONG KONG) LIMITED
******************************************
LEASE
of
ALL THAT the Building erected on Yau Tong Inland Lot No. 21
and known as Asia Trade Centre, 19 Sze Shan Street, Yau Tong
Bay, Kowloon including the Basement, Ground Floor, First
Floor, Second Floor, Third Floor and Flat Roof appurtenant
thereto, Fourth Floor, Fifth Floor and the Roof, Asia Trade
Centre, 19 Sze Shan Street, Yau Tong Bay, Kowloon erected on
Yau Tong Inland Lot No.21.
******************************************
REGISTERED in the Land Registry by Memorial No.
on
P. Land Registrar.
CHAN, LAU & WAI,
SOLICITORS,
HONG KONG.
CSH/26762(8)/93/he
SC(HE): TA-ASIATRADE
THIS LEASE made the 26th day of April One
thousand nine hundred and ninety four
B E T W E E N
(1) BARINET COMPANY LIMITED whose registered office is
situate at 30th Floor, Asia Orient Tower, Town Place,
No. 33 Lockhart Road, Wanchai, Hong Kong (hereinafter
called "the Landlord"); and
(2) MAXTOR (HONG KONG) LIMITED whose registered office is
situate at 5th Floor, Asia Trade Centre, 19 Sze Shan
Street, Yau Tong Bay, Kowloon, Hong Kong (hereinafter
called "the Tenant").
WHEREBY IT IS AGREED as follows :-
1. In consideration of the rents and the Tenant's covenants
hereinafter reserved and contained the Landlord HEREBY
DEMISES to the Tenant ALL THOSE premises details of
which are contained in the First Schedule hereto (which
said premises are hereinafter called "the Premises")
which form the whole of the building known as Asia
Trade Centre, 19 Sze Shan Street, Yau Tong Bay, Kowloon
(hereinafter called "the Building") erected on Yau Tong
Inland Lot No.21 TO HOLD the same unto the Tenant for
the term specified in the Second Schedule hereto
(hereinafter called "the term") determinable as
hereinafter provided YIELDING AND PAYING therefor the
rent set out in the Third Schedule hereto.
2. THE TENANT HEREBY COVENANTS WITH THE LANDLORD as follows
:-
Outgoings
---------
(1) (a)To pay the rents reserved hereby and any increase
therein in Hong Kong currency in the manner
stipulated in the Third Schedule hereto and by
autopay if demanded without any deduction
therefrom;
(b)To pay rates charged on the Premises as assessed
by the Government and in the event of the Premises
not having been assessed to rates at the date of
commencement of the term to pay to the Landlord
quarterly in advance on the first days of January,
April, July and October in each year, such
percentage (as shall from time to time be
determined by the Legislative Council in
accordance with Section 18 of the Rating Ordinance
as the percentage of the rateable value on which
rates shall be computed) of the rent for the
corresponding quarter as shall be required by the
Landlord as a deposit by way of security for the
due payment of rates and on receipt of an
assessment from the Government such deposit shall
be applied in payment of the rates for the period
of the assessment and in the event that the
assessment exceeds the sum deposited with the
Landlord forthwith to pay the balance due to the
Government in accordance with the assessment;
(c)To pay and discharge all deposits and charges in
respect of gas, water, electricity and telephones
as may be shown by the separate meter or meters
installed in the Premises or by accounts rendered
to the Tenant;
(d)To produce to the Landlord within a reasonable
time on written demand made by the Landlord
receipts for rates gas water telephone electricity
charges paid by the Tenant;
(e)To pay to the Landlord (without prejudice to any
other right or remedy of the Landlord hereunder)
on demand interest at the rate of 4% per annum
over the rate from time to time quoted by The Hong
Kong and Shanghai Banking Corporation Limited as
its prime or best lending rate for Hong Kong
Dollars in Hong Kong such interest to be
calculated on a daily basis in respect of any
payment not paid on the due date from the date
upon which such payment ought to have been paid to
the actual date of payment.
Landlord's Expenses
-------------------
(2) To pay on written demand made by the Landlord all
reasonable costs and expenses (including without
limitation thereof Solicitors' costs, Surveyors',
Architects' and Engineers' fees and bailiffs' costs)
properly incurred by the Landlord :-
(a)incidental to the preparation and service of any
notice under Section 58 of the Conveyancing and
Property Ordinance or incurred in or in
contemplation of proceedings hereunder or
thereunder save and except in circumstances where
forfeiture is avoided otherwise than by relief
granted by the court;
(b)resulting from all applications by the Tenant for
any consent or approval of the Landlord required
by this Lease whether or not the application is
granted together with any stamp duties on any
licences and duplicates in connection therewith.
