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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 DECEMBER 29, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-12046
MICROPOLIS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3093858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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21211 NORDHOFF STREET, CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 709-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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TITLE OF CLASS TITLE OF CLASS
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Common Stock, $1.00 par value 6% Convertible Subordinated
Debentures due 2012
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Indicate by check mark whether 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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) 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. X .
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 2, 1996 was approximately $47,715,015.
The number of shares outstanding of registrant's common stock as of February
2, 1996: 15,580,413.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders (the "1996 Proxy Statement") are incorporated by reference to
Part III of this Form 10-K Report.
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MICROPOLIS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 29, 1995
TABLE OF CONTENTS
PART I
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Item 1. Business ..................................................................... 1
Item 2. Properties ................................................................... 8
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 9
Item 6. Selected Financial Data ...................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Item 7. Operations.................................................................... 11
Item 8. Financial Statements and Supplementary Data................................... 18
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9. Disclosure.................................................................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant ........................... 38
Item 11. Executive Compensation ....................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 39
Item 13. Certain Relationships and Related Transactions................................ 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 40
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PART I
ITEM 1. BUSINESS
Micropolis Corporation was incorporated in California in December 1976. In
April 1987, the Company was reincorporated in Delaware. Unless the context
otherwise indicates, the terms "Micropolis" and "Company" refer to Micropolis
Corporation and its consolidated subsidiaries.
Micropolis is a designer and manufacturer of information storage products
and systems. The Company sells these products and systems directly to original
equipment manufacturers ("OEMs") and systems integrators and through
independent distributors and value-added resellers ("VARs") for resale to end
users.
The Company's storage subsystems and video systems business (the "Systems
Business") offers storage subsystem products known as the Raidion and
Microdisk, a line of video servers which provide video-on-demand for up to 64
individual users, and a line of low cost digital video disk recorders which
allow real-time record and playback of video material. All of the Systems
Business products incorporate certain of the disk drives described below.
The Company's disk drive business (the "Drive Business") designs and
manufactures disk drives exclusively in the 3 1/2-inch and 5 1/4-inch form
factors, with capacities ranging in 1995 from 2 Gigabytes ("GB") to 9 GB.
RECENT DEVELOPMENTS
On January 24, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a
Singapore corporation ("ST"), to sell substantially all of the Company's
assets (other than cash and accounts receivable) related to the Company's hard
disk drive business to STC (the "Sale"). The Purchase Agreement is filed as an
exhibit and described in detail in the section "Terms of the Asset Purchase
Agreement" in the Company's Proxy Statement filed March 7, 1996, which is
incorporated herein by reference. In addition, the Company and STC have
entered into an OEM supply agreement effective upon consummation of the Sale.
Among other things, the OEM Supply Agreement allows the Company after the Sale
to buy at prices equal to or slightly lower than the most favored OEM customer
of STC. The Company must offer all its disk drive business and requirements to
STC on a right-of-first-refusal basis, subject to the ability of STC to meet
certain delivery and other standards. The agreement has an initial two-year
term, after which it may be renewed annually by mutual agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCTS
The Company's product lines focus on two main markets: data and video
storage/server products (the "Systems Business") and high capacity disk drives
(the "Drive Business").
Systems Business
RAID
The Company's Systems Business competes in the non-captive local area
network ("LAN")-based redundant array of inexpensive disks ("RAID") market.
RAID is a large-scale storage technology that replaces one high-capacity hard
disk drive with an array of smaller, less expensive drives. The RAID concept
provides protection of data against the possibility of failure of any one
drive in the array by storing redundant information on different drives within
the array (mirroring), or by separating and distributing data flow with parity
check blocks across multiple drives within the array. If data is lost or
corrupted, the array can automatically reconstruct the lost or corrupted data
from the remaining data blocks using the associated parity blocks and continue
with uninterrupted operation.
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The LAN-based RAID market is estimated by industry sources to grow to
approximately $725 million in 1997. The growth in this market has been
attributable in large measure to the trend toward requiring mainframe level
functionality on LAN-based systems, the introduction by personal computer-
based server manufacturers of symmetrical multiprocessor servers and a
significant increase in multimedia personal computers capable of displaying
video compressed using the Motion Picture Experts Group ("MPEG") standard.
Competition in this market is resulting in increased levels of system
integration and product enhancements, and decreased costs for comparable
performance.
Increased system integration is achieved by preconfiguring systems to
include everything needed to "plug and play" and testing them in a systems
environment before shipment. Certain competitors (the "captive" market) have
introduced network file servers already configured for their own RAID
products. Other competitors offer RAID products with built-in functionality
such as tape backup devices. However, the growth in the non-captive market
could still be substantial. The Company believes end users and systems
integrators value having the choice of supplying or buying a RAID product
tailored to their specific application or need at a reasonable cost.
The Company offers both software and hardware-based RAID products. In some
instances, software RAID products are favored over hardware products due to
the perceived cost differences between hardware and software, and software
solutions require more overhead from the system. In other cases, software
solutions are favored, for example, on single user desktop systems where cost
and performance are important and the user has more processing power. In
situations where systems operations are very central processing unit ("CPU")
intensive, users would prefer a hardware RAID solution so that the
computational effort can be offloaded from the CPU.
The Company's Systems Business RAID products consist of the Raidion line of
fault-tolerant disk arrays, and the Microdisk. The Raidion line encompasses a
software-based array known as the Model LS (featuring 5 1/4-inch drives) and
the Model LT (featuring 3 1/2-inch drives), and a hardware-based array which
incorporates a proprietary disk array controller known as Gandiva. The Gandiva
controller card in the Company's current hardware RAID products performs the
basic interface between the host computer and the drive array as well as the
RAID fault tolerance, array maintenance and management functions. The
software-based Raidion products have been optimized for use on the Novell
Netware and IBM OS/2 operating systems. The hardware-based Raidion has been
optimized to work with a greater number of operating systems, including
Netware, OS/2, Microsoft Windows NT, Apple Macintosh and UNIX. The Microdisk
product consists of an external storage device in a modular housing. The
systems described above accounted for 17% of total revenues in 1995.
The Company recently announced RAIDIONplus, an extension of the current
Gandiva array controller that improves performance, redundancy, array
management capability and has features that will allow RAIDIONplus to be used
in applications from on-line transaction processing (OLTP) to multimedia.
RAIDIONplus provides features such as dynamic expansion, adaptive caching, and
a Fast 20 Wide Small Computer System Interface ("SCSI") interface, advanced
dial in/dial out and network array management, and removable non-volatile
dynamic random-access memory.
Video Servers
The Company offers a line of video servers which use hard disk drives to
store and retrieve audio and full motion video signals. Such video servers,
which can replace video cassette recorder systems, are used to play back video
material that has been previously digitally encoded and compressed; they are
marketed in the hospitality, multimedia and cable TV markets. Video server
applications in the hospitality market include displaying digitally encoded
and compressed movies to guests in hotels, aircraft and cruise ships.
Multimedia applications include corporate training, campus training and video
libraries. Video servers in the cable TV market are designed to insert local
cable TV advertisements in a video stream.
The Company's initial video server, installed in hotels, was introduced in
early 1994, with product deliveries beginning in June 1994. The Company's AV
Server 50, 100 and 200, enable up to 16, 32 and 64 users,
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respectively, to randomly select and view, with video cassette recorder-like
functionality, video material on demand from an on-disk library of up to 60
full length movies. During 1995, sales of these servers were made primarily to
the hospitality industry and cable headends for local commercial insertion.
Sales in 1995 represented approximately 1% of total revenues.
Video Disk Recorders
The Company is currently developing a line of low cost digital video disk
recorders which also use hard disk drives to store and retrieve audio and full
motion video signals. Video disk recorders utilize built-in encoding and
compression circuitry, allowing real time record and playback of video
material. Applications for video disk recorders include professional video
editing of video for audio, non-linear editing, linear editing, graphics and
animation and other general post-production activities.
For further information regarding the Systems Business, see Management's
Discussion and Analysis--StreamLogic.
Drive Business (Business proposed to be sold pursuant to the Purchase
Agreement described above)
The core of the Drive Business' product offerings historically has consisted
of high-performance, high-capacity Winchester disk drives used in mission
critical, network file server and multimedia applications. In 1995, these disk
drives comprised 80% of the Company's total revenues.
These drives are primarily available with the industry standard SCSI
interface. The Company currently offers a line of disk drive products that is
code-named "Javelin." This series of products encompasses the Taurus 2, a 3
1/2-inch, 1-inch high, 2 GB drive with a rotational speed of 7200 rpm; the
Capricorn 4, a 3 1/2-inch, full-height, 4.3 GB drive with a rotational speed
of 7200 rpm, and the Scorpio 9, a 5 1/4-inch, full-height, 9 GB drive with a
rotational speed of 5400 rpm. Increased rotational speeds enable the drive to
demonstrate faster access times and otherwise increased performance. The
Javelin series of disk drives is characterized by a high degree of commonality
in technology. These drives possess a greater degree of integration of
hardware and software features across all three platforms than in previous
models. The Javelin series, which began shipping in the third quarter of 1994,
represented 72% of the Company's 1995 total revenues.
The Company is in the process of developing a new line of disk drive
products code-named "Omega" which are expected to be available in the first
quarter of 1996. This series of products encompasses the Taurus 4, a 3 1/2-
inch, 1-inch high, 4 GB drive with a rotational speed of 7200 rpm; the
Capricorn 9, a 3 1/2-inch, full-height, 8.7 GB drive with a rotational speed
of 7200 rpm, and the Scorpio 21, a 5 1/4-inch, full-height, 21 GB drive with a
rotational speed of 5400 rpm. Like the Javelin series, the Omega series of
disk drives possess a similar degree of commonality in technology with a high
degree of integration of hardware and software features across all three
platforms. In addition, the Omega series incorporates the use of magneto-
resistive ("MR") head technology which doubles storage capacity.
In addition, the Company sells disk drives that have been optimized for
specific market niches. Included among these drives are the Company's "AV"
drives, where the internal firmware has been modified to make these drives
uniquely appropriate to large block data types, such as audio and video files.
PRODUCT DEVELOPMENT
Micropolis' approach to product development is best characterized as being
market driven, using a technology strategy that incorporates the latest
reliably available components and software. Being market driven means that
Micropolis' engineers work closely with its sales force and with its customers
to determine the appropriate prioritization of new product development
efforts, as well as to establish product specifications. In general, this
approach is designed to reduce time to market with products which have a
broader set of potential customers.
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The technology strategy utilizes a basic set of mechanics and develops that
set of mechanics from its initial capacity to higher capacities by further
developing the electronic and head/media technology. For example, the
Company's Aquarius 2 Series 1.7 GB, full-height 3 1/2-inch disk drive began
with an 8-disk, 16-head mechanical assembly. That same basic set of mechanics
is still being employed today in the newer 10 platter, 4.3 GB drive known as
the Capricorn 4. The storage subsystems and video systems products share such
common components as the Company's hard disk drives and the Gandiva array
controllers.
Future market trends in the LAN-based RAID industry are likely to favor
products emphasizing: low cost, optimization for application-specific
environments, effective fault tolerance, high performance hardware and
software interfaces, scalability of product and effective service and support.
The information storage business is characterized by rapidly changing
technology and user needs which require the continual development and
introduction of new products. Although the Company believes its strategy of
focus and specialization in the high-performance segment of the market, and an
increased emphasis on time to market, improves the rate of new product
introduction, no assurance can be given that the Company will be able to
complete successfully the design or introduction of its new products in a
cost-effective and timely manner, or that such products will perform to
specifications. The introduction of new products also requires the Company to
manage its inventory carefully to minimize inventory obsolescence. The failure
to achieve any of these objectives could have, and has had, a material adverse
effect on the Company's financial position and results of operations.
