SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 29, 1996.
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-14016
MAXTOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0123732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
510 Cottonwood Drive, Milpitas, CA 95035
(Address of principal executive offices) (Zip Code)
(408) 432-1700
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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.
X Yes No
No shares of Common Stock and 58,208,955 shares of Series A
Preferred Stock were issued and outstanding as of August 3, 1996.
This quarterly report on Form 10-Q contains 37 pages of which
this is page number 1.
MAXTOR CORPORATION
FORM 10-Q
June 29, 1996
INDEX
Part I. Financial
Information Page
Item 1.Consolidated Financial Statements
Consolidated Statements of Operations -
Three Months Ended June 29, 1996
and July 1, 1995 3
Consolidated Balance Sheets-
June 29, 1996 and March 30, 1996 4-5
Consolidated Statements of Cash Flows-
Three Months Ended June 29, 1996
and July 1, 1995 6-7
Notes to Consolidated Financial
Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-16
Part II. Other Information
Item 1.Legal Proceedings 17
Item 2.Change in Securities 17
Item 6.Exhibits and Reports on Form 8-K 18
Signature Page 19
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
June 29, July 1,
1996 1995
Revenue $ 255,968 $308,722
Revenue from affiliates 5,370 7,172
Total revenue 261,338 315,894
Cost of revenue 328,351 279,628
Cost of revenue from affiliates 5,415 6,405
Total cost of revenue 333,766 286,033
Gross margin (72,428) 29,861
Operating expenses:
Research and development 28,806 22,791
Selling, general and administrative 24,244 18,976
Total operating expenses 53,050 41,767
Loss from operations (125,478) (11,906)
Interest expense (4,768) (1,820)
Interest income 289 552
Loss before income taxes (129,957) (13,174)
Provision for income taxes 232 653
Net loss $(130,189) $(13,827)
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 29, March 30,
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $28,798 $52,794
Accounts receivable, net of
allowance for doubtful accounts
of $5,370 at June 29, 1996
and $5,196 at March 30, 1996 87,237 121,818
Accounts receivable from affiliates 2,979 4,426
Inventories:
Raw materials 57,397 76,505
Work-in-process 22,656 37,614
Finished goods 84,490 41,816
164,543 155,935
Prepaid expenses and other 10,566 11,642
Total current assets 294,123 346,615
Property, plant and equipment, at cost:
Buildings 26,862 24,984
Machinery and equipment 181,612 192,115
Furniture and fixtures 12,982 14,118
Leasehold improvements 11,922 13,870
233,378 245,087
Less accumulated depreciation
and amortization (146,231) (156,925)
Net property, plant and equipment 87,147 88,162
Other assets 11,298 7,710
$392,568 $442,487
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
(Continued)
June 29, March 30,
1996 1996
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Short-term borrowings $ 109,800 $ 110,595
Short-term borrowings due to
affiliate 65,000 65,000
Accounts payable 142,307 160,102
Accounts payable to affiliates 11,504 8,656
Income taxes payable 5,370 7,499
Accrued payroll and payroll-
related expenses 19,314 16,727
Accrued warranty 20,555 23,751
Accrued expenses 119,131 18,934
Long-term debt and capital
lease obligations due
within one year 763 1,879
Total current liabilities 493,744 413,143
Long-term debt and capital lease
obligations due after one year 100,150 100,181
Deferred tax liabilities - 300
Commitments and contingencies
Stockholder's deficit:
Series A Preferred Stock,
$0.01 par value, 95,000,000
shares authorized; 58,208,955
shares issued and outstanding
at June 29, 1996; (no shares
authorized, issued, or
outstanding at March 30, 1996);
aggregate liquidated
preferences: $390,000,000 582 -
Common Stock, $0.01 par value,
200,000,000 shares authorized;
no shares issued or outstanding
at June 29, 1996; (600 shares
issued and outstanding at
March 30, 1996) - -
Additional paid-in capital 335,017 335,599
Accumulated deficit (536,925) (406,736)
Total stockholder's deficit (201,326) (71,137)
$392,568 $442,487
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 29, July 1,
1996 1995
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss $(130,189) $(13,827)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 17,208 9,089
Inventory reserves for lower
of cost or market 42,338 -
(Gain)/loss on disposal of
property, plant and equipment (265) 28
Gain on sale of subsidiary (2,385) -
Other (13) -
Change in assets and liabilities:
Accounts receivable 45,035 8,446
Accounts receivable from
affiliates 1,447 -
Inventories (42,252) (27,222)
Prepaid expenses and other (1,488) (3,142)
Accounts payable 3,225 20,338
Accounts payable to affiliates 2,848 -
Income taxes payable (1,163) 196
Accrued payroll and payroll-
related expenses 5,241 (1,047)
Accrued warranty (2,802) (2,563)
Accrued expenses 7,473 3,641
Total adjustments 74,447 7,764
Net cash used in operating
activities (55,742) (6,063)
Cash flows from investing activities:
Proceeds from sale of subsidiary 25,000 -
Proceeds from maturity of
available-for-sale investments - 11,998
Purchase of property, plant and
equipment (26,067) (24,049)
Proceeds from disposal of property,
plant and equipment 353 79
Other (3,661) 1,153
Net cash used in investing
activities (4,375) (10,819)
Cash flows from financing activities:
Proceeds from issuance of short-
term borrowings 78,800 -
Principal payments on short-term
borrowings (78,085) -
Principal payments on debt,
including capital lease obligations (738) (838)
Net collections of accounts receivable
on behalf of financing company 36,144 -
Proceeds from issuance of common
stock, net of notes receivable,
stock repurchases and tax
benefits - 3,429
Net cash provided by financing
activities 36,121 2,591
Net change in cash and cash
equivalents (23,996) (14,291)
Cash and cash equivalents
at beginning of period 52,794 96,518
Cash and cash equivalents
at end of period $28,798 $82,227
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 29, July 1,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 2,727 $ 196
Income taxes 153 470
Supplemental information on non-cash investing
and financing activities:
Capital lease obligations $ - $ 121
Purchase of property, plant and
equipment financed by accounts payable 2,334 4,780
Exchange of Common Stock for Series A
Preferred Stock 582 -
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated financial statements
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The consolidated financial statements include the
accounts of Maxtor Corporation (Maxtor or the Company) and its
wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Maxtor
Corporation operates as a wholly-owned subsidiary of Hyundai
Electronics America (HEA). Accordingly, no earnings per share
information is disclosed. All adjustments of a normal recurring
nature which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods have been
made. It is recommended that the interim financial statements be
read in conjunction with the Company's consolidated financial
statements and notes thereto for the fiscal year ended March 30,
1996. Interim results are not necessarily indicative of the
operating results expected for later quarters or the full fiscal
year. Balance sheet amounts at March 30, 1996 were derived from
the audited financial statements for the year ended March 30,
1996.