Compliance with Ordinances
--------------------------
(3) To obey and comply with and to indemnify the Landlord
against the breach of all ordinances, regulations,
by-laws, rules and requirements of any Governmental
or other competent authority relating to the use and
occupation of the Premises, and without prejudice to
the generality of the foregoing to obtain any
licence approval or permit required by any
Governmental or other competent authority in
connection with the Tenant's use or occupation of
the Premises prior to the commencement of the
Tenant's business and to maintain the same in force
during the currency of this tenancy and to indemnify
the Landlord against the consequences of a breach of
this provision.
Repair
------
(4) Save and except as provided by Clause 3(3) below at
all times during the term to keep the interior of
the Premises and every part thereof including
without prejudice to the generality of the foregoing
the interior surfaces of the walls ceilings and
floors, the windows, internal and external window
frames and doors of the Premises and the Landlord's
fixtures fittings and installations in the Premises
in good and tenantable repair and condition (fair
wear and tear damage caused by structural latent or
inherent defects excepted) and in whole or in part
to renew the same as necessary and to paint the
exterior of the Premises as and when the Tenant
considers reasonable and if the Tenant is the tenant
of any roof of the Building to carry out routine
maintenance to such roof but not major or structural
repairs or repairs caused by inherent or latent
defects.
Repair of Electrical Installations
----------------------------------
(5) At all times during the term to repair or replace any
electrical installation or wiring installed by the
Tenant if the same becomes dangerous or unsafe or if
so reasonably required by the Landlord or by the
relevant utility company and in so doing the Tenant
shall use only a contractor approved by the Landlord
in writing for the purpose (such approval not to be
unreasonably withheld or delayed). The Tenant shall
have the right to increase the electrical loading at
the Premises and for this purpose will have the
right to build an additional transformer room in the
Premises subject to compliance with all regulations
and requirements of the relevant utility company in
connection therewith for this purpose the Tenant
will use only a contractor approved by the Landlord
as aforesaid. The Tenant shall permit the Landlord
or its agent to test the Tenant's wiring in the
Premises at any time upon request being made. The
Tenant shall indemnify the Landlord and hold it
harmless against any cost claim damage or
proceedings resulting from or attributable to any
malfunction or disrepair of the electrical
installation or apparatus installed by the Tenant in
the Premises.
Drains and Sewage
-----------------
(6) Not to allow to pass into the sewers drains or
watercourses serving the Building any noxious or
deleterious effluent or other substance which may
cause an obstruction in or injure the said sewers
drains or watercourses and in the event of such
obstruction or injury if required by the Landlord at
the Tenant's cost forthwith to remove such
obstruction and to make good all damage to the
satisfaction of the Landlord and if the Tenant shall
refuse to remove such obstruction and make good any
damage, the Landlord shall have the right to perform
the matters aforesaid and claim all costs, expenses
and damages properly incurred or sustained by the
Landlord from the Tenant.
Landlord's Access
-----------------
(7).(a)To permit the Landlord and its agents upon
reasonable prior written notice (except in case of
emergency) with all necessary workmen materials
and appliances at all reasonable times during
normal business hours (or at any time in case of
emergency) to enter upon and examine the condition
of the Premises and thereupon the Landlord may
serve upon the Tenant a notice in writing
specifying any defect decay redecoration or want
or reparation which is the responsibility of the
Tenant hereunder to be remedied and require the
Tenant forthwith to execute the same and if the
Tenant shall not promptly after service of such
notice commence and thereafter proceed diligently
with the execution of such repairs and
redecorations then to permit the Landlord with all
necessary workmen materials and appliances to
enter upon the Premises and execute such repairs
and redecorations and the cost thereof (which
expression shall include without limitation all
necessary and reasonable legal costs and
Surveyors' fees and other reasonable expenditure
whatsoever attendant thereon) shall be paid by the
Tenant to the Landlord on demand and be
recoverable as a debt;
(b)To permit the Landlord upon reasonable prior
written notice (save that no such notice shall be
required in the case of any emergency) and its
agents and other persons authorized by them with
all necessary workmen materials and appliances at
all reasonable time during normal business hours
(or at any time in case of emergency) to enter
upon the Premises to execute repairs on any part
of the Building or the fixtures fittings or
appliances therein which is the responsibility of
the Landlord hereunder and for the purpose of
executing the same to erect scaffolding or to
place ladders upon the Premises or any part
thereof causing as little inconvenience and
physical damage as practicable and all such damage
thereby occasioned to the Premises being made good
by the Landlord.