Research and development expenses for fiscal 1995, 1994, and 1993 were
$42,469,000, $43,648,000, and $36,112,000, respectively. In 1995,
approximately one-third of the Company's research and development expenses
were incurred by the ongoing Systems Business. The Company anticipates its
1996 research and development expenses related to the Systems Business will
decrease slightly from those of 1995. The Company plans to focus on
development of video servers for hospitality and cable head-ends, professional
video editing disk recorders, bundled storage for Internet and Web servers,
corporate IntraNet digital output servers, and bundled RAID subsystems for
LANs. The Company plans to discontinue funding of Tulip Memory Systems and has
made other expense cuts in the engineering area.
MANUFACTURING
Systems Business
Micropolis manufactures its storage subsystems products on production lines
at its Chatsworth, California headquarters and at its Singapore facility. The
Company anticipates discontinuing manufacturing Systems Business products at
the Singapore facility in 1996. The Company's video systems products are
manufactured at the Chatsworth, California headquarters.
Drive Business
The Company's manufacturing strategy is to rely principally on outside
vendors to supply high-level subassemblies and component parts, in contrast to
certain of its principal competitors, which are substantially vertically
integrated. The Company's manufacturing operations consist primarily of the
assembly of head positioner assemblies ("HPAs") and the final assembly and
testing of disk drives.
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Micropolis maintains two principal manufacturing sites, both located in
Southeast Asia. The labor-intensive manufacture of HPAs takes place in the
Company's Bangkok facility, which was established in 1988. The Company's
Singapore facility established in 1986 accounts for substantially all final
production and test of the Company's disk drives. In addition, Micropolis
maintains a pilot production line at its Chatsworth, California headquarters.
This line is employed to assemble new products used in evaluation testing by
its customers prior to their transfer to the offshore operations.
During 1995, the Company manufactured approximately 211 thousand disk
drives. The Company is currently constructing a new manufacturing facility in
Singapore to replace the current leased facility. The new facility is expected
to be completed in the second quarter of 1996. The Company believes that its
current facilities are adequate for its near-term production requirements.
Micropolis has made a substantial investment in automating disk drive
production at its Singapore facility. The Company believes that its investment
in automation will result in both quality and process yield improvements. A
team of experienced production automation engineers, located in Singapore,
focuses on identifying processes where automation can be particularly useful
and developing new procedures with a goal of long-term savings.
General Manufacturing Considerations
Continued improvement in disk drive, storage subsystem and video systems
manufacturing process capabilities and reduced materials and manufacturing
costs are critical factors affecting the Company's financial position and
results of operations. The Company continues to change the manufacturing
processes for many of its products and must carefully manage the transfer of
production of its newer disk drive products to its overseas operations. There
can be no assurance that such changes and transfers will be implemented in a
cost-effective and timely manner. Delays or problems encountered in any of the
foregoing could have a material adverse effect on the Company's financial
position and results of operations. In addition, if for any reason the Company
were to have a prolonged interruption in any of its manufacturing facilities,
the Company's financial position and results of operations could be materially
adversely affected.
The Company's manufacturing process requires high volumes of high quality
components. Several of the critical components used in the Company's products
are available only from single or limited sources. The Company has had and
continues to have difficulties in obtaining certain components, and there can
be no assurance that such difficulties will not occur in the future. A
prolonged interruption or reduction in supply of quality components, rework
costs associated with defective components or the inability to obtain
continued reduction in component prices would adversely affect the Company's
financial position and results of operations and could damage customer
relationships. The Company has experienced such supply interruptions, rework
costs and increased component prices, particularly during 1995. Such component
and manufacturing problems have adversely affected the Company's financial
position and results of operations.
MARKETING
The Company's direct sales force sells Micropolis disk drives to OEMs,
distributors and VARs. The Company maintains eight domestic sales offices. In
1995, approximately 25% of total sales were made to OEMs, with the remainder
to independent distributors and VARs. The Company's OEM customers include Avid
Technology, Stratus Computer, Ericsson Telecom AB and Xerox Corporation. The
Company's distribution customers include Tech Data Corporation, Ingram Micro
Corporation, Alliance Peripheral Systems, Megabyte EDV, Hammer Distribution
Ltd. and Peripheral Technology Group.
International operations are an important element of the Company's sales
mix. In 1995, sales to customers outside of North America comprised
approximately 39% of total sales. The Company currently maintains a European
sales network of five offices which support sales in Europe to both U.S. and
European-based OEMs
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and European-based independent distributors. The Company has deployed its
sales and marketing efforts in the Asia/Pacific region with four offices. In
addition, the Company maintains a service and support operation in England.
The Company's sales force, which currently has offices in Chatsworth, San
Jose and Irvine, California; Roswell and Lawrenceville, Georgia; Salem, New
Hampshire; Branford, Connecticut; North Potomac, Maryland; Des Plaines,
Illinois; Plano, Texas; Charlottesville, Virginia; Reading, England; Munich,
Germany; Massy, France; Milan, Italy; Jarfalla, Sweden; Singapore; Tokyo,
Japan; Taipei, Taiwan; and N. Sydney, Australia. In addition, members of
senior management, together with engineering, operations and marketing
executives, participate actively in sales to major OEM customers. Independent
distributors are also used in the United States and for certain markets
abroad. No customers accounted for more than 10% of total sales during 1995,
1994 or 1993.
The Company generally warrants its products against defects for periods from
one to five years. The Company provides for estimated future product warranty
costs when products are shipped. In addition, the Company generally grants
trade credit to its customers, typically on net 30 day terms. Historically,
the Company has not experienced significant bad debt write-offs. The Company
also has policies and/or contractual agreements which allow distributors to
receive price protection credit under certain circumstances when the Company
lowers its sales prices. In addition, the Company permits customers to return
products under certain circumstances. The Company makes a provision for the
estimated amount of price protection credits and for product returns that may
occur under these programs and contracts in the period of sale.
Direct shipments from Chatsworth and Singapore are denominated in United
States dollars; sales by the European subsidiaries, except Germany, are
denominated in local currency. Although export sales are subject to certain
restrictions, including approval by the Office of Export Administration of the
United States Department of Commerce, such restrictions have not limited such
sales.
BACKLOG AND VARIABILITY OF DEMAND
The Company's total order backlog at February 2, 1996 was approximately
$13.8 million compared with approximately $25.5 million at February 3, 1995.
The decrease in backlog was primarily attributable to low bookings for the
Company's Javelin class drives. The Systems Business order backlog at February
2, 1996 was approximately $1.9 million compared with approximately $1.8
million at February 3, 1995.
Backlog includes orders for which a delivery schedule has been specified by
the customer and which the Company has agreed to ship within six months. Lead
time for the release of purchase orders varies from month to month. For this
reason and because changes in delivery schedules and cancellation of orders
occur, the Company's backlog on a particular date may not be representative of
future sales. The Company's customers place orders based on their own internal
forecasts. If demand falls below forecast, the customer may cancel or
reschedule shipments previously ordered from the Company, a process that may
be exacerbated by customers' inventory management practices. Accordingly, the
Company may, at any time and with limited notice, experience a significant
downturn in demand for its products. The Company's expectations of future net
sales are based largely on its own estimate of future demand and not on firm
customer orders. The Company's net sales may also be affected by its
distributors' decisions as to the quantity of the Company's products to be
maintained in their inventories. The Company's expenditures are based in part
on management's estimate of future sales. If orders and net sales do not meet
expectations, the Company generally will not be able to reduce expenses
commensurately in the near term and therefore profitability would be adversely
affected.
COMPETITION
The data and video storage industry is intensely competitive and
characterized by significant price erosion over the life of a product. The
Company believes that being first to market with new products is a critical
element in the achievement of desired gross margins. Being first to market
provides initial price advantages to the Company and the opportunity to
accelerate learning and cost reduction curves due to increased production
volumes. During 1994 and 1995, the Company experienced significant price
erosion related to several of its
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products as a result of increased competition. Such pricing pressures
negatively impacted the Company's operating results for 1994 and 1995.
In the high-performance market in which the Company competes, the principal
dimensions of competition are generally data storage capacity, data transfer
rate, average access time, form factor, timely delivery in quantity,
reliability and price. Virtually all of the Company's competitors are much
larger in size and have access to greater financial and other resources than
the Company. The Company believes that its future success hinges on its
ability to bring cost and feature-competitive products to market on a timely
basis.
Systems Business
The Systems Business products face competition from companies offering
standard computer systems with video server specific software, and those
offering specially designed video server systems. Competitors offering
standard computer systems with video server specific software include Digital
Equipment Corporation, International Business Machines, Silicon Graphics Inc.,
Sun Microsystems and Hewlett Packard Company. Competitors offering specially
designed video server systems include Sony corporation, Optibase Inc., Sea
Change, and The Network Connection Inc. The Company believes its video server
systems offer significant price advantages, longer market presence and a more
suitable overall solution for the applications targeted.
Drive Business
The Drive Business competition includes other independent domestic disk
drive manufacturers, the disk drive divisions of both domestic and foreign
(primarily Japanese) computer systems manufacturers and the captive disk drive
manufacturing operations of some of its customers. The Company's principal
competitors in the market for high-performance Winchester drives currently are
Seagate Technology, Conner Peripheral Inc., Quantum Corporation and Fujitsu
Corporation. In addition, the Company is experiencing increased competition
from computer manufacturers such as International Business Machines and
Hewlett Packard Company.
PRODUCTS
Micropolis Corporation had pursued a high-end strategy in the disk drive
business that is focused exclusively on disk drives made with a large number
of disks and heads (typically a minimum of 4 disks and 8 heads). Over time,
these segments of the market have become increasingly attractive to all of the
major disk drive manufacturers, and more importantly, they have been able to
make steady inroads into these segments. In addition, the captive disk drive
manufacturing arms of two major computer manufacturers (IBM and HP) have
steadily increased their presence in this market. Thus, over time Micropolis
has been faced with more competitors, all pursuing full line strategies which
appeared to be increasingly desirable to the customer base.
Also, in recent years the rate of technological change in the disk drive
industry has increased significantly. This environment and the Company's
difficulties in the manufacture and marketing of products have in recent
periods adversely impacted the Drive Business' revenues and results of
operations and are expected to continue to do so.
EMPLOYEES
As of December 29, 1995, the Company employed approximately 2,069 persons,
including 411 in Engineering, 108 in Quality Assurance and Control, 1,325 in
Manufacturing and Operations, 87 in Marketing and 138 in General Management
and Administration. Competition for highly skilled employees is intense. The
Company believes that its future success will depend on its continued ability
to attract and retain qualified employees. None of the Company's employees is
represented by a labor union, and the Company has experienced no work
stoppages. The Company believes that its employee relations are good.
During January 1996, the Company announced and completed a reduction in its
workforce in the United States in order to prepare for the sale of the Drive
Business. If the Sale is consummated, it would be expected that the Company
would retain approximately 150 employees, including 75 in Engineering, 34 in
Manufacturing and Operations, 25 in Marketing, and 16 in General Management
and Administration.
FOREIGN AND DOMESTIC OPERATIONS
The information relating to foreign and domestic operations is included in
Note 8 to the Company's Consolidated Financial Statements on page 32 of this
report.
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ITEM 2. PROPERTIES
The Company's principal executive and engineering offices and limited
domestic manufacturing operations are located in Chatsworth, California,
comprising a total of approximately 186,000 square feet. Of these facilities,
one building with approximately 58,000 square feet is owned, and one building
with approximately 128,000 square feet is leased at an annual rental of
approximately $982,000 subject to annual change based on the Consumer Price
Index. The original term of this 1988 lease was five years, with three five-
year renewal options. In May 1993, the Company began leasing this property on
a month-to-month basis. Micropolis also leases on a month-to-month basis, a
small amount of storage and parking space in Chatsworth. Under the Purchase
Agreement, STC has an option to include in the Subject Assets the owned and/or
leased portion of the corporate headquarters. If this option is not taken, the
Systems Business would locate in the owned facility. If this option is taken,
the Systems Business may lease back from STC or relocate to another leased
facility in Southern California at a later date.