On July 26, 1996, the Company filed Form 8-K with the Securities
and Exchange Commission (SEC) to change its fiscal year end to be
consistent with the year end of HEA. The fiscal year end changed
from the last Saturday of March, the date used in the Company's
most recent filing with the SEC, to the last Saturday of December
conforming to its 52/53-week year methodology. For calendar year
1996, the fiscal year will end on December 28. The fiscal nine-
month period ending December 28, 1996 will comprise 39 weeks,
three 13-week quarters. The fiscal year ended March 30, 1996
comprised 53 weeks, as the quarter ended July 1, 1995 included 14
weeks. All other quarters comprised 13 weeks.
2. Short-term borrowings
On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citibank, N.A. and
syndicated among ten banks, which is guaranteed by Hyundai
Electronics Industries Co., Ltd. (HEI), the majority shareholder
of HEA. This $100 million line of credit is a 364-day committed
facility, renewable annually up to three years, that is used
primarily for general operating purposes and bears interest at a
rate based on the London Interbank Offered Rates (LIBOR) plus 0.3
percent. As of June 29, 1996, $96 million of borrowings and $1
million in letters of credit were outstanding.
On December 29, 1995, the Company established a $100 million
secured bridge financing facility with HEA to provide additional
working capital financing through the merger transition period
with HEA. This credit facility provided for draw downs up to $100
million at a rate based on LIBOR plus 0.65 percent and had a first
priority secured interest in all of the Company's accounts
receivable. As of March 30, 1996, $65 million of borrowings were
outstanding under this facility. All outstanding principal and
accrued interest was paid on April 10, 1996, terminating the
facility.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this
program, the Company can sell up to $100 million of its eligible
trade accounts receivables on a non-recourse basis. The face
amount of the eligible receivables are discounted based on the
Capital Receivables Corporation commercial paper rate (currently
5.76%) plus commission and is subject to 10% retention. The
proceeds from the sale of these receivables received on April 10,
1996 were used to pay down the entire secured bridge financing
facility on that date, as described above. As of June 29, 1996,
net collections of accounts receivable on behalf of Citicorp
amounted to $36.1 million.
On January 31, 1996, the Company signed a one year credit facility
in the amount of $13.8 million to be used for capital equipment
requirements at the Singapore facility which bears interest at a
rate based on LIBOR plus 0.80 percent. This credit facility is
guaranteed by HEI and all outstanding amounts of principal and
accrued interest are due and payable on February 2, 1997. As of
June 29, 1996, borrowings under this facility amounted to $13.8
million.
On April 10, 1996, the Company obtained a $100 million
intercompany line of credit from HEA. This line of credit allows
for draw downs up to $100 million and interest is payable
quarterly at the rate per annum of 0.1 percent above HEA's average
monthly cost of borrowing. All outstanding amounts of principal
and accrued interest are due and payable on April 10, 1997. As of
June 29, 1996, $65 million was outstanding.
3. Contingencies
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 litigation
between the Company and Rodime was then stayed pending an appeal
by Rodime. In November 1995, the Federal Circuit affirmed the
earlier court decision, and in February 1996, Rodime filed a
petition with the U.S. Supreme Court requesting review of the
Federal Circuit's opinion. The Supreme Court denied Rodime's
request for review, and counsel for Rodime has recently proposed a
dismissal of this matter. The terms of the proposed dismissal are
currently being negotiated among the parties.
In November 1995, three separate actions (Wacholder v. Gallo, et
al., Silver v. Maxtor, et al., and Barrington v. Gallo, et al.)
were filed in the Court of Chancery of the State of Delaware, in
and for New Castle County. Each of the foregoing actions
generally alleged a breach of fiduciary duty by the Company's
directors in connection with the offer to purchase the Company by
Hyundai Electronics America and sought class certification,
preliminary and permanent injunctive relief to prevent the
acquisition, and damages and attorneys' fees. These actions were
subsequently consolidated with a similar California action
(Campanella v. Maxtor, et al.). Thereafter, following
negotiations among counsel to parties to the consolidated action,
an agreement in principle for settlement was reached. A
memorandum of understanding was executed by the parties which
provided that in exchange for certain additional disclosures to
the Company's shareholders regarding the circumstances of the
tender offer, the foregoing actions would be settled, subject to
completion of confirmatory discovery, approval by the Court of
Chancery, and payment by the Company of plaintiffs' counsel fees
and costs in an amount not to exceed $315,000. The Company
anticipates that settlement documents will be submitted to the
Court of Chancery by the end of August, 1996, and a date for
hearing should be set by the end of October 1996.
In March 1996, a pro se complaint was filed in the Southern
District of New York by Morton Berman (Berman v. Maxtor
Corporation, et al.). The complaint alleged certain claims
arising out of violation of U.S. Securities law, Racketeer
Influenced Corrupt Organization Act of 1970, and common law
doctrines of fraud, negligence and negligent misrepresentation,
against the Company and several former and current executive
officers of the Company. In April 1996, a motion for dismissal
was filed on behalf of the Company and the other defendants. In
June 1996, Berman filed papers opposing the motion and the Company
replied. Also in June 1996, Berman filed a motion to amend his
complaint and the Company opposed the motion, requesting that the
court defer adjudication of Berman's motion to amend until it
ruled upon the Company's motion to dismiss.