Restriction on Alterations
--------------------------
(8) (a)Not without the prior written consent of the
Landlord (such consent not to be unreasonably
withheld or delayed) and the approval of all
relevant Government authorities if necessary to
build or erect or permit or suffer to be built or
erected any building on the Premises or on any
part thereof and not without such consent as
aforesaid to make or to permit or suffer to be
made any addition or alteration to the Premises or
to any part thereof or to any fixtures and
fittings therein of any nature whatsoever whether
structural or non-structural and at the request of
the Landlord forthwith to demolish and remove any
building addition or alteration built erected or
made in breach of the foregoing covenant and to
restore the Premises and the fixtures and fittings
thereof to their previous condition to the
satisfaction of the Landlord;
(b)Not without the prior written consent of the
Landlord (such consent not to be unreasonably
withheld or delayed) and the approval of all
relevant Government authorities if necessary to
alter or permit or suffer to be altered any main
electricity cable gas or water pipe or drain or
heating apparatus nor cut maim or injure or permit
or suffer to be cut maimed or injured any of the
walls or floors of the Premises or any part of the
main structure of the Building or other structural
members thereof nor attach anything to any
structural wall of the Premises;
(c)If notwithstanding the foregoing terms and
provisions the Landlord shall at its sole
discretion decide to permit the Tenant to make any
addition or alteration to the Premises or the
fixtures and fittings and the Tenant shall carry
out such works then at the expiration or sooner
determination of the term the Tenant will if
required by the Landlord at the Tenant's own cost
reinstate and make good to the satisfaction of the
Landlord the Premises and the fixtures and
fittings and restore the same as if such addition
or alteration (or such of them as may be specified
by the Landlord) had not been made and to pay the
reasonable expenses properly incurred by the
Landlord incidental to the superintendence of such
reinstatement and making good as well as for all
reasonable costs expenses and losses incurred by
the Landlord due to the failure of the Tenant to
comply with this provision.
Alienation
----------
(9) Not to assign underlet mortgage charge or part with
possession of or transfer the Premises or any part
thereof or any interest therein nor permit or suffer
any arrangement or transaction whereby any person
who is not a party to this Lease obtains the use or
possession of the Premises or any part thereof
regardless of whether any rental or other
consideration is given Provided that the Tenant
shall have the right with the consent of the
Landlord (such consent not to be unreasonably
withheld or delayed) to sublet the whole or any part
or parts of the Premises Provided Further that if
the rent actually received from any sub-tenant in
respect of the Premises or any part thereof exceeds
the rent payable by the Tenant in respect of that
part the Tenant shall pay to the Landlord the amount
of such excess less all costs and expenses incurred
by the Tenant in connection with the subletting or
in connection with enforcing the terms of any sub-
tenancy agreement against any sub-tenant.
Notice
------
(10)Forthwith on receipt of notice (whether by
advertisement or otherwise) to give full particulars
to the Landlord of any permission notice order claim
or proposal for a notice order or claim made given
or issued by Government affecting or likely to
affect the Premises and if so required by the
Landlord to produce such permission notice order
claim or proposal for a notice order or claim to the
Landlord.
Use of the Premises
-------------------
(11)(a)Not to use or permit or suffer to be used the
Premises or any part thereof for any illegal or
immoral purpose or for any dangerous noxious noisy
or offensive trade business or purpose whatsoever;
(b)To use the Premises for such purposes as set out
in the Occupation Permit relating to the Premises
and in the Crown Grant document under which the
Premises are held from the Crown Provided that the
Tenant shall have the right, with the consent of
the Landlord (such consent not to be unreasonably
withheld) to apply to the relevant government
authorities for permission to change the use or
uses of the Premises and the Tenant shall pay all
costs and expenses incidental to such application
and to carry out and perform all conditions
imposed by the relevant government authorities on
the grant of such change of user of the Premises
or parts thereof;
(c)To obtain and renew all necessary consents
required by law relating to the use of the
Premises and not to breach the terms of such
consents and to fully indemnify the Landlord for
any failure of the Tenant to use the Premises for
the permitted purpose and/or the breach by the
Tenant of any terms of the Crown Grant and/or
Occupation Permit and/or waiver or other
modification letter(s) relating to the Premises.
Access
------
(12)Not to do or permit any act or thing whereby any
entrance or exit of the Building or any of the
common parts thereof which the Tenant is authorised
to use may be impeded or hindered in any way
whatsoever.
Floor Loading
-------------
(13) Not to do or bring or permit to be done or brought
in or upon the Premises or any part of the Building
anything which may put on the Premises or any part
of the Building any weight stress or strain in
excess of that which the same are designed to bear.
Nuisance
--------
(14)Not to do or permit or suffer anything in or upon the
Premises or any part thereof or on any property over
which the Tenant exercises rights which may be or
become a nuisance or annoyance to the Landlord or
the tenants owners or occupiers of other premises in
the Building.