In Singapore, the Company leases approximately 56,000 square feet on three
floors of one building, and an additional 12,000 square feet on another floor
of the same building. The space is used in the Company's manufacturing
operations. These leases, which provide for an annual rental of $791,000 and
$150,000, respectively, expire in April 1996. The Company leases an additional
134,600 square feet for manufacturing on five floors of an adjacent building
at an annual rental of approximately $1,743,000. This lease expires in
April 1996.
During December 1994, the Company began construction of a 302,000 usable
square foot manufacturing facility in Singapore. The new facility is expected
to be completed in the second quarter of 1996, at which time the Company's
operations in Singapore will move from their current leased facilities to the
new factory. The Company has obtained financing to fund the expenditures
associated with the construction of the building. A thirty-year ground lease
for the new facility provides for lease payments of approximately $616,000
annually. This facility would be sold to STC upon consummation of the Purchase
Agreement.
Micropolis owns a building with approximately 37,000 square feet in Bangkok,
Thailand which is used for manufacturing Head Positioner Assemblies and other
disk drive sub-assemblies. This facility would be sold to STC upon
consummation of the Purchase Agreement. In addition, the Company leases
approximately 20,400 square feet in two separate locations adjacent to the
main manufacturing site. These leases expire in August of 1998. These leases
would be assumed by STC upon consummation of the Purchase Agreement.
Micropolis also leases sales offices in San Jose and Irvine, California;
Roswell, Georgia; Salem, New Hampshire; Branford, Connecticut; Des Plaines,
Illinois; Plano, Texas; Charlottesville, Virginia; Reading, England; Munich,
Germany; Massy, France; Milan, Italy; Jarfalla, Sweden; Singapore; Tokyo,
Japan; Taipei, Taiwan; and N. Sydney, Australia. These leases would be assumed
by STC upon consummation of the Purchase Agreement.
The Company believes that its current facilities are well maintained and are
adequate for its near-term production requirements. The Company is presently
at approximately 33% of capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal matters and contingencies in the
ordinary course of business which management believes will not have a material
effect upon the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSS
Information required by this item is incorporated by reference from the Form
10-Q relating to the Company's quarterly period ended September 29, 1995.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol "MLIS." The following table
sets forth for the periods indicated the high and low closing sale prices for
the Common Stock.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1995
High.................................... 11 7 1/4 7 3/8 5 3/8
Low..................................... 4 7/8 4 3/4 5 3/8 3
Fiscal 1994
High.................................... 8 3/8 7 7/8 7 1/4 9 1/2
Low..................................... 4 7/8 5 1/4 5 3/8 6 1/8
</TABLE>
The price range per share, reflected in the above table, sets forth the
highest and lowest closing prices in each fiscal quarter during 1995 and 1994,
as reported by NASDAQ National Market System.
No dividends have been declared by the Company during the five-year period
ended December 29, 1995. Under the terms of the Company's credit facility, it
is prohibited from declaring or paying dividends without the prior consent of
the lender. As described in Note 3 to the Company's Consolidated Financial
Statements, the Company intends to terminate this credit facility. At February
2, 1996, there were 611 record holders of the Company's Common Stock.
If the Sale is consummated, the Company expects to have a deficit net worth
and therefore not to meet the criteria for continued inclusion on the Nasdaq
National Market System. If the Company's Common Stock is no longer approved
for inclusion on the Nasdaq National Market System, and the Company cannot
obtain listing elsewhere, trading, if any, in the Company's Common Stock may
thereafter be conducted in the over-the-counter market and its stock quoted in
the so-called "pink sheets" or, if then available, the "OTC Bulletin Board
Service." As a result, it could be more difficult to trade, or to obtain
accurate quotations as to the value of, the Company's Common Stock and the
spread between the "bid" and "ask" prices for the Company's Common Stock could
materially increase.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales...................... $211,264 $346,314 $382,926 $396,579 $350,875
Cost of sales................. 205,628 286,856 315,436 306,482 285,555
-------- -------- -------- -------- --------
Gross profit................... 5,636 59,458 67,490 90,097 65,320
Operating expenses:
Research and development..... 42,469 43,648 36,112 27,868 24,065
Selling, general and adminis-
trative..................... 44,274 43,500 41,906 38,656 33,258
Restructuring charge......... -- -- 5,496 -- --
-------- -------- -------- -------- --------
Total operating expenses...... 86,743 87,148 83,514 66,524 57,323
-------- -------- -------- -------- --------
Income (loss) from operations.. (81,107) (27,690) (16,024) 23,573 7,997
Other expense, net............ 4,242 2,985 3,888 2,683 3,504
-------- -------- -------- -------- --------
Income (loss) before income
taxes......................... (85,349) (30,675) (19,912) 20,890 4,493
Income tax provision (bene-
fit)......................... (1,061) -- 4 1,333 150
-------- -------- -------- -------- --------
Net income (loss)(1)........... $(84,288) $(30,675) $(19,916) $ 19,557 $ 4,343
======== ======== ======== ======== ========
Earnings (loss) per share(1)... $ (5.46) $ (2.03) $ (1.34) $ 1.33 $ .32
======== ======== ======== ======== ========
Weighted average common and
common equivalent shares out-
standing...................... 15,445 15,100 14,835 14,720 13,674
======== ======== ======== ======== ========
Balance sheet data
Working capital................ $ 65,957 $121,022 $144,423 $163,394 $141,850
Total assets................... 180,394 233,915 250,429 259,624 244,909
Long term debt:
Term Loan Facility............ 18,102 -- -- -- --
10% Convertible Subordinated
Notes due 1998............... 20,000 -- -- -- --
6% Convertible Subordinated
Debentures due 2012.......... 75,000 75,000 75,000 75,000 75,000
Shareholders' equity........... 7,173 89,630 118,356 136,257 114,629
</TABLE>
- --------
(1) Income from the Company's Singapore and Thailand operations is exempt from
income taxes in those countries through 2004 and December 1993,
respectively. The income tax exemptions in Singapore and Thailand had no
impact in fiscal 1995 and had an effect of approximately $7,401 and $.49
in fiscal 1994, $4,800 and $.33 in fiscal 1993, $12,879 and $.87 in fiscal
1992 and $11,047 and $.81 in fiscal 1991 on net income and earnings per
share, respectively, as compared to income taxes at the maximum statutory
rates. However, the aforementioned aggregate and per share effects are not
necessarily indicative of the Company's consolidated incremental tax
liability in the absence of such tax holidays either historically or upon
termination of holiday status in 2004 and 1993 (see Notes 1 and 2 to the
Company's Consolidated Financial Statements).
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On January 24, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a
Singapore corporation ("ST"), to sell substantially all of the Company's
assets (other than cash and accounts receivable) related to the Company's hard
disk drive business to STC (the "Sale"). The Sale is subject to stockholder
approval, as well as certain closing conditions contained in the Purchase
Agreement. If the Sale is consummated, the Company's remaining business will
be focused on information storage subsystems and video systems, and will
rename itself StreamLogic Corporation ("StreamLogic").
STREAMLOGIC
Business of StreamLogic
StreamLogic's principal business will be fault tolerant disk storage
subsystems, commonly known as RAID systems. Longer term, StreamLogic plans to
develop a substantial video server and video disk recorder business, assuming
that current tape-based markets for such products transition to disk-based
technologies, and that StreamLogic's products are successful in these new
markets.
Existing Products
Present Company products which will comprise StreamLogic's initial product
line include:
. RAIDION(R) fault-tolerant disk arrays--software- and hardware-based RAID
storage solutions for network data processing environments as well as
video and multimedia applications.
. MICRODISK(R) subsystems--modular, stackable, external storage for
desktop computing and network environments.
. MICRODISK AV subsystems--modular, stackable, external storage optimized
for professional audio/video editing and desktop multimedia
applications.
. VIDEO DISK RECORDER(TM) (VDR)--digital disk recorder technology for
professional and commercial video editing and playback environments.
. VIDEON(TM)--Motion Picture Experts Group ("MPEG")-based video-on-demand
("VOD") servers for hospitality and cable television broadcast
environments.
The brand names "Raidion" and "Microdisk," which will be retained by
StreamLogic, are believed to be of significant importance to ongoing market
recognition and acceptance of the products sold under those names and their
variants. StreamLogic's products are sold to OEMs and system integrators and
through distribution channels worldwide.
In 1995, revenues attributable to the products to be retained by StreamLogic
amounted to $39.5 million and all but $2.5 million of these revenues came from
products sold into the LAN RAID sub-system market. In the future, and
especially in 1996, StreamLogic's revenue base will be largely dependent on
its success in the LAN RAID sub-system market.
StreamLogic products in the LAN RAID segment will continue to focus on
Novell and Windows NT clustered operating environments. RAID functionality is
required to ensure both data availability and data integrity. In addition,
requirements exist for increasingly comprehensive management features. The
company currently offers RAIDION desktop and rack mount configurations with
RAID functionality in both external array controllers and host based software
subsystems. Plans to bring deskside configurations to market in 1996 will
continue the current scaleable, modular, hot swappable characteristics of the
RAIDION. The product line will continue to be optimized for on-line
transaction processing.
The non-captive LAN RAID market is estimated by industry sources to be about
a $725 million market in 1997. Competitors in this segment include: Hewlett-
Packard, Compaq, Digital Storage Works, Conner Peripherals, Storage
Dimensions, Ciprico, and FWB. The Company's market share in 1995 was 6%, down
from 8% in 1994. The Company will endeavor to recapture and expand its market
share by providing RAID controller feature enhancements and by improved focus
as a result of the sale of the disk drive business.
11
<PAGE>
For further information covering the Company's present Systems Business, see
Item 1--"Business."
Future Product Development
StreamLogic's future product development will be focused on the storage,
management and movement of digital data in various networking and audio/video
related applications. StreamLogic's core technical competencies include its
RAID software, RAID controllers, optimization of disk drives for application
specific environments, enclosure packaging, control of both analog and digital
video streams ("video streaming"), Serial Switching Architecture ("SSA")
switching, MPEG encoding/decoding and network management. StreamLogic
currently expects to use these core competencies and the products it has
developed, and plans to develop in the future, to participate in five target
markets. The five markets are:
.Bundled RAID subsystems for the LAN market.
.Bundled storage systems for internet and web server markets.
.Digital output storage systems for the corporate IntraNet market.
.Video disk recorders for the professional editing market.
.Video servers for hospitality and cable head-end markets.
These markets vary dramatically in size and competitive characteristics.
Over the next two years, the segments expected to be of most importance to the
growth and profitability of StreamLogic are:
(1) Professional Video Editing. This market segment is characterized by
single or few users per system and high data rate video streams stored on
hard disks. Fault tolerance is desired but RAID technology is used
primarily as a method of achieving higher data rate. Video disk recorders
are used to replace professional level video tape recorders for a wide
variety of applications. The Company has a strategic partnership with BTS
Broadcast Television Systems GmbH ("BTS"), a division of Phillips
Electronics, to develop video disk recorder products to be marketed by BTS.
The professional video market is estimated by industry sources to be a $12
billion market with video tape recorders representing half of all revenues.
Video disk recorders are expected to penetrate a small portion of that
market while video disk editing is expected to penetrate a larger portion.
Key competitors in the video disk recorder market are Tektronix and a
number of small independent suppliers. In video disk editing, the key
competitors are Avid Technology, Tektronix, Sony, Panasonic and a small
number of independent suppliers.
(2) Hospitality and Cable Head-end Video Servers. This market is made up
of multi-channel video playback systems. A video server allows multiple
simultaneous users from one video data stream stored on hard disk. Such
playback is today achieved by the installation of large numbers of video
tape recorders. In the cable head-end market, the video server provides
considerable ease-of-use benefits over conventional video cassette usage,
as well as considerable cost savings. Fault tolerance is required in the
cable head-end market, while price is more important in the hospitality
market. StreamLogic is currently the only revenue producing competitor in
the video server hospitality market. Competitors in the cable head-end
market are Digital, Sea Change, and Sony.