Certain other claims, including 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, and the claims
described above, will not have a material adverse effect, if any,
on the Company's financial position, results of operations or cash
flows.
4. Sale of Subsidiary
In November 1994, the Company formed a wholly-owned subsidiary,
IMS International Manufacturing Services, Ltd., whose primary
business was contract manufacturing for electronic original
equipment manufacturers (OEMs). The Company's printed circuit
board (PCB) assembly plant in Hong Kong formed the foundation of
the business, and a second plant was added in Thailand in May
1995. In early June 1996, the Company reorganized all of the
operations under a wholly-owned Delaware subsidiary, International
Manufacturing Services, Inc. (IMS). IMS not only supplies the
Company, but a variety of external customers, with PCB assemblies,
sub-assemblies and fully integrated box-build products. In May
1996, the Company entered into an agreement to sell a majority
interest in IMS to certain IMS management and other investors
("Buyer"). At completion of the transaction in June 1996, the
Company received $25 million in cash and $20 million in notes from
IMS, and retained a 23.5% ownership interest in IMS. Pursuant to
the Agreements, the Company made various representations and
warranties as to itself and IMS and has agreed to indemnify Buyer
for any breaches thereof. Generally, in the event that losses
from such breaches when aggregated exceed $500,000, Buyer shall be
entitled to indemnification for all losses, including the first
$500,000 up to a maximum total of $17,500,000, provided that tax
and environmental representations are not subject to the liability
limit.
As a result of the transaction, the IMS consolidated financial
position at June 29, 1996 reflected a stockholders' deficit of
approximately $14 million. Therefore, the Company has written
down its remaining equity interest in IMS to zero. In addition,
given the stockholder deficit of IMS and the subordination of the
Company's notes receivable from IMS to bank debt of IMS, combined
with certain specified conditions which must be achieved before
any payment of principal will occur, the Company has fully
reserved its notes from IMS.
5. Change in Securities
On June 18, 1996, the Company entered into an exchange agreement
with HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value. As
of June 29, 1996, 58,208,955 shares of Series A Preferred Stock
and no shares of Common Stock, $.01 par value, were issued and
outstanding. As of such date, none of the outstanding shares of
Series A Preferred Stock or Common Stock were held by persons
other than HEA.
6. Subsequent Event
On July 31, 1996, the Company obtained a $35 million credit
facility from HEA. This facility is primarily used for operating
purposes and bears interest at a rate based on LIBOR plus 0.7
percent. All outstanding amounts of principle and accrued
interest are due and payable on December 31, 1996. As of August
3, 1996, $35 million was outstanding.
This report includes a number of forward-looking statements which
reflect the Company's current views with respect to future events
and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including those
discussed in Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations, "-General", "-
Industry Characteristics", "-Manufacturing Characteristics," and "-
Liquidity and Capital Resources", and elsewhere in this report,
that could cause actual results to differ materially from
historical results or those anticipated. In this report, the
words "anticipates," "believes," "expects," "intends," "future"
and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
Item 2. 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.
RESULTS OF OPERATIONS
General
The Company is subject to the highly cyclical nature of the disk
drive industry. The industry is characterized by rapid
technological change, short product life cycles, intense
competition, and significant price erosion during a product life
cycle. At times, the industry is also subject to excess
production capacity and component cost pressures as a result of
key component shortages. Specifically, with the overall growth
experienced by the disk drive industry in fiscal 1996 and 1995,
shortages of certain key components for the industry occurred in
early 1996. For the quarter ended June 29, 1996, the industry
experienced excess capacity due principally to two factors:
consolidation within the industry resulting in a sell-off of
duplicate inventories on hand, and weakness in demand. In
addition to being impacted by these industry factors, the Company
has been less successful in the past several years than its
competitors in managing product transitions and has been unable to
bring certain products to market in a timely and cost effective
manner. Further, many of the Company's competitors have had
broader product lines than the Company with which to compete in
this environment.
As a result of the factors discussed above and others, the Company
has incurred operating losses during each of the last fourteen
consecutive fiscal quarters, including the fourth quarter of
fiscal year 1995 for which the Company reported net income of
approximately $1.1 million as a result of a non-recurring gain of
approximately $10 million from the sale of the Company's interest
in Maxoptix Corporation. Primarily as a result of continuing
pricing pressures, product cost and time-to-market issues with
regard to certain products, the Company has not been profitable
during 1996.
Industry Characteristics
Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life
cycles also increase the importance of the Company's ability to
successfully manage product transitions. During fiscal year ended
March 30, 1996, the Company successfully managed certain product
transitions. However, certain new products introduced by
competitors, as well as those introduced by the Company, tend to
displace older products. The failure to continuously manage
product transitions results in a loss of new market opportunities
and decreasing sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and resulting charges related to obsolete capital
equipment. 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. There
can be no assurance that the Company will be successful in such
efforts.
When competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these
factors, and when the Company's new products are not brought to
market on a timely basis, the selling price of its older products
generally must be reduced in order to compete effectively with
competitors' new products. Also due to the narrowness of the
Company's product offerings relative to its competition, any delay
in bringing a product to market will have a more significant
adverse effect on the Company's results of operations than a
similar delay would have on its competitors' results of
operations. The Company continues to experience significant price
erosion for certain products in calendar year 1996 due to
competitive pricing pressures as competitors sell off excess and
redundant inventories. The Company expects this trend to continue
until the industry stabilizes from its consolidation of
competitors. There can be no assurance that price erosion will
not increase substantially.
Manufacturing Characteristics
The Company's manufacturing processes require 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. 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.