Landlord's Insurance
--------------------
(15)(a)Not to do or allow to be done anything whereby any
insurance for the time being effected in respect
of the Premises or the Building (including without
prejudice to the generality of the foregoing
insurance against loss of rent in respect of the
Premises) or any part thereof may be rendered void
or voidable or be in anyway affected nor do or
allow to be done anything whereby any additional
premium may become payable for any insurance in
respect of the Premises or the Building and to
comply with all reasonable recommendations of the
insurers as to fire precautions relating to the
Premises and to repay to the Landlord on demand
all reasonable sums paid by the Landlord by way of
increased premium or premia and all reasonable
expenses incurred by the Landlord in and about any
renewal of such policy or policies arising from or
rendered necessary by a breach of this sub-clause;
(b)In the event of the Premises or any part thereof
being destroyed or damaged to give notice in
writing thereof to the Landlord forthwith on the
happening of such event.
Storage
-------
(16)Not to bring keep store or suffer to be brought, kept
or stored in or upon the Premises or any part
thereof any petrol or petroleum products or any
other dangerous explosive or inflammable substances
whatsoever without the appropriate consents from the
relevant authorities Provided that the Tenant shall
be entitled to store such products or substances in
such quantities as are permitted by the relevant
authorities and subject to any conditions imposed by
the relevant authorities (if any).
Signs and Placards
------------------
(17)Not to erect name signs at the entrance to or on the
exterior of the Premises or on the roof of the
Building nor to affix place or exhibit or permit or
suffer to be affixed placed or exhibited to or upon
the exterior of the Premises or to or through any
windows thereof or to any part of the Building
without all necessary consents from the Government.
Landlord's signs
----------------
(18)To permit the Landlord at any time during the last
three (3) months of the said term to affix and
retain without interference upon any part of the
Premises a notice for reletting the same provided
that the sign does not interfere with the Tenant's
own sign or its business and to allow the Landlord
during the last three (3) months of the term to show
the Premises to prospective purchasers or tenants of
the Premises after giving reasonable prior notice to
the Tenant with as little inconvenience as possible
to the Tenant.
Delivery-up
-----------
(19)At the determination of the term at the Landlord's
discretion either to remove all fixtures and
fittings installed in the Premises by or on behalf
of the Tenant and to make good all damage caused by
their removal and to yield up the Premises or
Provided the Landlord agrees to yield up the
Premises with all fixtures and fittings which have
been affixed to the Premises by or on behalf of the
Tenant and which have become part of the Premises
with vacant possession and in accordance with the
agreements terms and provisions of this Lease.
Crown Lease
-----------
(20)Not to breach the terms of the Crown Lease relating
to the Building and to indemnify the Landlord
against any breach of the term of this Clause.
3. LANDLORD'S AGREEMENTS
The Landlord HEREBY AGREES with the Tenant as follows: -
Quiet Enjoyment
---------------
(1) That the Tenant paying the rents hereby reserved and
performing and observing the several covenants on
the part of the Tenant herein contained shall and
may peaceably and quietly hold and enjoy the
Premises during the said term without any lawful
interruption by the Landlord or any person
rightfully claiming through under or in trust for
the Landlord.
Crown Rent and Property Tax
---------------------------
(2) To pay the Crown Rent and Property Tax in respect of
the Premises.
Maintenance
-----------
(3) To keep the exterior of the Building the roof (save
and except as referred to in Clause 2(4)),
foundations, main structure and main drains pipes
cables and services thereof and the common parts and
common services and facilities thereof in good and
substantial repair and condition and maintain the
same save and except where any damage is caused by
the act or neglect of the Tenant unless the same is
covered by the Landlord's insurance Provided that in
the event that the Landlord sells a portion of the
Building and enters into a Deed of Mutual Covenant
under which the exterior roof foundations and main
structure of the Building and main drains pipes
cables and services thereof and the common parts and
common services and facilities thereof are
maintained and repaired then the Landlord's
obligations in relation to the repair of such items
shall be to enforce the terms of such Deed of Mutual
Covenant against the owners of the Building at the
Tenant's request Provided further that in the event
that the Tenant becomes liable for the repair of any
of the items referred to in this Clause then the
Landlord's liability hereunder shall be reduced
accordingly.
4. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as
follows : -
Re-entry
--------
(l) Subject to Section 58 of the Conveyancing and
Property Ordinance, if the rents hereby reserved or
any part thereof shall at any time be unpaid after
the due date thereof (whether formally demanded or
not) or if any of the agreements or obligations on
the part of the Tenant herein contained shall not be
performed and observed or if the Tenant (being an
individual or being individuals any one of them)
shall become bankrupt or if the Tenant (being a
company) shall enter into liquidation whether
compulsory or voluntary (save for the purpose of
amalgamation or reconstruction of a solvent company)
or if a receiver shall be appointed of the Tenant's
undertaking or if the Tenant shall enter into an
agreement or make any arrangement with creditors for
liquidation of the debts of the Tenant by
composition or otherwise or suffer any distress or
process of execution to be levied on the goods of
the Tenant then and in any such case it shall be
lawful for the Landlord at any time thereafter to re-
enter upon the Premises or any part thereof in the
name of the whole and thereupon the term shall
absolutely determine but without prejudice to any
right of action of the Landlord in respect of any
antecedent breach of any of the agreements on the
part of the Tenant herein contained. All costs and
expenses of and incidental to any demand for rent or
any other sum payable under these presents or
actions or distraint for the recovery of the same
shall be paid by the Tenant on a full indemnity
basis and shall be recoverable from the Tenant.
Cesser of Rent
--------------
(2) In the event of the Premises or any part thereof
being damaged or destroyed by any cause or made
inaccessible save and except the act neglect or
default of the Tenant so as to be unfit for
occupation or use or inaccessible then the rent
reserved hereby and other charges payable hereunder
or a fair proportion thereof according to the nature
and extent of the damage sustained shall cease to be
payable by the Tenant from the date of such damage
or destruction until the Premises are restored fit
for occupation and use and accessible PROVIDED that
there shall be no cesser of rent if any insurance
policy effected by the Landlord shall have been
rendered void or voidable in whole or in part by the
act or default of the Tenant or any person deriving
title under the Tenant or if the moneys payable
under any such policy in respect of loss of rent
shall not be paid to the Landlord by virtue of the
act or default of the Tenant and PROVIDED that the
Landlord shall be under no obligation to reinstate
the Premises or any part so damaged or destroyed but
if the Premises have not been reinstated within two
months of the date of occurrence of such damage or
destruction rendering them unfit for occupation or
use or inaccessible the Tenant shall have the right
to terminate the term on giving written notice to
the Landlord.
Deposit
-------
(3) (a)The Tenant shall on or before the 1st of July 1994
and/or in accordance with the Second Schedule in
relation to the first renewal period and/or the
second renewal period as the case may be deposit
with the Landlord the sum and further sums (if
any) specified in the Fourth Schedule hereto
(hereinafter called "the deposit") to secure the
due observance and performance by the Tenant of
the agreements, stipulations and conditions herein
contained and on the Tenant's part to be observed
and performed. The deposit shall be retained by
the Landlord for its own use and benefit
throughout the term free of any interest to the
Tenant with power for the Landlord, without
prejudice to any right or remedy hereunder, to
deduct therefrom the rent and other charges
payable hereunder which is in arrear or any loss
or damage sustained by the Landlord and properly
payable by the Tenant as a result of any breach or
non-observance or non-performance by the Tenant of
any of the agreements, stipulations or conditions
herein contained. In the event of any deduction
being made by the Landlord from the deposit in
accordance herewith, the Tenant shall on demand by
the Landlord forthwith further deposit the amount
so deducted. In the event of any deduction(s) so
made by the Landlord, the Landlord shall provide
in writing an itemized account of all such
deductions made from the deposit within 10
business days after each such deduction.
(b)Subject as aforesaid, the deposit shall be
refunded to the Tenant by the Landlord without
interest within fourteen (14) days after the
expiration or sooner determination of this Lease
and the delivery of vacant possession to the
Landlord or within fourteen (14) days of the
settlement of the last outstanding claim by the
Landlord against the Tenant in respect of any
breach, non-observance or no-performance of any of
the agreements, stipulations or conditions herein
contained and on the part of the Tenant to be
observed and performed, whichever is the later.
(c)Without prejudice to sub-clause (a) of this
Clause, the Tenant shall not be entitled to apply
and/or direct the Landlord to apply the deposit
towards the payment of any money due and payable
by the Tenant to the Landlord hereunder.
(d)If the Landlord shall go into liquidation (whether
voluntary or compulsory) or if a receiver shall be
appointed over the whole or any part of the
Premises then the Tenant shall forthwith be
entitled to the return of the said deposit in full
(subject to such lawful deductions which by that
time shall have been lawfully made by the Landlord
therefrom) and/or shall be entitled to apply the
said deposit in full against any demand or claim
for rent (or other sums payable hereunder by the
Tenant) made by the Landlord or any such
liquidator or receiver.
Non-liability of Landlord
-------------------------
(4) Except as provided herein and so far as permitted by
law the Landlord shall not be liable for any loss
damage or inconvenience suffered or incurred by the
Tenant or occupier of the Premises or any of its or
their respective servants employees licensees
invitees or visitors or by any other person or
persons by reason or in consequence of any act
neglect default or omission of any tenant or
occupier of any other premises in the Building.