The Company and STC have entered into an OEM supply agreement, effective
upon consummation of the Sale. Among other things, the OEM Supply Agreement
allows StreamLogic to buy at prices equal to or slightly lower than the most
favored OEM customer of STC. StreamLogic must offer all its disk drive
business and requirements to STC on a right-of-first-refusal basis, subject to
the ability of STC to meet certain delivery and other standards. The agreement
has an initial two-year term, after which it may be renewed annually by mutual
agreement.
Management, Employees and Property of StreamLogic
StreamLogic's management is presently expected to include the Company's
current executive officers, with the possible exceptions of Eric Dunstan and
Donald McDonell, who may join ST. StreamLogic's Board of Directors is expected
to include the Company's present directors. StreamLogic will be located at
21329 Nordhoff Street in Chatsworth, California, which is a building currently
owned by it. It is also possible that this building
12
<PAGE>
will be sold to STC and leased back, but whether the Company and STC will
enter into such a transaction and the key terms of any such lease have not yet
been decided upon. Whether StreamLogic owns or leases this space, or moves to
other space is not expected to have a material effect on the operations of
StreamLogic.
Market for StreamLogic Common Stock
StreamLogic expects that during 1996 its net worth will cease to meet the
requirements for continuing quotation on the NASDAQ National Market System.
See Item 5--"Market for Registrant's Common Equity and Related Stockholder
Matters."
StreamLogic's Financial Position, Results of Operations, and Liquidity
If the Sale is consummated on the terms and within the time contemplated by
the Purchase Agreement (the target closing date is March 29, 1996), and if the
results of operations for the quarter ended March 29, 1996 are comparable to
the results for the quarter ended December 29, 1995, StreamLogic is expected
to have both significant cash balances relative to its asset base and scope of
operations (assuming no material unfavorable adjustments to the Purchase Price
and that StreamLogic is able to collect the retained accounts receivable
related to the Drive Business), and an unusually high level of indebtedness.
See Note 10 of Notes to Consolidated Financial Statements.
As a result of losses related to the combined Drive and Systems Businesses
in the first quarter, the Company expects to have a deficit net worth at March
29, 1996. Based on management's business plan, including numerous assumptions,
StreamLogic expects to post losses from operations at least throughout 1996
and to generate negative cash flows on a quarterly basis.
The proceeds of the Sale will be used for general corporate purposes
including funding near-term operating losses, currently estimated at $7
million in 1996; the actual amount of such losses will depend on future
operating results that are difficult to estimate and may differ materially
from this estimate. In addition, interest expense on the $95 million of the
Company's debt expected to be outstanding as of the Closing Date is currently
estimated at $6.5 million annually, although such amounts are currently
estimated to be offset by approximately $2.5 million of interest income on
cash balances. In 1997, sinking fund payments on certain debt of the Company
commence and are due in the amount of $3.75 million each March 15 through
2012. The Company is also negotiating with the holder of the $20 million 10%
Convertible Subordinated Notes due 1998 to obtain a consent necessary to
consummate the Sale, and may agree to retire or otherwise restructure these
notes. In addition, after the Sale the Company may seek to restructure, in
part or in whole, its $75 Million 6% Convertible Subordinated Debentures due
2012, but plans to carefully evaluate such a potential use of funds against
alternative uses, such as acquisitions.
StreamLogic Strategic and Financial Alternatives
The Company is considering and will consider strategic and financial
alternatives to improve its results of operations, cash flows and net worth,
including restructuring of debt, acquisitions and other alternatives, after
the Sale is consummated. Among the alternatives to deal with its highly
leveraged condition following completion of the Sale, in addition to the
alternative of not seeking to restructure its $20,000,000 10% Convertible
Subordinated Notes and $75,000,000 6% Convertible Subordinated Debentures,
would be utilization of a portion of the cash resulting from the sale to
reduce indebtedness and/or a restructuring of indebtedness by exchange offer,
prepackaged bankruptcy, or otherwise. The cash consideration payable to the
Company by STC as a result of the Sale had closing occurred on December 29,
1995 (assuming no adverse adjustments for indemnity or other factors) would
have been approximately $50 million (on the Closing Date, such amount would be
reduced by amounts due under the Facility; see "Results of Operations--
Liquidity and Capital Resources"). In addition, the Company expects to
liquidate the trade accounts receivable related to the Drive Business but
retained by the Company at closing. The Company has been approached by several
parties in the RAID business, and other businesses related to the intended
future business of StreamLogic Corporation, inquiring as to StreamLogic's
potential interest in mergers or acquisitions of or by the Company. While
preliminary discussions have occurred, no offers have been received or made
and no potential transactions would occur before the Sale. There can be no
assurance that any such offers will be received or made or that any such
transaction will occur.
13
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales decreased 39% to $211.3 million in 1995 as compared to $346.3
million in 1994. Drive Business revenues declined by 44% in 1995 as compared
to 1994 and sales made by the Systems Business decreased by approximately 4%.
The decrease in revenues was primarily attributable to sharply lower drive
orders than anticipated in the distribution channel during the first quarter
of 1995 for the Company's 4 GB 3 1/2-inch and 9 GB 5 1/4-inch drives. In
addition, a component problem, and other technical issues, effectively shut
down production of the Company's 2 GB 3 1/2-inch drive for most of the first
quarter of 1995. During the second quarter of 1995, the Company resumed full
production of its 2 GB 3 1/2-inch drives and met the increased demand for
these drives and its SuperCapacity 4 and 9 GB drives. During the third and
fourth quarters of 1995, the Company's OEM revenue declined due to reduced
shipments to certain large customers. The Company anticipated that such
revenue reduction would be offset by new OEM customers in qualification.
However, the Company experienced delays in such OEM qualifications and
unexpected difficulties in the manufacture of 3 1/2-inch disk drives resulting
in higher manufacturing costs, excessive warranty cost, inventory build-up and
lost sales. The Company can provide no assurance that such OEM qualifications
will materialize in the future. During the fourth quarter of 1995 the Company
announced a price reduction on its Javelin family of drives. The Company plans
to discontinue manufacturing Systems Business products in its Singapore
facility during the second quarter of 1996. All Systems Business products will
be manufactured in the Company's Chatsworth, California facility. Such
discontinuance of manufacturing in Singapore is not expected to have a
significant impact on Systems Business revenue. Overall bookings for 1995
decreased by 45% from those in 1994 principally due to manufacturing
difficulties, component problems and delays in OEM qualifications in the
Company's 2, 4 and 9 GB drives.
Cost of sales as a percent of sales increased to 97.3% in 1995 from 82.8% in
1994 resulting in a gross margin of 2.7% as compared to 17.2% in 1994. The
decrease in margin was the result of price declines in the Company's Javelin
family of drives, operating inefficiencies due to low volume production of the
2 and 4 GB drives, and a provision recorded during the first quarter of 1995
for certain unusable components of the 2 GB drives.
Research and development expenses increased to 20.1% of sales in 1995 as
compared to 12.6% in 1994. The percentage increase is the result of lower
sales offset by a decrease in spending of $1.2 million. The decrease in
spending was a result of savings from the Company's cost containment efforts
initiated in March 1995, offset by the recognition of the research and
development costs incurred by Tulip Memory Systems, and research and
development on the Company's high capacity 3 1/2-inch and 5 1/4-inch drives
and subsystem products. In 1995, approximately one-third of the Company's
research and development expenses were incurred by the ongoing Systems
Business.
Selling, general and administrative expenses were 20.2% of sales in 1995 as
compared to 12.6% in 1994. The percentage increase is the result of lower
sales and an increase in expense of $774,000. The increase in expense was the
result of increased expenditures for advertising and sales promotion
activities for new products, costs associated with a work force reduction in
the U.S. and Europe completed in March 1995, and the retention of outside
assistance to help the Company in formulating and implementing its recovery
plan, offset by the Company's cost containment efforts initiated in March
1995. In the first quarter of 1996, the Company will record charges for
certain severance and other costs related to employee reductions made in
January 1996. The Company leases sales offices in eight domestic and nine
foreign locations. These leases would be assumed by STC upon consummation of
the Sale. The assumption of these leases is not expected to have a significant
impact on the Systems Business.
Interest expense increased to $6 million in 1995 (2.8% of sales) as compared
to $5.1 million (1.5% of sales) in 1994, primarily as a result of fees
associated with the Company's Term Loan Facility and the interest expense
14
<PAGE>
of the Company's 10% Convertible Subordinated Debentures dated October 11,
1995. Interest income was $1.7 million in 1995 as compared to $2.1 million in
1994 as a result of lower cash equivalent and short-term investment balances.
As a result of the above, loss before income taxes was $85.3 million in 1995
as compared to $30.7 million in 1994.
The Company recorded an income tax benefit of $1.1 million in 1995,
primarily representing a refund of certain foreign income taxes paid in a
prior year. The Company's income tax provision benefits from the tax holiday
afforded the Company's Singapore operation, which will remain in effect
through August 2004. The income tax exemption in Singapore had no impact in
1995 and had an effect of approximately $7.4 million and $.49 on net income
and earnings per share, respectively, as compared to income taxes at the
maximum statutory rates in 1994. A net operating loss of approximately
$113,603,000 is available to be carried forward to the years 2004-2010.
General business tax credit carryforwards of approximately $8,562,000,
expiring between 2000 and 2009, are also available to reduce future federal
income taxes.
Net loss for 1995 was $84.3 million compared to a net loss of $30.7 million
in 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales decreased by 10.5% to $346.3 million in 1994 as compared to $382.9
million in 1993. OEM revenues declined substantially in 1994 as a result of a
decrease in shipments in the Company's 5 1/4-inch 3600 rpm drives and the 3
1/2-inch 5400 rpm 1 gigabyte (GB) drives. The decline in OEM sales was only
partially offset by increases in the Company's Storage Systems Division (SSD)
and Video Systems Division. The increase in SSD sales was primarily the result
of an increase in shipments of the 3 1/2-inch, 1 inch high 1 GB drive, 1.7 GB
full height drives and storage subsystems. The increase in the Video Systems
Division, which had no sales in 1993, came primarily in the second half of
1994 and related to shipments of the AV Server 100. Backlog as of December 30,
1994 was $27.8 million, as compared to $29.2 million as of December 31, 1993.
Cost of sales as a percentage of sales was 82.8% in 1994, comparable to the
82.4% in 1993, resulting in gross margins of 17.2% (17.6% in 1993). Gross
margins in the first three quarters of 1994 were adversely impacted by
competitive pricing on the 1 GB, 1 inch high 3 1/2-inch drives. Margins
increased substantially in the fourth quarter, to 26.5%, as a result of the
increased shipments of the Company's Javelin class SuperCapacity drives and
storage and video subsystems.
Research and development as a percentage of sales increased to 12.6% in 1994
as compared to 9.4% in 1993. The increase in spending of $7.5 million relates
to increased research and development for high capacity 3 1/2-inch and 5 1/4-
inch drives, subsystem products and development of new disk substrates at
Tulip Memory Systems.
Selling, general and administrative expense increased to 12.6% in 1994 as
compared to 10.9% in 1993. The increase in spending of $1.6 million relates
primarily to increased sales and marketing costs in the Company's Storage
Systems Division.
Interest expense was $5.1 million (1.5% of sales) in 1994 which is
comparable to 1993. Interest income was $2.1 million in 1994 as compared to
$2.3 million in 1993. As a result of the above, the loss before income taxes
was $30.7 million in 1994 versus a loss of $19.9 million in 1993.