Generally, 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. In
light of current industry conditions, including consolidation of
competitors and decreased demand for hard disk storage products,
the Company is reassessing its requirements for volume components
and has reduced its commitments to vendors where appropriate.
The Company intends to continue to pursue qualification of
alternative sources for single source components where practical.
However, the Company believes that it will have to continue to
utilize leading edge components which may only be available from a
single source. The Company will continue to aggressively work with
its vendor base to minimize its component supply 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 needs for required volumes of high-quality
components in a timely and cost effective manner.
The quality and yield of the Company's products is highly
dependent on the Company's ability to obtain high-quality
components and sub-assemblies, and its internal manufacturing
processes. 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. The Company has implemented a number of programs to
improve the quality of its key components and subassemblies, and
its internal manufacturing processes. As a result of these
efforts, the Company continues to strive to improve the quality of
its products. The Company believes that it must continue to focus
on product quality to improve its competitive position in the disk
drive industry. However, there can be no assurance that the
Company will be successful in improving or maintaining its current
quality standards.
QUARTER ENDED JUNE 29, 1996 COMPARED TO QUARTER ENDED JULY 1, 1995
(In millions) June 29, July 1,
Fiscal quarter ended 1996 1995 Change
Revenue $261.3 $315.9 $(54.6)
Gross margin $(72.4) $ 29.9 $(102.3)
As a percentage of
revenue (27.7)% 9.5%
Net loss $(130.2) $(13.8) $(116.4)
As a percentage of
revenue (49.8)% (4.4)%
Revenue
Revenue for the quarter ended June 29, 1996 decreased by 17% from
the same quarter of the prior fiscal year primarily as a result of
severe pricing pressures resulting from a consolidation of
competitors and industry-wide efforts to reduce inventories on
hand. In addition, the industry experienced a slower market
demand period following a similar downward trend in the PC
industry. Unit volumes decreased by nearly 28% for the quarter
ended June 29, 1996 compared to the quarter ended July 1, 1995.
In terms of a shift in product mix, over 60% of the Company's
quarter ended June 29, 1996 unit volume was comprised of drives
with a capacity of 1.2 gigabytes (GB) or higher, whereas the
Company's unit volume for the same quarter in the prior fiscal
year was primarily comprised of drives with a capacity of 1.2GB or
less. Revenue for the quarter ended July 1, 1995 also reflects a
14-week quarter as compared to a 13-week quarter for the quarter
ended June 29, 1996. The quarter ended July 1, 1995 was extended
to realign fiscal year end periods for the 53-week fiscal year
1996.
During the quarter ended June 29, 1996, the Company had one
customer which accounted for approximately 15% of the Company's
revenue. During the quarter ended July 1, 1995, no customer
accounted for 10% or greater of the Company's revenue.
Gross margin
Gross margin as a percentage of revenue declined significantly
from the quarter ended July 1, 1995 to the quarter ended June 29,
1996. Despite the shift to higher capacity products as discussed
earlier, gross margin declined primarily as a result of the
substantial drop in average unit selling prices. In addition, the
Company incurred a $42.3 million charge for products in inventory
and scheduled to be built over the next six months which have
market prices lower than cost. The Company has firm commitments
to purchase the parts to build these products during the next two
quarters. Furthermore, the Company incurred one-time charges of
$6.5 million to consolidate certain manufacturing activities,
including the closure of a headstack assembly plant in Thailand
and a reduction in production shifts in Singapore.
The Company will continue its efforts to reduce its average unit
manufacturing costs. 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. In addition, given the cyclical nature of the disk
drive industry and the Company's dependence on the success of
certain products, as discussed earlier, there can be no assurance
that the Company will be able to improve or maintain its current
gross margin.
Operating expenses
(In millions) June 29, July 1,
Fiscal quarter ended 1996 1995 Change
Research and development $28.8 $22.8 $6.0
As a percentage of
revenue 11.0% 7.2%
Selling, general and
administrative $ 24.2 $19.0 $5.2
As a percentage of
revenue 9.3% 6.0%
Research and development (R&D) expenses increased in absolute
dollars and as a percentage of revenue primarily as a result of
the Company's continued commitment 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.
Although the Company has no technology purchases currently
planned, R&D expenses may fluctuate in the future resulting from
the cost of acquiring rights to new technologies.
Selling, general and administrative (SG&A) expenses increased as a
percentage of revenue due to the sharp decrease in the revenue
base as discussed earlier. SG&A spending in absolute dollars
increased due primarily to increased advertising expenses, and
increased administrative expenses for the relocation of the
Corporate offices, offsetting the Company's ongoing efforts to
control costs and expenditures. The Company intends to continue
these efforts into future quarters, however, there can be no
assurance that the Company will be successful in such efforts.
Interest expense and interest income
(In millions) June 29, July 1,
Fiscal quarter ended 1996 1995 Change
Interest expense $ 4.8 $ 1.8 $3.0
Interest income $ .3 $ .6 $(.3)
Interest expense increased as a result of substantially higher
average short term borrowings on the Company's lines of credit
required to fund the Company's operations. The Company had $96
million of borrowings on the $100 million unsecured, revolving
line of credit arranged by Citibank, N.A., outstanding as of June
29, 1996, and expects to maintain approximately the same or higher
levels of borrowings throughout the fiscal year. The Company also
had $65 million outstanding on the intercompany line of credit
from HEA. Interest income decreased due to the lack of available
cash for investing purposes.
Provision for income taxes
(In millions) June 29, July 1,
Fiscal quarter ended 1996 1995 Change
Provision for income
taxes $0.2 $0.7 $(0.5)
The provision for income taxes consists primarily of foreign
taxes. The Company's effective tax rate for fiscal years 1996 and
1995 differs from the combined federal and state rates due to the
repatriation of foreign earnings absorbed by current year losses,
and the Company's U.S. operating losses not providing current tax
benefits, offset in part by the tax savings associated with the
Company's Singapore operations and valuation of temporary
differences. Income from the Singapore and Thailand operations is
not taxable in Singapore or Thailand, as a result of the Company's
pioneer tax status in both locations.