Waiver
------
(5) The acceptance of rent by the Landlord shall not be
deemed to operate as a waiver by the Landlord of any
right to proceed against the Tenant in respect of
any breach non-observance or non-performance of the
covenants or obligations on the part of the Tenant
herein contained.
Premium
-------
(6) The Tenant acknowledges that no fine premium key
money or consideration other than that details of
which are contained in this Lease has been paid by
the Tenant to the Landlord for the grant of this
Lease.
Rent to be paid in advance
--------------------------
(7) For the purpose of the Landlord and Tenant
(Consolidation) Ordinance the rents reserved hereby
are in arrears if not paid in advance as herein
provided.
Verbal warranties
-----------------
(8) This Lease sets out the full agreement reached
between the parties and no other representations
have been made or warranties given relating to the
Landlord or the Tenant or the Building or the
Premises and if any such representation or warranty
has been given or implied the same is hereby waived
unless the same has been made in writing and signed
on behalf of the Landlord or the Tenant.
Notices
-------
(9) Any notice in writing to be served hereunder shall if
to be served on the Tenant be sufficiently served if
addressed to the Tenant and sent by prepaid post to
or delivered by messenger at the Tenant's registered
office and if to be served on the Landlord be
sufficiently served if addressed to the Landlord and
sent by prepaid post to or delivered by messenger at
the office of the Landlord given above or at the
Landlord's registered office. A notice sent by post
shall be deemed to be given when in due course of
post it would be delivered at the address to which
it is sent. A notice delivered by messenger shall be
deemed to be given upon delivery.
(10)Notwithstanding anything herein contained to the
contrary at any time after 1st August 1995 the
Tenant shall be entitled to terminate this Lease by
(i) giving to the Landlord not less than six months'
notice in writing or paying six months' rent in lieu
of notice and (ii) paying to the Landlord by way of
liquidated damages a lump sum equivalent to the then
prevailing one month rent whereupon this Lease will
cease and determine at the expiration of the said
notice but without prejudice to the rights or claims
of either party against the other in respect of any
antecedent breaches.
5. Costs
Each party shall pay its own costs of and incidental to
the preparation and completion of this Lease but the
stamp duty and registration fees on this Lease and its
duplicate shall be borne by the parties hereto in equal
shares.
6. Interpretation
(a) In this Lease if the context permits or requires
words importing the singular number shall include the
plural number and words importing the masculine
feminine or neuter gender shall include the other or
others of them;
(b) the headings contained in this Lease are for
convenience only and shall not be referred to in the
construction or interpretation of this Lease;
(c) where there are two or more persons included in the
expressions "the Tenant" or "the Landlord" then all
covenants by the obligations of the Tenant or the
Landlord as the case may be shall be deemed to be
made and given by such persons jointly and severally;
(d) references to any ordinance herein contained shall be
deemed to refer to any modification or re-enactment
thereof for the time being in force.
AS WITNESS the hands of the parties hereto the day and year
first above written.
FIRST SCHEDULE
Premises
- - --------
ALL THAT the Building erected on Yau Tong Inland Lot No. 21
and known as Asia Trade Centre, 19 Sze Shan Street, Yau Tong
Bay, Kowloon including the Basement, Ground Floor, First
Floor, Second Floor, Third Floor and Flat Roof appurtenant
thereto, Fourth Floor, Fifth Floor and the Roof.
SECOND SCHEDULE
Term
- - ----
TWO (2) YEARS commencing from the 1st August 1994 to the
31st July 1996 (both days are inclusive).
Option To Renew
- - ---------------
I. (1) The Tenant shall be entitled to an option to renew
this Lease for a further term of two (2) years
from the expiry date of the first term of two (2)
years under this Lease (hereinafter called "the
first renewal period").
(2) The Tenant's right to exercise the above option
shall be subject to
(a)no outstanding breaches by the Tenant of the
terms, stipulations, obligations and conditions
contained in this Lease; and
(b)the Tenant having exercised its right by notice in
writing served on the Landlord not less than three
(3) months and not more than six (6) months prior
to the date on which the term under this Lease is
due to expire.
(3) The first renewal period shall be held under the
same terms and conditions as are contained in this
Lease save and except for (a) the provisions of
this Clause I and (b) the rent payable for the
first renewal period ("the first revised rent")
which shall be determined in accordance with
Clause I(4) below.