The Company provided for no income tax in 1994 versus $4,000 provided in
1993. The Company's income tax provision benefits from a tax holiday afforded
the Company's Singapore operation, which remain in effect through August 2004
(previously 1999). The effect on net income and earnings per share of the
income tax exemptions in Singapore as compared to income taxes at the maximum
statutory rates for 1994 and 1993, was approximately $7.4 million and $.49 and
$4.8 million and $.33, respectively.
Net loss was $30.7 million in 1994, as compared to net loss of $19.9 million
in 1993.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased to $27.9 million
as of December 29, 1995 from $63.2 million as of December 30, 1994. Net cash
used in operations of $47.5 million is primarily due to the Company's net loss
of $84.3 million and decrease in accounts payable of $11.4 million, offset by
a reduction in accounts receivable of $28.5 million, due principally to
decreased sales in the fourth quarter of 1995 compared to the fourth quarter
of 1994. Accounts payable and other accrued liabilities decreased by $11.4
million from 1994 due to decreased inventory receipts.
The Company leases sales offices in eight domestic and nine foreign
locations. These leases would be assumed by STC upon consummation of the
Purchase Agreement. The assumption of these leases is not expected to have a
significant impact on the Systems Business.
The Company's capital expenditures in 1995 were $30.5 million as compared to
$19.7 million in 1994. Capital expenditures related primarily to the
construction of a new manufacturing facility in Singapore to replace the
current leased facility and for equipment and tooling to support new products.
The new facility is expected to be completed in 1996. The Company has obtained
a term loan facility to fund the expenditures associated with the construction
of the building. The Company currently anticipates that following consummation
of the Sale, its 1996 capital spending will be significantly lower than that
of 1995 and will be principally for equipment and tooling required for the
Company's new products.
The Company has an existing $21.5 million term loan facility (the "Loan
Facility") used to finance the construction of its new factory in Singapore.
According to the terms of the Loan Facility, the Company is to pay the last
30% ($8.5 million) of the amounts due under the $30 million construction
contract. In addition, the Company has entered into contracts to build an ESD
safe cleanroom for the production of MR-based disk drives, and certain other
contracts for the facilitization of the factory, all in an amount of
approximately $9.0 million. The Company is past due on the payments required
under the cleanroom construction contract, and does not have the funds to pay
the $8.5 million which will come due between March and July 1996 related to
the construction contract. With the assistance of ST, the Company has sought
and obtained informal deferrals on all of the above mentioned obligations and
no payments are expected to be made by Micropolis Corporation. Rather, these
obligations are planned to be assumed by ST pursuant to the Agreement.
During the second quarter of 1995, the Company obtained a 2-year extension
of its credit facility and reset the size of the facility to $25 million, down
from $33 million. As of December 29, 1995, the Company was in violation of
certain covenants under its line of credit, including among others, the net
worth covenant. Even if the covenants were to be waived (which waiver the
Company has not requested or pursued), there would be no additional
availability under the line of credit beyond the $1.5 million reserved for the
outstanding standby letter of credit. After evaluating the costs of the line
and the balance sheet of StreamLogic assuming the Sale is consummated, and
because the Agreement requires assets to be transferred free of all liens,
pledges and encumbrances, the Company elected to terminate its credit facility
and has notified the lender of its decision. The amount available under the
facility as of December 29, 1995 was $1.5 million (all of which is reserved
for an outstanding standby letter of credit).
During October 1995, the Company completed the private placement to an
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes
are convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $6.00 per share, a premium to the market
price of the Company's Common Stock at the time of issuance. The Notes are
senior to the Company's existing 6% Convertible Subordinated Debentures due
2012 and subordinate to certain senior debt. The Notes are collateralized by
substantially all of the assets of the Company. The Company has requested
consent of the holder of the Notes to allow consummation of the Sale and may
agree to retire or otherwise restructure these Notes. The Company has the
option to redeem the Notes, in whole or in part, at scheduled premium-to-par
redemption prices, plus accrued and unpaid interest, at any time prior to
conversion or maturity. Interest on the Notes is payable semiannually on April
15 and October 15.
16
<PAGE>
On February 16, 1996, the Company entered into a $10 Million Facility
Agreement (the "Facility") with STC for the purpose of providing additional
liquidity to the Company to pay accounts payable between the date of the
Facility and March 29, 1996. As of March 6, 1996, the Company had borrowed $2
million under the Facility. Any amounts outstanding under the Facility are due
on March 29, 1996. Advances bear interest at U.S. dollar prime rate plus 1%.
As of December 29, 1995, the Company had net shareholders' equity totaling
$7,173,000 and anticipates a loss for the first quarter of 1996, the size of
which will depend in significant measure on the level of orders received in
the latter half of the quarter which cannot be predicted with assurance. The
Company has been unable to generate positive cash flow from its operations and
is dependent on future developments, including consummation of the Sale
discussed above, and achieving a level of profitable operations in order to
meet its obligations as they come due. Management has formulated plans to
continue as a going concern, which include the Sale (without regard to
inclusion or exclusion of the Option Real Property), and believes the Sale
will provide sufficient cash flow for the Company for at least the next twelve
months, and much longer unless cash is used for acquisitions and/or debt
restructuring, both of which will be studied. However, there is no assurance
that the Company will be successful in consummating the Sale transaction.
Therefore, these conditions raise substantial doubt about the Company's
ability to continue as a going concern. The December 29, 1995 financial
statements of Micropolis Corporation do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
If the sale is not approved or consummated by the end of March, the Company
anticipates that it could rely upon the assistance of ST to fund losses from
the Drive Business until the Sale closes, assuming that any delay in closing
can be expected to be resolved and that a closing can be expected within a
reasonable period of time. However, there is no assurance that ST would render
any such assistance. If the Sale is not approved and consummated within a
reasonable period of time, the Company does not have the capital resources and
liquidity to carry on its business as it is presently operated. If the Sale
were to fail, the Company would be required immediately to reduce
substantially its payroll and to restructure operations, and may be compelled
to seek reorganization under Chapter 11 of the Bankruptcy Code. This process
would likely result in little or no residual value to stockholders.
17
<PAGE>
MICROPOLIS CORPORATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... 19
Consolidated Statements of Operations for the fiscal years ended December
29, 1995,
December 30, 1994 and December 31, 1993.................................. 20
Consolidated Balance Sheets as of December 29, 1995 and December 30, 1994. 21
Consolidated Statements of Cash Flows for the fiscal years ended December
29, 1995,
December 30, 1994 and December 31, 1993.................................. 22
Consolidated Statements of Shareholders' Equity for the three years ended
December 29, 1995........................................................ 23
Notes to Consolidated Financial Statements................................ 24
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Micropolis Corporation
We have audited the accompanying consolidated balance sheets of Micropolis
Corporation as of December 29, 1995 and December 30, 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 29, 1995. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Micropolis
Corporation at December 29, 1995 and December 30, 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 29, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and cash flow used in operating activities raise
substantial doubt about its ability to continue as a going concern.
Management's plans as to these matters are also described in Note 1. The 1995
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Los Angeles, California
February 1, 1996
19
<PAGE>
MICROPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
DECEMBER 29, DECEMBER 30, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................ $211,264 $346,314 $382,926
Cost of sales............................ 205,628 286,856 315,436
-------- -------- --------
Gross profit............................. 5,636 59,458 67,490
Operating expenses:
Research and development............... 42,469 43,648 36,112
Selling, general and administrative.... 44,274 43,500 41,906
Restructuring charge................... -- -- 5,496
-------- -------- --------
Total operating expenses............. 86,743 87,148 83,514
-------- -------- --------
Loss from operations..................... (81,107) (27,690) (16,024)
-------- -------- --------
Interest income........................ 1,719 2,090 2,335
Interest expense....................... (5,961) (5,075) (5,093)
Other expense.......................... -- -- (1,130)
-------- -------- --------
Loss before income taxes................. (85,349) (30,675) (19,912)
Income tax provision (benefit)........... (1,061) -- 4
-------- -------- --------
Net loss................................. $(84,288) $(30,675) $(19,916)
======== ======== ========
Loss per share........................... $ (5.46) $ (2.03) $ (1.34)
======== ======== ========
Weighted average common outstanding...... 15,445 15,100 14,835
======== ======== ========
</TABLE>
See accompanying notes.
20
<PAGE>
MICROPOLIS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments.. $ 27,896 $ 63,216
Accounts receivable, less allowance for doubtful
accounts and customer returns of $5,427 ($4,455 in
1994)............................................. 33,249 61,724
Inventories........................................ 59,777 56,746
Other current assets............................... 3,433 6,405
-------- --------
Total current assets............................. 124,355 188,091
Property, plant and equipment, at cost:
Land............................................... 1,675 1,675
Buildings and improvements......................... 22,520 22,246
Machinery and equipment............................ 87,094 85,479
Construction in progress........................... 24,400 3,524
-------- --------
135,689 112,924
Less accumulated depreciation and amortization..... 81,544 68,672
-------- --------
54,145 44,252
Other assets......................................... 1,893 1,572
-------- --------
$180,393 $233,915
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of Term Loan Facility.............. $ 2,687 $ --
Accounts payable................................... 34,209 46,388
Other accrued liabilities.......................... 21,502 20,681
-------- --------
Total current liabilities............................ 58,398 67,069
Term Loan Facility................................... 18,102 --
10% Convertible Subordinated Notes due 1998.......... 20,000 --
6% Convertible Subordinated Debentures due 2012...... 75,000 75,000
Deferred income taxes................................ 1,720 2,216
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value; 2,000,000 shares
authorized, none issued........................... -- --
Common stock, $1.00 par value, 50,000,000 shares
authorized; 15,580,413 shares issued and
outstanding (15,266,440 in 1994).................. 15,580 15,266
Additional paid-in capital......................... 110,380 108,863
Accumulated deficit................................ (118,787) (34,499)
-------- --------
Total shareholders' equity....................... 7,173 89,630
-------- --------
$180,393 $233,915
======== ========
</TABLE>
See accompanying notes.
21
<PAGE>
MICROPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
DEC. 29, DEC. 30, DEC. 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(84,288) $(30,675) $(19,916)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 20,679 23,932 25,364
Deferred income taxes......................... (496) (201) (3,000)
(Gain) loss on disposition of property, plant
and equipment................................ (51) (182) 54
Increase (decrease) from changes in:
Accounts receivable.......................... 28,475 (13,493) 1,760
Inventories.................................. (3,031) 2,931 5,934
Other current assets......................... 2,972 (2,016) (896)
Accounts payable and other accrued
liabilities................................. (11,358) 12,644 12,240
Other assets................................. (393) 1,226 (432)
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... (47,491) (5,834) 21,108
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of equipment................ 51 254 57
Additions to property, plant and equipment..... (30,500) (19,704) (22,766)
Net change in short-term investments........... 12,254 12,186 1,826
-------- -------- --------
Net cash used in investing activities............ (18,195) (7,264) (20,883)
-------- -------- --------
Cash flows from financing activities:
Proceeds from Term Loan Facility............... 20,789 -- --
Proceeds from 10% Convertible Subordinated
Notes due 1998................................ 20,000 -- --
Proceeds from sale of common stock, net........ 1,831 1,949 2,015
Payment on capital lease obligation............ -- (231) (534)
-------- -------- --------
Net cash provided by financing activities........ 42,620 1,718 1,481
-------- -------- --------
Net increase (decrease) in cash and equivalents.. (23,066) (11,380) 1,706
Cash and equivalents at beginning of period...... 37,720 49,100 47,394
-------- -------- --------
Cash and equivalents at end of period............ 14,654 37,720 49,100
Short term investments........................... 13,242 25,496 37,682
-------- -------- --------
Total cash, cash equivalents and short-term
investments..................................... $ 27,896 $ 63,216 $ 86,782
======== ======== ========
Supplemental cash flow information:
Interest payments.............................. $ 5,791 $ 5,076 $ 4,821
Tax payments (recoveries)...................... $ (460) $ 2,964 $ 278
</TABLE>
See accompanying notes.