LIQUIDITY AND CAPITAL RESOURCES
June 29,
(In millions) 1996
Cash and cash equivalents $28.8
Short-term borrowings $109.8
Short-term borrowings due to affiliate $65.0
Net cash used in operating activities $55.7
Net cash used in investing activities $4.4
Net cash provided by financing activities $36.1
As of June 29, 1996, the Company had cash and cash equivalents of
$28.8 million as compared to $52.8 million as of March 30, 1996, a
decrease of $24 million, due primarily to operating losses.
Net cash used in operating activities during quarter ending June
29, 1996 was primarily attributable to the net loss from
operations net of non-cash depreciation and amortization, an
increase in inventory of $42.3 million and a decrease in accounts
receivable of $45 million. Inventories increased by $42.3 million
in quarter ended June 29, 1996 as compared to quarter ended July
1, 1995 due to a buildup of finished goods inventory. The Company
also recorded a $42.3 million charge for products in inventory and
scheduled to be built over the next six months which have market
prices that are lower than cost. Accounts receivable decreased
$45 million compared to the quarter ended July 1, 1995 primarily
due to the sale of accounts receivable under the asset
securitization program with Citicorp Securities.
Net cash used in investing activities during the quarter ended
June 29, 1996 was primarily attributable to $26.1 million in
capital expenditures offset by $25 million in proceeds from the
sale of subsidiary as discussed in Note 4 to the Financial
Statements on page 10. The majority of the capital expenditures
activity related to the acquisition of manufacturing and
engineering equipment to develop new products and enhance the
productivity of the Singapore manufacturing facility. In
addition, $4.3 million was advanced to a supplier to build certain
key components under a volume purchase agreement.
Net cash provided by financing activities during the quarter ended
June 29, 1996 primarily reflects $36.1 million in net collections
of accounts receivable for Citicorp Securities, Inc. under the
asset securitization program.
On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citibank, N.A. and
syndicated among ten banks, which is guaranteed by Hyundai
Electronics Industries Co., Ltd. (HEI), the majority shareholder
of HEA. This $100 million line of credit is a 364-day committed
facility, renewable annually up to three years, that is used
primarily for general operating purposes and bears interest at a
rate based on the London Interbank Offered Rates (LIBOR) plus 0.3
percent. As of June 29, 1996, $96 million of borrowings and $1
million in letters of credit were outstanding.
On December 29, 1995, the Company established a $100 million
secured bridge financing facility with HEA to provide additional
working capital financing through the merger transition period
with HEA. This credit facility provided for draw downs up to $100
million at a rate based on LIBOR plus 0.65 percent and had a first
priority secured interest in all of the Company's accounts
receivable. As of March 30, 1996, $65 million of borrowings were
outstanding under this facility. All outstanding principal and
accrued interest was paid on April 10, 1996, terminating the
facility.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this
program, the Company can sell up to $100 million of its eligible
trade accounts receivables on a non-recourse basis. The face
amount of the eligible receivables are discounted based on the
Capital Receivables Corporation commercial paper rate (currently
5.76%) plus commission and is subject to 10% retention. The
proceeds from the sale of these receivables received on April 10,
1996 were used to pay down the entire secured bridge financing
facility on that date, as described above. As of June 29, 1996,
net collections of accounts receivable on behalf of Citicorp
amounted to $36.1 million.
On January 31, 1996, the Company signed a one year credit facility
in the amount of $13.8 million to be used for capital equipment
requirements at the Singapore facility which bears interest at a
rate based on LIBOR plus 0.80 percent. This credit facility is
guaranteed by HEI and all outstanding amounts of principal and
accrued interest are due and payable on February 2, 1997. As of
June 29, 1996, borrowings under this facility amounted to $13.8
million.
On April 10, 1996, the Company obtained a $100 million
intercompany line of credit from HEA. This line of credit allows
for draw downs up to $100 million and interest is payable
quarterly at the rate per annum of 0.1 percent above HEA's average
monthly cost of borrowing. All outstanding amounts of principal
and accrued interest are due and payable on April 10, 1997. As of
June 29, 1996, $65 million was outstanding.
In June 1996, the Company entered into a volume purchase agreement
with a supplier to build certain key components. Under the terms
of this agreement, the Company has agreed to advance up to $20
million to the supplier, by December 31, 1996, to finance
purchases of certain equipment required to manufacture product
volumes as committed under this agreement. Such advances will be
repaid to the Company in the form of price discounts and are
secured by the equipment purchased. As of June 29, 1996, $4.3
million was advanced.
On July 31, 1996, the Company obtained a $35 million credit
facility from HEA. This facility is primarily used for operating
purposes and bears interest at a rate based on LIBOR plus 0.7
percent. All outstanding amounts of principle and accrued
interest are due and payable on December 31, 1996. As of August
3, 1996, $35 million was outstanding.
The liquidity of the Company was adversely affected during fiscal
year 1996 by significant losses from operations and liquidity has
been significantly reduced compared to the same period in the
prior year. The Company is implementing ongoing measures with the
goal of improving liquidity. In addition to attempting to improve
operating margins on product sales through the introduction of new
products and reduction of manufacturing costs, the Company remains
focused on controlling other operating expenses. However, the
Company believes that it 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.
The Company expects that it will require alternative sources of
liquidity, including additional sources of financing through 1996
and 1997. The Company is engaged in ongoing discussions with
various parties, including HEI, HEA and certain financial
institutions regarding additional sources of financing. While the
Company believes that additional sources of financing will be
available, there can be no assurance that financing will be
available on terms which are favorable to the Company.