(4) The first revised rent shall be determined by the
following formula :
R + (R X A) + {[R + (R X A)] X B}
where : R = monthly rent of the first term of two
years
A = percentage of inflation as published by the
Census and Statistics Department of the Hong Kong
Government at the end of first whole year of the
first term
B = percentage of inflation as published by the
Census and Statistics Department of the Hong Kong
Government at the end of second whole year of the
fist term
and if the first and/or second whole year of the
first term shall straddle two consecutive years
then the arithmetic average of the percentage of
inflation for the two consecutive years shall be
adopted
and if by the commencement of the first renewal
period, the percentage of inflation for the second
year of the first term of two years shall not be
available, the Tenant shall pay the monthly rent
for the first term of two years as increased by
the percentage of inflation for the first whole
year of the first term (ie. [R + (R X A)} until
the percentage of inflation for the second year of
the first term of two years shall have been known
whereupon the Tenant shall forthwith pay the
shortfall in one lump sum to the Landlord and
thereupon pay the first revised rent calculated in
accordance with the foregoing formula.
II. (1) The Tenant shall be entitled to another option to
renew this Lease for another further term of two
(2) years from the expiry date of the first
renewal period (hereinafter called "the second
renewal period").
(2) The Tenant's right to exercise the above option
shall be subject to
(a)there is no outstanding breaches by the Tenant of
the terms, stipulations, obligations and
conditions contained in this Lease during the
first renewal period; and
(b)the Tenant having exercised its right by notice in
writing served on the Landlord not less than three
(3) months and not more than six (6) months prior
to the date on which the first renewal period is
due to expire.
(3) The second renewal period shall be held under the
same terms and conditions as are contained in the
Lease for the first renewal period save and except
for (a) the provisions of this Clause II and (b)
the rent payable for the second renewal period
("the second revised rent") which shall be
determined in accordance with Clause II(4) below.
(4) The second revised rent shall be determined by the
following formula :
R +(R X A) + {[R + (R X A)] X B}
where : R = monthly rent of the first renewal
period
A = percentage of inflation as published by the
Census and Statistics Department of the Hong Kong
Government at the end of first whole year of the
first renewal period
B = percentage of inflation as published by the
Census and Statistics Department of the Hong Kong
Government at the end of second whole year of the
first renewal period
and if the first and/or second whole year of the
first renewal period shall straddle two
consecutive years then the arithmetic average of
the percentage of inflation for the two
consecutive years shall be adopted
and if by the commencement of the second renewal
period, the percentage of inflation for the second
year of the first renewal period shall not be
available, the Tenant shall pay the monthly rent
for the first renewal period as increased by the
percentage of inflation for the first whole year
of the first renewal period ie. [R + (R X A)]
until the percentage of inflation for the second
year of the first renewal period shall have been
known whereupon the Tenant shall forthwith pay the
shortfall in one lump sum to the Landlord and
thereupon pay the second revised rent calculated
in accordance with the foregoing formula
THIRD SCHEDULE
Rent
- - ----
HONG KONG DOLLARS ONE MILLION THREE HUNDRED AND FIFTY EIGHT
THOUSAND ONLY (HK$1,358,000.00) per month.
FOURTH SCHEDULE
Rental Deposit
- - --------------
HONG KONG DOLLARS TWO MILLION SEVEN HUNDRED AND SIXTEEN
THOUSAND ONLY (HK$2,716,000.00) being two months' rental of
which HK$1,760,000.00 will be brought forward from the
current deposit paid by the Tenant to the Landlord. If the
monthly rent shall be increased for the first renewal
period, the Tenant shall at least one (1) month before the
commencement of the first renewal period or within one month
after the first revised rent shall have been determined by
the formula (whichever is the later) pay such additional sum
which together with the rental deposit for the first term of
two (2) years would be equivalent to two (2) months' rent
for the first renewal period. If the monthly rent shall be
increased for the second renewal period, the Tenant shall at
least one (1) month before the commencement of the second
renewal period or within one month after the second revised
rent shall have been determined by the formula (whichever is
the later) pay such additional sum which together with the
rental deposit for the first renewal period would equal to
two (2) month's rent for the second renewal period.