22
<PAGE>
MICROPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL RETAINED
OF COMMON COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 25,
1992........................ 14,532 $14,532 $105,633 $ 16,092 $136,257
Common stock sold for cash. 356 356 1,659 -- 2,015
Net Loss................... -- -- -- (19,916) (19,916)
------ ------- -------- --------- --------
Balances at December 31,
1993........................ 14,888 14,888 107,292 (3,824) 118,356
Common stock sold for cash. 378 378 1,571 -- 1,949
Net Loss................... -- -- -- (30,675) (30,675)
------ ------- -------- --------- --------
Balances at December 30,
1994........................ 15,266 15,266 108,863 (34,499) 89,630
Common stock sold for cash. 314 314 1,517 -- 1,831
Net Loss................... -- -- -- (84,288) (84,288)
------ ------- -------- --------- --------
Balances at December 29,
1995........................ 15,580 $15,580 $110,380 $(118,787) $ 7,173
====== ======= ======== ========= ========
</TABLE>
See accompanying notes.
23
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS INFORMATION
RECENT DEVELOPMENTS
As described in Note 10, on January 24, 1996, the Company entered into a
definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte Ltd, a
Singapore corporation ("STC"), and a wholly-owned subsidiary of Singapore
Technologies Pte Ltd, a Singapore corporation ("ST"), to sell substantially
all of the Company's assets (other than cash and accounts receivable) related
to the Company's hard disk drive business to STC (the "Sale"). The Sale is
subject to stockholder approval, as well as certain closing conditions
contained in the Purchase Agreement. If the Sale is consummated, the Company's
remaining business will be focused on information storage subsystems and video
systems. The accompanying historical financial statements do not give effect
to this transaction.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a
going concern basis. The Company has incurred significant and increasing
operating losses in recent years and has substantially depleted its cash
resources. The Company anticipates a loss for the first quarter of 1996, the
size of which will depend in significant measure on the level of orders
received in the latter half of the quarter which cannot be predicted with
assurance. The Company has been unable to generate positive cash flow from its
operations and is dependent on future developments, including consummation of
the Sale discussed above, and achieving a level of profitable operations in
order to meet its obligations as they come due. As described in Note 3, in
January 1995, the Company has notified its lender that it would exercise its
right to terminate its credit facility agreement in order to facilitate the
process of removing the associated liens from its assets in order to prepare
for the Sale. Management has formulated plans to continue as a going concern,
which include the Sale, and believes the Sale will provide sufficient cash
flow for the Company for the next twelve months. However, there is no
assurance that the Company will be successful in carrying out these actions.
If the Sale is not approved and consummated within a reasonable period of
time, the Company does not have the capital resources and liquidity to carry
on its business as it is presently conducted, nor does it expect that any
advantageous alternative transaction could be rapidly arranged. Accordingly,
if the Sale were to fail, the Company would be required to restructure its
operations, and may be compelled to seek reorganization under Chapter 11 of
the Bankruptcy Code. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The December 29, 1995
financial statements of Micropolis Corporation do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated. Fiscal years 1995 and 1994 were fifty-two week years versus a
fifty-three week 1993.
SALES
Micropolis is a designer and manufacturer of high capacity disk drives,
information storage and video systems. The Company sells these products and
systems directly to original equipment manufacturers ("OEMs") and systems
integrators and through independent distributors and value added resellers
("VARs") for resale to end users. The Company generally warrants its products
against defects for periods from one to five years. The Company provides for
estimated future product warranty costs when products are shipped. In
addition, the
24
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
Company performs ongoing credit evaluations of its customers' financial
condition, and generally requires no collateral from its customers Trade
credit is generally granted to its customers, typically on net 30 day terms.
Historically, the Company has not experienced significant bad debt write-offs.
The Company also has policies and/or contractual agreements which allow
distributors to receive price protection credit under certain circumstances
when the Company lowers its sales prices. In addition, the Company permits
customers to return products under certain circumstances. The Company makes a
provision for the estimated amount of price protection credits and for product
returns that may occur under these programs and contracts in the period of
sale. Sales, most of which are denominated in U.S. dollars, are recorded upon
shipment. No customer accounted for more than 10% of total sales during 1995,
1994 and 1993.
FOREIGN EXCHANGE CONTRACTS
The functional currency of the Company's Singapore and Thailand subsidiaries
is the U.S. dollar. The Company enters into foreign exchange contracts to
minimize the effects of foreign currency fluctuations related to certain known
local expenditures for operations and for the new facility being constructed
in Singapore. These foreign exchange contracts hedged approximately $17.2
million and $19.9 million of transaction exposures as of December 29, 1995 and
December 30, 1994, respectively. There were no significant deferred unrealized
gains or losses at December 29, 1995 or December 30, 1994.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Short-term investments consist
primarily of commercial paper, certificates of deposit, and U.S. government
agency securities and are considered available for sale under Statement of
Financial Accounting Standards 115. These investments generally mature within
six months and are carried at cost which approximates fair values.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market.
<TABLE>
<CAPTION>
DEC. 29, DEC. 30,
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and purchased parts....................... $20,207 $18,634
Work-in-process......................................... 23,289 20,771
Finished goods.......................................... 16,281 17,341
------- -------
$59,777 $56,746
======= =======
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line method over
the estimated useful life of the assets or term of related lease, whichever is
shorter; for buildings and improvements, 10 to 30 years; machinery and
equipment, 3 to 5 years.
25
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
OTHER ACCRUED LIABILITIES
Other accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
DEC. 29, DEC. 30,
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages.............................. $ 5,956 $ 5,622
Accrued warranty........................................ 8,006 8,614
Income taxes payable.................................... 137 243
Other................................................... 7,403 6,202
------- -------
$21,502 $20,681
======= =======
</TABLE>
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$4,606,000, $4,317,000 and $4,799,000 in advertising costs during 1995, 1994
and 1993, respectively.
RESTRUCTURING CHARGE
In the third quarter of 1993, the Company recorded a restructuring charge of
$5.5 million. This charge related primarily to separation costs recognized in
connection with a reduction in workforce and a write-down of certain assets
which were no longer in use due to changes in the Company's production
requirements and new product specifications. All related expenditures were
completed in fiscal year 1994.
INCOME TAXES
The Company applies an asset and liability approach in accounting for income
taxes. Federal taxes are not provided currently on undistributed foreign
earnings since it is the Company's intention that these earnings be reinvested
indefinitely in such subsidiaries, or remitted in a manner which will not
result in a Federal tax liability.
PER SHARE INFORMATION
Loss per share is computed by dividing net loss by the weighted average
number of shares of common stock. Applicable common stock equivalents
outstanding during the period have not been considered as their effect is
antidilutive. Primary and fully diluted earnings per share are the same.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 121
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
26
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
2. INCOME TAXES
The provision (credit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
DEC. 29, DEC. 30, DEC. 31,
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal....................................... $ -- $-- $(105)
State......................................... 82 (52) 73
Foreign....................................... (1,143) 52 36
------- ---- -----
Total....................................... $(1,061) $-- $ 4
======= ==== =====
</TABLE>
Deferred income taxes result from differences in the timing of the
recognition of expense and income items for tax and financial statement
purposes. During 1993 $3,000,000 was reclassified from deferred income taxes
to current income taxes payable for payments during 1994 for years covering
1986 through 1990.
Deferred tax assets and liabilities are comprised of the following at
December 29, 1995:
<TABLE>
<CAPTION>
DEC. 29, DEC. 30,
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Reserves not currently tax deductible.............. $ 5,371 $ 4,639
Other.............................................. 768 862
Excess of book over tax depreciation............... 2,130 1,798
Net operating loss................................. 46,641 31,996
Income tax credits................................. 9,668 7,514
-------- --------
Total before valuation allowance................. 64,578 46,809
Valuation allowance................................ (63,756) (45,248)
-------- --------
822 1,561
-------- --------
Deferred tax liability:
Reserves not currently tax deductible.............. -- (2,216)
State income taxes................................. (2,275) (1,327)
Other.............................................. (267) (234)
-------- --------
(2,542) (3,777)
-------- --------
Deferred tax liability, net........................ $ (1,720) $ (2,216)
======== ========
</TABLE>
The Company has determined a valuation allowance is required for the
deferred tax assets due to the uncertainty of ultimately realizing certain tax
benefits. The change in the valuation allowance was a result of current year
losses and settlement of prior year tax audits.
27
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
The following table reconciles the provision for income taxes to the
statutory federal income tax rate of 35%:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at statutory rate............... $(29,872) $(10,736) $(6,969)
Increases (decreases) related to:
Losses without current income tax benefit. 15,906 13,267 1,510
State income tax expense (benefit) net of
federal income tax....................... 53 (34) 48
Foreign operations........................ (5,671) (10,234) (5,090)
Repatriation of foreign earnings.......... 18,498 7,700 10,500
Other, net................................ 25 37 5
-------- -------- -------
$ (1,061) $ 0 $ 4
======== ======== =======
</TABLE>
Income from the Company's Singapore and Thailand subsidiaries was exempt
from income taxes in those countries through August 2004 and December 1993,
respectively. Income (loss) from these operations for the periods under
exemption was $(15,310,000) in 1995, $27,411,000 in 1994 and $17,182,000 in
1993.
At December 29, 1995, foreign earnings of $44,671,000 have been retained
indefinitely by subsidiary companies for reinvestment, on which no additional
U.S. tax has been provided. If repatriated, additional taxes of approximately
$15,296,000 on these earnings, net of available foreign tax credit
carryforwards, would be due. Any tax otherwise due upon repatriation would be
substantially offset by the tax benefit of net operating loss carryforwards.
The Company repatriated $52,850,000 in 1995, $22,201,000 in 1994 and
$30,000,000 in 1993 from foreign subsidiaries by means of special dividends,
which were offset by the Company's 1995, 1994 and 1993 domestic losses. A net
operating loss of approximately $113,603,000 is available to be carried
forward to the years 2004-2010. General business tax credit carryforwards of
approximately $8,562,000, expiring between 2000 and 2009, are also available
to reduce future federal income taxes.
3. CREDIT FACILITY AGREEMENT
During the second quarter of 1995, the Company obtained a two-year extension
of its $33 million credit facility agreement and reset the size of the
facility to $25 million. As of December 29, 1995, the Company was in violation
of certain covenants under the facility, including, among others, the net
worth covenant. Even if the covenants were to be waived (which waiver the
Company has not requested or pursued), there would be no additional
availability under the line of credit beyond the $1.5 million reserved for the
outstanding standby letter of credit. In January 1996, the Company notified
its lender that it was in default on the facility and would exercise its right
to terminate the facility. The Company has elected to terminate the facility
in order to facilitate the process of removing the associated liens from its
assets to prepare for the Sale. The availability under the facility is
primarily a function of the level of eligible accounts receivable, is limited
by certain outstanding letters of credit and is secured by substantially all
of the Company's assets. The amount available under the facility as of
December 29, 1995 was $1.5 million (all of which is reserved for outstanding
standby letters of credit). The agreement requires specified levels of
operating profits, working capital and tangible net worth. The borrowings
under this agreement bear interest at the prime rate plus 1%. A fee of .5% is
payable on the unused portion of the credit line. As of December 29, 1995,
there were no amounts outstanding under the facility.
28
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
4. LEASE COMMITMENTS
Minimum annual lease commitments at December 29, 1995 under noncancellable
operating leases, principally for operating facilities, are payable as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996...................................................... $ 1,614
1997...................................................... 1,120
1998...................................................... 1,066
1999...................................................... 1,008
2000...................................................... 1,008
Thereafter................................................ 17,343
-------
Total future minimum lease payments..................... $23,159
=======
</TABLE>
Included in minimum annual lease commitments is a thirty-year ground lease
for the new facility being constructed in Singapore. Rent expense amounted to
$4,923,000 in 1995, $4,182,000 in 1994 and $4,643,000 in 1993.