Subject to unforeseen changes in general business conditions, the
Company believes that the combination of the measures described
above and other available actions, together with its balances of
cash and cash equivalents, expected cash flow from operations,
equipment financing and line of credit borrowing capabilities
(supported by HEI) will be sufficient to fund the Company's
working capital and capital expenditure requirements for the
foreseeable future.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock.
The holders of shares of Series A Preferred Stock shall be
entitled, when and as declared by the Board of Directors, to
dividends out of funds legally available therefor at a rate of
$0.40 per share, per annum (as adjusted to reflect certain
transactions), prior to the declaration, setting aside or payment
of any dividend to the holders of the Company's Common Stock. No
dividend shall be declared or set apart for payment with respect
to the Common Stock in any year, unless there shall have been
declared and paid (or set apart for payment) the full preferential
dividend set forth above with respect to the Series A Preferred
Stock during such year. Dividends shall not be cumulative and no
undeclared or unpaid dividend shall bear interest. Under the
terms of the Company's line of credit facilities, the Company may
not declare or pay any dividends without the prior consent of its
lenders.
PART II. OTHER INFORMATION
Item 1. 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 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 litigation
between the Company and Rodime was then stayed pending an appeal
by Rodime. In November 1995, the Federal Circuit affirmed the
earlier court decision, and in February 1996, Rodime filed a
petition with the U.S. Supreme Court requesting review of the
Federal Circuit's opinion. The Supreme Court denied Rodime's
request for review, and counsel for Rodime has recently proposed a
dismissal of this matter. The terms of the proposed dismissal are
currently being negotiated among the parties.
In November 1995, three separate actions (Wacholder v. Gallo, et
al., Silver v. Maxtor, et al., and Barrington v. Gallo, et al.)
were filed in the Court of Chancery of the State of Delaware, in
and for New Castle County. Each of the foregoing actions
generally alleged a breach of fiduciary duty by the Company's
directors in connection with the offer to purchase the Company by
Hyundai Electronics America and sought class certification,
preliminary and permanent injunctive relief to prevent the
acquisition, and damages and attorneys' fees. These actions were
subsequently consolidated with a similar California action
(Campanella v. Maxtor, et al.). Thereafter, following
negotiations among counsel to parties to the consolidated action,
an agreement in principle for settlement was reached. A
memorandum of understanding was executed by the parties which
provided that in exchange for certain additional disclosures to
the Company's shareholders regarding the circumstances of the
tender offer, the foregoing actions would be settled, subject to
completion of confirmatory discovery, approval by the Court of
Chancery, and payment by the Company of plaintiffs' counsel fees
and costs in an amount not to exceed $315,000. The Company
anticipates that settlement documents will be submitted to the
Court of Chancery by the end of August, 1996, and a date for
hearing should be set by the end of October 1996.
In March 1996, a pro se complaint was filed in the Southern
District of New York by Morton Berman (Berman v. Maxtor
Corporation, et al.). The complaint alleged certain claims
arising out of violation of U.S. Securities law, Racketeer
Influenced Corrupt Organization Act of 1970, and common law
doctrines of fraud, negligence and negligent misrepresentation,
against the Company and several former and current executive
officers of the Company. In April 1996, a motion for dismissal
was filed on behalf of the Company and the other defendants. In
June 1996, Berman filed papers opposing the motion and the Company
replied. Also in June 1996, Berman filed a motion to amend his
complaint and the Company opposed the motion, requesting that the
court defer adjudication of Berman's motion to amend until it
ruled upon the Company's motion to dismiss.
Certain other claims, including 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, and the claims
described above, will not have a material adverse effect, if any,
on the Company's financial position, results of operations or cash
flows.
Item 2. CHANGE IN SECURITIES
On June 18, 1996, the Company entered into an exchange agreement
with HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value. As
of June 29, 1996, 58,208,955 shares of Series A Preferred Stock
and no shares of Common Stock, $.01 par value, were issued and
outstanding. As of such date, none of the outstanding shares of
Series A Preferred Stock or Common Stock were held by persons
other than HEA.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
b)Reports on Form 8-K:
On June 28, 1996, a current report on Form 8-K was filed by the
Registrant for the sale of its subsidiary, International
Manufacturing Services (IMS). In conjunction with the filing,
unaudited proforma financial statements were filed.
On July 26, 1996, a current report on Form 8-K was filed by the
Registrant to report the change in the Company's certifying
accountant and change in fiscal year. No financial statements
were filed.
c)Exhibits:
See Index to Exhibits on pages 20 to 30 hereof.
SIGNATURE
Pursuant to the requirements 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.
MAXTOR CORPORATION
Date: August 13, 1996 By:/s/ Paul J. Tufano
Paul J. Tufano
Vice President, Finance and
Chief Financial Officer
2.1 (31) Agreement and Plan of Merger dated November 2, 1995
between Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
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
3.6 (36) Amended and Restated Certificate of Incorporation of
Maxtor Corporation, dated June 6, 1996
3.7 (36) Amended and Restated By-Laws, effective May 14, 1996
3.8 Exchange Agreement effective June 18, 1996, between
Maxtor Corporation and Hyundai Electronics America
31 - 33
4.1 (3) Form of Certificate of Shares of Registrant's Common
Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 (22) Amendment to Rights Agreement between Registrant and
the First National Bank of Boston, dated September 10, 1993
4.4 (32) Amendment No. 2 to Rights Agreement between Registrant
and the First National
Bank of Boston, dated November 2, 1995.