SIGNED by Clement Fung )
)
for and on behalf )
of the Landlord whose )
signature(s) is/are )
verified by : )
SIGNED by Tse Kin Wah )
)
)
)
for and on behalf of the )
Tenant in the presence of :- )
Ian Devereux
Solicitor
RECEIVED on or before the day and )
year first above written of and from the )
Tenant the sum of HONG KONG DOLLARS TWO )
MILLION SEVEN HUNDRED AND SIXTEEN THOUSAND ) HK$2,716,000.00
ONLY being the deposit money above )
expressed to be paid by the Tenant to the )
Landlord. )
W I T N E S S
MAXTOR CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
For the Three Years Ended March 26, 1994
(In thousands, except per share data)
Year Ended
- - ----------------------------------------------------------------
March 26, March 27, March 28,
1994 1993 1992
- - ----------------------------------------------------------------
PRIMARY
Weighted average number of
common shares outstanding
during the year 32,203 27,283 23,499
Acquisition shares - - 2,000
Incremental common shares
attributable to exercise of
outstanding options (assuming
proceeds would be used to
purchase treasury stock) - 4,252 1,222
---------- --------- ---------
Total shares 32,203 31,534 26,721
========== ========= =========
Net income (loss) $(257,589) $ 46,112 $ 7,149
========== ========= =========
Net income (loss) per share $ (8.00) $ 1.46 $ 0.27
========== ========= =========
FULLY DILUTED
Weighted average number of
common shares outstanding
during the period 32,203 27,283 23,499
Acquisition shares - - 2,000
Incremental common shares
attributable to exercise of
outstanding options (assuming
proceeds would be used to
purchase treasury stock) - 4,316 3,716
---------- --------- ---------
Total shares 32,203 31,599 29,215
========== ========= =========
Net income (loss) $(257,589) $ 46,112 $ 7,149
========== ========= =========
Net income (loss) per share $ (8.00) $ 1.46 $ 0.24
========== ========= =========
Note: The subordinated convertible debentures have an anti-
dilutive effect on earnings per share, therefore the calculation
of fully diluted earnings per share excludes both the share
equivalents and the interest income adjustment elements.
MAXTOR CORPORATION
EXHIBIT 21.1
SUBSIDIARIES OF MAXTOR CORPORATION, INCORPORATED IN DELAWARE
("MAXTOR")
Fiscal year ended March 26, 1994:
1) Maxoptix Corporation, incorporated in the state of Delaware,
is a corporation jointly owned by Maxtor and Kubota
Corporation.
2) Maxtor Peripherals Singapore, Ltd. (MPS), incorporated in
Singapore. MPS is a wholly-owned subsidiary of Maxtor. MPS
has one wholly-owned foreign subsidiary.
3) Maxtor Hong Kong, Ltd. (MHK), incorporated in Hong Kong, is
a wholly-owned subsidiary.
4) Maxtor Europe Ltd., incorporated in the United Kingdom, is a
wholly-owned subsidiary of Maxtor.
5) Maxtor Europe GmbH, incorporated in Germany, is a wholly-
owned subsidiary of Maxtor.
6) Maxtor Europe Sarl, incorporated in France, is a wholly-
owned subsidiary of Maxtor.
7) Maxtor Japan, Ltd., incorporated in Japan, is a wholly-owned
subsidiary of Maxtor.
8) Maxtor Disc Drives Pty, Ltd., incorporated in Australia, is
a wholly-owned subsidiary of Maxtor.
9) Maxtor Asia Pacific Ltd. (MAPL), incorporated in Hong Kong,
is a wholly owned subsidiary of Maxtor. MAPL has a branch
operation in Taiwan engaged in the same line of business.
10) Maxtor Korea, Ltd., incorporated in Korea, is a wholly-owned
subsidiary of Maxtor.
11) Storage Dimensions, Inc., incorporated in the state of
Delaware. Maxtor holds a 32.8% interest in this company.
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-2206, 33-21514, 33-32190, 33-18323,
33-18324, 33-38168, 33-38388, 33-43172, 33-44708, 33-56274, 33-
56216, 33-56206, 33-56212, 33-60462, 33-52233 and 33-52237)
pertaining to the Maxtor Corporation Fiscal 1985 Stock Option
Plan and Employee Stock Puchase Plan, the Maxtor Corporation
Fiscal 1985 Stock Option Plan, the Maxtor Corporation Employee
Stock Purchase Plan, the Maxtor Corporation Fiscal 1988 Stock
Option Plan, the Maxtor Corporation Fiscal 1986 Outside Directors
Stock Option Plan, the Maxtor Corporation Employee Stock Purchase
Plan, the Maxtor Corporation Fiscal 1988 Stock Option Plan, the
Maxtor Corporation Fiscal 1992 Stock Option Plan, the Maxtor
Corporation 1991 Employee Stock Purchase Plan, the Maxtor
Corporation Fiscal 1992 Stock Option Plan, the Maxtor Corporation
1986 Outside Directors Stock Option Plan, the Maxtor Corporation
Employee Stock Purchase Plan, the Maxtor Corporation Immediately
Exercisable Non Qualified Stock Option Agreement, the Maxoptix
Corporation 1989 Stock Option Plan, the Maxtor Corporation 1992
Employee Stock Purchase Plan, and the Maxtor Corporation Fiscal
1992 Stock Option Plan, respectively, of our report dated April
22, 1994, with respect to the consolidated financial statements
and schedules of Maxtor Corporation included in the Annual Report
(Form 10-K) for the year ended March 26, 1994.
/s/ Ernst & Young
-----------------
Ernst & Young
San Jose, California
June 21, 1994