5. LONG TERM DEBT
In December 1994, Singapore Technologies Construction Pte Ltd. ("ST
Construction"), a subsidiary of ST, was hired by the Company as the general
contractor for construction of its new factory in Singapore. During the third
quarter of 1995, the Company refinanced, with ST Construction together with ST
Capital Ltd (another subsidiary of ST) as lenders, its existing term loan
facility used to finance the new factory with a new $21.5 million loan
facility (the "Loan Facility"). The Loan Facility is payable over six years in
monthly principal installments of $298,611 beginning April 1996, bears
interest at the Singapore Interbank Offered Rate plus 2%, and is
collateralized by the new factory.
During October 1995, the Company completed the private placement to a major
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes
are convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $6.00 per share, a premium to the market
price of the Company's Common Stock at the time of issuance. The Notes are
senior to the Company's existing 6% Convertible Subordinated Debentures due
2012 and subordinate to certain senior debt. The Company has the option to
redeem the Notes, in whole or in part, at scheduled premium-to-par redemption
prices, plus accrued and unpaid interest, at any time prior to conversion or
maturity. Interest on the Notes is payable semiannually on April 15 and
October 15. Interest expense amounted to $444,000 in 1995.
In March 1987, the Company issued $75,000,000 principal amount of 6%
Convertible Subordinated Debentures due 2012 (the "Debentures"). The
Debentures are convertible into common stock at a price of $48.50 at any time
prior to redemption or maturity. (1,546,000 shares of common stock have been
reserved for issuance upon conversion.) Mandatory annual sinking fund payments
of 5% of the aggregate principal amount of the Debentures issued will be made
on each March 15, commencing March 15, 1997. Debentures converted to common
stock or reacquired or otherwise redeemed by the Company may be used to reduce
the amount of any sinking fund payment. The Debentures may be redeemed early,
at the Company's option, upon the payment of a premium. Interest on the
debentures is payable semi-annually on March 15 and September 15. Interest
expense amounted to $4,500,000 in 1995, 1994 and 1993.
Because Loan Facility and Notes were entered into recently, the fair market
value of the Loan Facility and the Notes approximates carrying value as of
December 29, 1995. The fair market value of the Debentures using over-the-
counter market prices, was approximately $36 million at December 29, 1995.
29
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
Maturities and sinking fund requirements of long-term debt for the five
years succeeding December 29, 1995 are $2,687,000 in 1996, $7,333,000 in 1997,
$27,333,000 in 1998, $7,333,000 in 1999 and $7,333,000 in 2000.
During 1995, 1994 and 1993 interest paid totaled $5,791,000, $5,076,000 and
$4,821,000 respectively, of which $347,000 was capitalized in 1995 as part of
the cost of the Company's new factory in Singapore.
6. CAPITAL STOCK
Under the Company's various stock option plans, options may be granted at
prices equal to fair market value at the date of grant. Options for key
employees and officers generally become exercisable in equal annual amounts
over five years commencing one year from the date of grant, and expire five
years from the date of grant. Options for directors are exercisable over three
years. At December 29, 1995, there were options for 970,697 shares available
for future option grants. There are currently 432 employees participating in
the various plans. Expiration dates for all options range from 1996 to 2000.
A summary of certain information with respect to options under the Plans
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
DEC. 29, DEC. 30, DEC. 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding, be-
ginning of year........ 1,265,470 1,316,970 1,160,444
Options granted......... 1,100,100 476,500 552,000
Options exercised....... (91,444) (166,750) (176,326)
Weighted average exer-
cise price............. $6.39 $4.50 $5.72
Options canceled........ (649,966) (361,250) (219,148)
--------- --------- ---------
Options outstanding, end
of year................ 1,624,160 1,265,470 1,316,970
========= ========= =========
Weighted average price.. $6.14 $7.15 $7.15
========= ========= =========
Exercisable............. 248,787 381,241 458,638
========= ========= =========
</TABLE>
The Company also has an employee stock purchase plan under Section 423 of
the Internal Revenue Code, with 1,400,000 shares of common stock authorized to
be issued. All full time employees are eligible to participate through payroll
deductions of up to 10% of their compensation. Participants may, at their
option, purchase common stock from the Company at the lower of 85% of the fair
market value of the common stock at either the beginning or end of each one
year option period. During 1995, 222,095 shares were issued pursuant to this
plan at prices ranging from $5.53 to $6.16. During 1994, 207,845 shares were
issued pursuant to this plan at a price of $5.66, and in 1993, 178,898 shares
were issued pursuant to this plan at a price of $5.42. As of December 29,
1995, 303,848 shares were available for issuance under this plan.
The Board of Directors of the Company declared a dividend distribution of
one Right for each share of common stock of the Company outstanding at the
close of business on June 2, 1989. When exercisable, each Right entitles the
registered holder to purchase from the Company one share of common stock at a
price of $40.00 per share, subject to adjustment. Initially, the Rights attach
to all outstanding shares of common stock, and no separate Rights Certificates
will be distributed. The Rights will become exercisable and will detach from
the common stock in the event any individual or group acquires 20% or more of
the Company's common stock, or announces a tender or exchange offer, other
than through conversion of the Notes, which, if consummated, would result in
that person or group owning at least 30% of the Company's common stock. If an
individual or
30
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
group acquires 20% or more of the Company's common stock (except pursuant to
certain cash tender offers for all of the Company's common stock), each Right
will entitle the holder of a Right, other than Rights that are or were
acquired or beneficially owned by the 20% stockholder (which rights will
thereafter be void) to purchase, at the Right's then current exercise price,
the Company's common stock in an amount having a market value equal to twice
the exercise price. Similarly, with certain exceptions, if the Company merges
or consolidates with or sells 20% or more of its assets or earning power to
another person, each Right then will entitle the holder to purchase, at the
Right's then current exercise price, the stock of the acquiring company in an
amount having a market value equal to twice the exercise price. The Rights do
not have voting or dividend rights, and, until they become exercisable, have
no dilutive effect on the earnings of the Company. The Company may redeem the
rights at $0.01 per Right at any time on or prior to the tenth day after
acquisition by a person or group of 20% or more of the Company's outstanding
common stock. The Rights will expire on May 18, 1999, unless earlier redeemed.
No dividends have been declared by the Company during the five-year period
ended December 29, 1995. Under the terms of the Company's credit facility, it
is prohibited from declaring or paying dividends without the prior consent of
the lender.
7. COMMITMENTS AND CONTINGENCIES
In the third quarter of 1992, the Company purchased an equity interest of
approximately 27% in Tulip Memory Systems, Inc. (TMS), a start-up company
formed to develop substrates which are to be used in the manufacture of
computer disk drives. During 1994, the Company increased its ownership to
approximately 60%, pending anticipated outside investment. Operating expenses
attributable to TMS are included in the financial results of the Company. In
connection with its original investment, Micropolis agreed to guarantee the
obligations of TMS to pay the acquisition cost of equipment. As of December
29, 1995 the Company's guaranty obligation under the agreement was $1.5
million.
At December 29, 1995, the Company had letters of credit outstanding totaling
approximately $7.1 million, which guarantee various trade activities. These
letters of credit are secured by pledges of cash.
In addition, the Company is involved in routine legal matters and
contingencies in the ordinary course of business which management believes
will not have a material effect upon the Company's financial position.
31
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
8. GEOGRAPHIC INFORMATION
The following summarizes the Company's sales, income (loss) before income
taxes, and assets by geographic area. Foreign sales originate primarily from
the Company's Singapore location. The sales described below represent the
geographic origination of such sales. Export sales (sales originating in the
United States to customers in foreign countries), were less than 10% of total
sales in each of 1995, 1994 and 1993.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Customer sales:
Domestic (including export sales) ..... $ 25,149 $ 63,892 $ 128,781
Foreign................................ 186,115 282,422 254,145
Affiliate sales:
Domestic............................... 64,309 49,851 55,006
Foreign................................ 110,812 178,881 234,477
Eliminations........................... (175,121) (228,732) (289,483)
--------- --------- ---------
$ 211,264 $ 346,314 $ 382,926
========= ========= =========
Income (loss) before income taxes:
Domestic............................... $ (66,406) $ (58,609) $ (34,425)
Foreign................................ (18,943) 27,934 14,513
--------- --------- ---------
$ (85,349) $ (30,675) $ (19,912)
========= ========= =========
Assets:
Domestic............................... $ 20,732 $ 66,063 $ 74,520
Foreign................................ 159,661 167,852 175,909
--------- --------- ---------
$ 180,393 $ 233,915 $ 250,429
========= ========= =========
</TABLE>
Sales to affiliates are at arms-length prices.
9. COMPARATIVE QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS
------------------------------------------------
FISCAL 1995 FIRST SECOND THIRD FOURTH YEAR
- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $ 40,899 $ 70,076 $ 58,785 $ 41,504 $211,264
Gross profit (loss).......... (8,869) 15,369 2,491 (3,355) 5,636
Loss before income taxes..... (36,253) (6,323) (17,445) (25,328) (85,349)
Net loss..................... (35,087) (6,344) (17,481) (25,376) (84,288)
Loss per share............... (2.29) (.41) (1.12) (1.63) (5.46)
<CAPTION>
QUARTERS
------------------------------------------------
FISCAL 1994 FIRST SECOND THIRD FOURTH YEAR
- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $ 83,658 $ 75,761 $ 79,285 $107,610 $346,314
Gross profit................. 12,296 7,245 11,446 28,471 59,458
Income (loss) before income
taxes....................... (9,760) (14,793) (10,948) 4,826 (30,675)
Net income (loss)............ (9,760) (14,793) (10,948) 4,826 (30,675)
Earnings (loss) per share.... (.65) (.99) (.72) .31 (2.03)
</TABLE>
32
<PAGE>
MICROPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995
10. SUBSEQUENT EVENT (UNAUDITED)
On January 24, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a
Singapore corporation ("ST"), to sell substantially all of the assets, other
than cash and accounts receivable, of the Company's hard disk drive business
(the "Drive Business") including the name "Micropolis," certain other
intangibles, the capital stock of the Company's subsidiary Micropolis
Corporation (Thailand) Ltd. and either the capital stock or assets of five of
the Company's European and Asian sales and marketing subsidiaries (such
assets, collectively, the "Subject Assets") to STC, and STC will assume
certain of the Company's Liabilities relating to the Drive Business (the
"Sale"). In addition, under the Purchase Agreement, STC has an option to
include in the Subject Assets the owned and/or leased portion of the Company's
Corporate headquarters in Chatsworth, California (the "Option Real Property").
The sale will be accounted for by the parties using the purchase method of
accounting. The Sale is subject to stockholder approval, as well as certain
closing conditions contained in the Purchase Agreement. If the Sale is
consummated, the Company's remaining business (the "Systems Business") will be
focused on highly integrated data and video storage/server products to the
information technology (IT) marketplace and will rename itself StreamLogic
Corporation ("StreamLogic").
The following unaudited pro forma condensed consolidated balance sheet of
Micropolis Corporation as of December 29, 1995 and the unaudited pro forma
condensed consolidated statement of operations for the year ended December 29,
1995 have been prepared to illustrate the effect of the proposed Sale. The
financial statements have been prepared as though the Sale had occurred on
December 29, 1995 for purposes of the pro forma balance sheet and as of
December 31, 1994 for purposes of the pro forma statement of operations. If
the Sale is consummated, the Company will rename itself StreamLogic
Corporation ("StreamLogic"). The pro forma adjustments and the assumptions on
which they are based are described in the accompanying notes to unaudited pro
forma financial statements.