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
of 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,
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(22)Confidential Resignation Agreement and General Release
of Claims between Registrant and Thomas F. Burniece III, dated
February 4, 1994
10.115(22)License Agreement between Registrant and MiniStor
Peripherals Corporation, dated February 23, 1994
10.116(22)Confidential Resignation Agreement and General Release
of Claims between Registrant and John P. Livingston, dated April
8, 1994
10.117(22)Tenancy Agreement between Barinet Company Limited and
Maxtor (Hong Kong) Limited, dated April 26, 1994
10.118(23)Confidential Resignation Agreement and General Release
of Claims between Registrant and Laurence R. Hootnick, dated June
14, 1994
10.119(23)Confidential Resignation Agreement and General Release
of Claims between Registrant and Mark Chandler, dated June 28,
1994
10.120(24)Amendment No.2 to Lease between John Arrillaga &
Richard T. Peery and Registrant, dated June 28, 1994
10.121(24)Amendment No. 3 to Lease between Devcon Associates 31
and Registrant, dated June 28, 1994
10.122(24)Confidential Resignation Agreement and General Release
of Claims between Registrant and Skip Kilsdonk, dated September
7, 1994
10.123(24)Confidential Resignation Agreement and General Release
of Claims between Registrant and Sallee Peterson, dated September
23, 1994
10.124(24)Waiver to Financing Agreement among Registrant and The
CIT Group/Business Credit, Inc., dated October 11, 1994
10.125(24)Amendment No. 1 to Financing Agreement between
Registrant and The CIT Group/Business Credit, Inc., dated October
31, 1994
10.126(27)License agreement between Registrant and NEC
Corporation, dated October 18, 1994
10.127(27)Lease Agreement for Premises Located at 1821 Lefthand
Circle,Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.128(27)Lease Agreement for Premises Located at 1841 Lefthand
Circle between Registrant and Pratt Land Limited Liability
Company,dated October 19, 1994
10.129(27)Lease Agreement for Premises Located at 1851 Lefthand
Circle between Registrant and Pratt Land Limited Liability
Company, dated October 19, 1994
10.130(27)Lease Agreement for Premises Located at 2121 Miller
Drive between Registrant and Pratt Land Limited Liability
Company, dated October 19, 1994
10.131(27)Lease Agreement for Premises Located at 2190 Miller
Drive between Registrant and Pratt Land Limited Liability
Company, dated October 19, 1994
10.132(27)Confidential Resignation Agreement and General Release
of Claims between Registrant and Patricia M. Roboostoff, dated
November 30, 1994
10.133(27)Stock Purchase Agreement between Registrant, Maxoptix
Corporation and Kubota Electronics America Corporation, dated
December 26, 1994
10.134(28)Confidential Resignation Agreement and General Release
of Claims between Registrant and Larry J. Smart, dated February
7, 1995
10.135(28)Lease Agreement by and between 345 Partnership and
Registrant,dated February 24, 1995
10.136(28)Lease Agreement for Premises Located at 1900 Pike Road,
Suite A Longmont, CO, between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24, 1995
10.137(28)Lease Agreement for Premises Located at 2040 Miller
Drive Suite A, B, & C between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24, 1995
10.138(28)Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd., dated
April 27, 1995 (with certain information deleted and indicated by
blank spaces)
10.139(28)Lease Agreement for Premises Located at 2040 Miller
Drive, Suites D, E, & F, Longmont, CO, between Registrant as
Tenant and Pratt Management Company, LLC as Landlord
10.140(29)Memorandum of Understanding concerning Guarantee by
Hyundai Electronics Co., Ltd. of Credit Facility for Registrant,
dated July 17, 1995
10.141(29)Waiver to Financing Agreement among Registrant and The
CIT Group/Business Credit, Inc., dated August 2, 1995
10.142(33)Credit Agreement among Registrant and The Initial
Lenders and the Issuing Bank and Citibank, N.A., dated August 31,
1995
10.143(33)The Guaranty and Recourse Agreement among Registrant
and Hyundai Electronics Industries Co., Ltd., dated August 31,
1995
10.144(33)Waiver to Financing Agreement among Registrant and the
CIT Group/Business Credit, Inc., and Assignment Agreement among
Registrant, the CIT Group/Business Credit, Inc., and Finova
Capital Corporation, dated October 11, 1995.
10.145(33)Amendment to the Financing Agreement among Registrant
and the CIT Group/Business Credit, Inc., dated October 17, 1995
10.146(34)First Supplemental Indenture, dated as of January 11,
1996, between Maxtor and State Street Bank and Trust Company
10.147(34)Credit Agreement, dated as of December 29, 1995 between
Maxtor Corporation and Hyundai Electronics America
10.148(25)Maxtor Corporation 1995 Stock Option Plan
10.149(26)Maxtor Corporation Individual Stock Option Agreement,
dated November 8, 1994
10.150(30)Maxtor Corporation 1992 Employee Stock Purchase Plan
and 1996 Outside Directors Stock Option Plan, dated October 9,
1995
10.151(36)Maxtor Corporation 1996 Stock Option Plan
10.152(36)Intercompany Loan Agreement, dated as of April 10,
1996, between Maxtor Corporation and Hyundai Electronics America
10.153(36)Excerpts from the Execution Copy of Receivables
Purchase and Sale Agreement, dated as of March 30, 1996, between
Maxtor Corporation and Corporate Receivables Corporation and
Citicorp North America, Incorporated
10.154(35)Recapitalization Agreement among the Company,
International Manufacturing Services, Incorporated and certain
investors, dated as of May 21, 1996
10.155(35)Redemption Agreement between Maxtor Corporation and
International Manufacturing Services, Incorporated, dated as of
May 21, 1996
10.156(35)Manufacturing Services Agreement between Maxtor
Corporation and International Manufacturing Services,
Incorporated, dated June 13, 1996*
10.157 Credit Facility, dated as of July 31, 1996, between
Maxtor Corporation and Hyundai Electronics America
34 - 35
27 Financial Data Schedule 36 - 37
* Confidential treatment has been requested for portions
of this document
- -----------------------------------------------------------------
(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 of Form 8-K filed
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
(22) Incorporated by reference to exhibits of Form 10-K
filed June 24, 1994
(23) Incorporated by reference to exhibits of Form 10-Q
filed August 5, 1994
(24) Incorporated by reference to exhibits of Form 10-Q
filed November 8, 1994
(25) Incorporated by reference to exhibits to Registration
Statement No. 33-56405 effective November 10, 1994
(26) Incorporated by reference to exhibits to Registration
Statement No. 33-56407 effective November 10, 1994
(27) Incorporated by reference to exhibits of Form 10-Q
filed February 7, 1995
(28) Incorporated by reference to exhibits to Annual Report
on Form 10-K effective June 23, 1995
(29) Incorporated by reference to exhibits of Form 10-Q
filed August 14, 1995
(30) Incorporated by reference to exhibits to Registration
Statement No. 33-63295 effective October 10, 1995
(31) Incorporated by reference to exhibit III of Schedule
14D-9 filed November 9, 1995
(32) Incorporated by reference to exhibit VI of schedule 14D-9
filed November 9, 1995
(33) Incorporated by reference to exhibits of Form 10-Q
filed November 14, 1996
(34) Incorporated by reference to exhibits of Form 10-Q
filed February 14, 1996
(35) Incorporated by reference to exhibits of Form 8-K filed
June 28, 1996
(36) Incorporated by reference to exhibits of Form 10-K
filed July 1, 1996
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Exchange Agreement") is made
as of this 18th day of June, 1996, by and between Maxtor
Corporation, a Delaware corporation (the "Company"), and Hyundai
Electronics America, a California corporation ("Hyundai").
I. RECITALS
1.1 Hyundai owns 600 shares of Maxtor common stock (the
"Common Stock") constituting all of the shares of Maxtor
Corporation Common Stock issued and outstanding;
1.2 The Company has filed an Amended and Restated
Certificate of Incorporation (the "Amended and Restated
Certificate") with the Secretary of State of Delaware which
authorizes 95,000,000 shares of Series A Preferred Stock, par
value $.01 (the "Series A Preferred Stock"), having the rights
and preferences set forth in the Amended and Restated
Certificate.
1.3 The Company and Hyundai now desire to enter into an
Exchange Agreement pursuant to which Hyundai will surrender and
exchange all of its shares of Common Stock for shares of Series A
Preferred Stock, as described below.
NOW, THEREFORE, in consideration of the mutual agreements
herein, the parties hereto agree as follows:
II. AGREEMENT
2.1 Surrender and Exchange of Certificates. At the
Exchange Closing provided for in Section 2.2 hereof, Hyundai
shall surrender and deliver to the Company 600 shares of Common
Stock, in exchange for which Hyundai shall acquire from the
Company, 58,208,955 shares of the Company's Series A Preferred
Stock.
2.2 Exchange Closing.
(a) The surrender of the Common Stock hereunder in
exchange for the Series A Preferred (the "Exchange Closing")
shall take place at the offices of the Company, at 10:00 a.m. on
June 20, 1996, or such other time and place as is mutually agreed
upon (the "Exchange Closing Date").
(b) At the Exchange Closing: (i) Hyundai will
surrender and deliver to Company the certificate representing the
600 shares of Common Stock described in Section 1.1 duly endorsed
in blank or accompanied by proper instruments of transfer in full
consideration for receipt of the Series A Preferred Stock; and
(ii) the Company will deliver to Hyundai, in full consideration
for the surrendered certificate, a certificate representing
58,208,955 shares of Series A Preferred Stock registered in the
name of Hyundai Electronics America.
IN WITNESS WHEREOF, each of the parties hereto has executed
and delivered this Exchange Agreement as of the date first above
written.
MAXTOR CORPORATION
By: /s/ G. H. Stevens
Glenn H. Stevens
VicePresident, General Counsel
Title: and Secretary
HYUNDAI ELECTRONICS AMERICA
By: /s/S. K. Park
S. K. Park
Title: Secretary
PROMISSORY NOTE
USD 35,000,000. July 31, 1996
FOR VALUE RECEIVED, Maxtor Corporation promises to pay to the
order of Hyundai Electronics America at its offices at 3101 North
First Street, San Jose, CA, 95134, or at such other place within
the Unites States as the holder hereof may designate, the
principle sum of Thirtyfive Million Dollars, with interest
thereon, computed on the basis of 360 day year for the actual
number of days elapsed from the date hereof:
Interest shall be payable upon maturity at the rate of Libor plus
70 b.p..
All principal and interest shall be payable in lawful money of
the Unites States.
Upon payment of accrued interest on this note, Maxtor Corporation
may prepay this note, in whole or in part, from time to time,
without penalty. If Maxtor Corporation fails to make payment in
full at maturity, by the terms of this note or by acceleration
hereon, then the interest rate assessed on the principal balance
shall be immediately increased to 2% per annum over the rate
provided above not to exceed the maximum permitted by law.
Maxtor Corporation agrees to pay all costs of collection,
including court costs and reasonable attorney's fees, whether or
not suit be brought. This note shall be governed by the laws of
the State of California in all respects, including matters of
construction, validity, and performance.
Maxtor Corporation
/s/ C.S. Park
C.S. Park, Vice Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> MAR-30-1996
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1.00
<CASH> 28,798
<SECURITIES> 0
<RECEIVABLES> 95,586
<ALLOWANCES> 5,370
<INVENTORY> 164,543
<CURRENT-ASSETS> 294,123
<PP&E> 233,378
<DEPRECIATION> 146,231
<TOTAL-ASSETS> 392,568
<CURRENT-LIABILITIES> 493,744
<BONDS> 0
0
582
<COMMON> 0
<OTHER-SE> (201,908)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 392,568
<SALES> 261,338
<TOTAL-REVENUES> 261,338
<CGS> 333,766
<TOTAL-COSTS> 333,766
<OTHER-EXPENSES> 53,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,768
<INCOME-PRETAX> (129,957)
<INCOME-TAX> 232
<INCOME-CONTINUING> (130,189)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130,189)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Other SE includes Additional Paid in Capital of $335,017 and Accumulated
Deficit of $536,925
<F2>Earnings per share is not applicable
</FN>
</TABLE>