The unaudited pro forma condensed combining financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the consolidated financial position or consolidated results of operations of
Micropolis Corporation that would have been reported had the Sale occurred on
the dates indicated, nor do they represent a forecast of the consolidated
financial position of Micropolis Corporation at any future date or the
consolidated results of operations of Micropolis Corporation for any future
period. Furthermore, no effect has been given in the Micropolis Corporation
condensed consolidated statements of operations for operating benefits that
may be realized by virtue of the Sale and no effect has been given for any
additional expense control or restructuring activities which the Company may
undertake with respect to the remaining business. Amounts representing the
assets to be sold and liabilities to be assumed, as reflected in the
accompanying pro forma financial statements, are preliminary and subject to
the consummation of the Sale. The actual amount of cash received by the
Company in exchange for the Subject Assets and Assumed Liabilities will depend
on its operating results between December 29, 1995 and the Closing Date, which
cannot now be determined with certainty. The level of the balance sheet
elements used to determine the purchase price will depend largely on first
quarter 1996 revenues and the resulting levels of accounts receivable and
inventory. Such values are difficult to estimate and could vary considerably
from those reflected in the accompanying pro forma financial statements (due
to, among other things, the level and timing of sales, amount of cash
collected from such sales and the resulting level of accounts payable, which
will be a function of the amount of both collections and purchases of
components during the quarter. The unaudited pro forma condensed consolidated
financial statements, including the Notes thereto, should be read in
conjunction with the historical consolidated financial statements of
Micropolis Corporation, which are included herein.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, 1995
-----------------------------------------------
SALE OF APPLICATION STREAMLOGIC
MICROPOLIS DISK DRIVE OF CORPORATION
CORPORATION ASSETS(1) PROCEEDS(2) PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments....... $ 27,896 $ -- $20,391 $ 45,472
(1,515)
(1,300)
Accounts receivable, net...... 33,249 -- -- 33,249
Receivable from STC........... -- -- 30,510 30,510
Inventories................... 59,777 (50,777) -- 9,000
Other current assets.......... 3,433 (2,717) -- 716
-------- --------- ------- --------
Total current assets........ 124,355 (53,494) 48,086 118,947
Property, plant and equipment,
net............................ 54,145 (47,772) -- 6,373
Other assets.................... 1,893 (723) -- 1,170
-------- --------- ------- --------
$180,393 $(101,989) $48,086 $126,490
======== ========= ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of Term Loan
Facility..................... $ 2,687 $ (2,687) $ -- $ --
Accounts payable.............. 34,209 (26,035) -- 8,174
Other accrued liabilities..... 21,502 (14,064) (1,300) 7,238
1,100
-------- --------- ------- --------
Total current liabilities....... 58,398 (42,786) (200) 15,412
Long term debt.................. 113,102 (18,102) -- 95,000
Deferred income taxes........... 1,720 -- -- 1,720
Shareholders' equity:
Common stock.................. 15,580 -- -- 15,580
Additional paid-in capital.... 110,380 -- -- 110,380
Accumulated deficit........... (118,787) (41,101) 48,286 (111,602)
-------- --------- ------- --------
Total shareholders' equity.. 7,173 (41,101) 48,286 14,358
-------- --------- ------- --------
$180,393 $(101,989) $48,086 $126,490
======== ========= ======= ========
</TABLE>
- --------
(1) To eliminate the assets and liabilities of the Drive Business to be
transferred to STC and to give effect to the proposed Sale as if the Sale
was consummated on December 29, 1995 (excluding the Option Real Property).
The net book value of the Option Real Property was approximately $3,200 as
of December 29, 1995.
(2) To give effect to the receipt of cash proceeds from the Sale as if the
Sale was consummated on December 29, 1995 (excluding the Option Real
Property with a net book value of approximately $3,200 as of that date).
Pursuant to the Purchase Agreement, additional cash payments are due from
STC 45 days after closing and are subject to confirmation by STC of the
final net book value of the assets and liabilities to be transferred. In
addition, the Company will pay $1,300 from the Sale proceeds to satisfy
its guaranty obligation under its agreement with TMS. A holdback of 5% of
the balance will be retained by STC until
34
<PAGE>
the date six months after the closing date. The pro forma gain application
to the above proposed Sale after estimated adjustments (assuming no adverse
adjustment for indemnity or other factors) is:
<TABLE>
<S> <C>
Proceeds from sale.............................................. $ 50,901
Book value of assets to be sold................................. (41,101)
Transaction fees................................................ (1,515)
Book provision for tax.......................................... (1,100)
--------
Pro forma gain................................................. $ 7,185
========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 29, 1995
-------------------------------------------------
SALE OF STREAMLOGIC
MICROPOLIS DISK DRIVE PRO FORMA CORPORATION
CORPORATION ASSETS ADJUSTMENTS(4) PRO FORMA
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Net sales.................... $211,264 $171,921 $ -- $ 39,343
Cost of sales................ 205,628 176,336 2,372 31,664
-------- -------- ------- --------
Gross profit................. 5,636 (4,415) (2,372) 7,679
Operating expenses(3):
Research and development... 42,469 28,826 -- 13,643
Selling, general and
administrative............ 44,274 30,614 -- 13,660
-------- -------- ------- --------
Total operating expenses... 86,743 59,440 -- 27,303
-------- -------- ------- --------
Loss from operations......... (81,107) (63,855) (2,372) (19,624)
Interest expense, net........ (4,242) -- -- (4,242)
-------- -------- ------- --------
Loss before income taxes..... (85,349) (63,855) (2,372) (23,866)
Income tax benefit........... (1,061) -- -- (1,061)
-------- -------- ------- --------
Net loss..................... $(84,288) $(63,855) $(2,372) $(22,805)
======== ======== ======= ========
Loss per share............... $ (5.46) $ (1.48)
======== ========
Weighted average shares
outstanding................. 15,445 15,445
======== ========
</TABLE>
- --------
(3) The costs of Tulip Memory Systems are included in the StreamLogic
Corporation Pro Forma operating expenses. Such costs included Research and
Development of $3,189 and Selling, General and Administrative of $1,927.
The Company's plans call for the discontinuation of Tulip Memory Systems
in the first quarter of 1996.
(4) The Company and STC have entered into an OEM supply agreement. Among other
things, the OEM Supply Agreement allows StreamLogic to buy at prices equal
to or slightly lower than the most favored OEM customer of STC.
StreamLogic must offer all its disk drive business and requirements to STC
on a right-of-first-refusal basis, subject to the ability of STC to meet
certain delivery and other standards. The agreement has an initial two-
year term, after which it may be renewed annually by mutual agreement. The
pro forma adjustment incorporates the provisions contained in the
agreement.
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The unaudited pro forma condensed consolidated financial statements and
related notes have been prepared to illustrate the effect of the proposed
Sale. The financial statements have been prepared as though the Sale had
occurred on December 29, 1995 for purposes of the pro forma balance sheet and
as of December 31, 1994 for purposes of the fiscal 1995 pro forma statement of
operations, respectively.
The unaudited pro forma condensed consolidated statement of operations are
not necessarily indicative of operating results which would have been achieved
had the Sale been consummated as of December 31, 1994 and should not be
construed as representative of future operations. Such pro forma financial
statements do not give effect to any additional expense control or
restructuring activities which the Company may undertake with respect to the
remaining business.
The $9.8 million excess of proceeds from sale of the disk drive assets over
the book value of those assets, as reflected in the accompanying pro forma
financial statements, was based on agreed upon values and the estimated fair
value of those assets. Specifically, a value of $7 million has been
established for the goodwill of the Company related to the Drive Business and
the name "Micropolis" pursuant to the Purchase Agreement. In addition, certain
land and fixed assets have been assigned a value of approximately $2.8 million
in excess of book value based upon anticipated appraisal results and pursuant
to the Purchase Agreement.
Pursuant to the Purchase Agreement, all trade accounts receivable as of
December 29, 1995 are retained by the Company regardless of whether such
accounts receivable were generated by the Systems Business or the Drive
Business.
For purposes of the unaudited pro forma condensed consolidated balance
sheet, aggregate consideration of $111,789 ($101,989 for the assets to be
sold, $7,000 for the goodwill of the Company related to the Drive Business and
the name "Micropolis", and $2,800 for the proceeds in excess of book value of
assets to be sold) was assumed as if the sale had been consummated on December
29, 1995. As there are several variable factors (including ongoing losses, the
level of inventory and the level of accounts payable) that will affect the
amounts of the assets to be sold, liabilities to be assumed and cash received,
such amounts cannot now be determined with certainty, but are expected to be
comparable to or less than at December 29, 1995. The consideration to the
Company, pursuant to the Purchase Agreement, was assumed as follows.
<TABLE>
<S> <C>
Cash proceeds to the Company at closing........................ $ 20,391
Cash proceeds to the Company 45 days after closing............. 27,965
Cash proceeds to the Company 6 months after closing............ 2,545
--------
Total cash proceeds............................................ 50,901
--------
Liabilities assumed at closing:
Current liabilities.......................................... 42,786
Long term debt............................................... 18,102
--------
60,888
--------
Total consideration.......................................... $111,789
========
</TABLE>
Net sales, cost of sales and research and development expenses are
classified between the disk drive business and StreamLogic based on specific
identification. Selling, general and administrative expenses are allocated to
the disk drive business and StreamLogic based on activity surveys and are
believed by management to be representative of the relative expenses. Interest
expense, net is classified as StreamLogic as only capitalized interest on the
Term Loan Facility debt is attributable to the disk drive business.
The costs of Tulip Memory Systems are included in the StreamLogic
Corporation Pro Forma operating expenses. Such costs included Research and
Development of $3,189 and Selling, General and Administrative of $1,927. The
Company's plans call for the discontinuation of Tulip Memory Systems in the
second quarter of 1996.
As discussed in Note 2 to the consolidated financial statements, at December
29, 1995, foreign earnings of $44,671 had been retained indefinitely by
subsidiary companies for reinvestment, on which no additional U.S. tax has
been provided. Following the consummation of the Sale, such foreign earnings
would be repatriated and the proceeds in excess of book value of assets to be
sold of $9,800 would be taken into income and, as a result, alternative
minimum taxes of approximately $1,100 would be due. Such taxes are shown as
other accrued liabilities in the unaudited pro forma condensed consolidated
financial statements. After the Sale, a net operating loss of approximately
$59,132 would be available to be carried forward to the years 2004-2010.
37
<PAGE>
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
Information required by this item is incorporated by reference from the
information under the caption "Election of Directors" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholder, which
will be filed within 120 days of the end of the fiscal year covered by this
Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<C> <C> <S> <C>
J. Larry Smart 48 President, Chief Executive Officer and 1995
Chairman of the Board of Directors
Taroon C. Kamdar 50 President--Asia/Pacific Division and 1991
General Manager, Storage Systems
Division
Ericson M. Dunstan 63 Senior Vice President--Corporate 1976
Engineering
Barbara V. Scherer 40 Vice President--Finance, Chief 1988
Financial Officer and Treasurer
Donald McDonell 47 Vice President--Sales 1992
Holly Sacks 46 Vice President--Marketing 1993
</TABLE>
MR. SMART was elected by the Board of Directors to the position of President
and Chief Executive Officer in July 1995 and serves as Chairman. He served as
President and Chief Executive Officer of Maxtor Corporation from March 1994 to
February 1995. He has served as Chairman of the Board of Southwall
Technologies Inc. since March 1994, and was President and Chief Executive
Officer of Southwall Technologies Inc. from June 1991 to March 1994. From
November 1987 to June 1991, he was Senior Vice President at SCI Systems.
MR. KAMDAR joined Micropolis in November 1991 as Senior Vice President,
General Manager of the Storage Systems Division and in December 1992 was
promoted to Executive Vice President--Storage Systems Division. In April 1993,
Mr. Kamdar was promoted to President, Asia/Pacific Division. For more than
five years prior to joining Micropolis, Mr. Kamdar held various executive
positions at Maxtor Corporation including Senior Vice President, Marketing,
Sales and Business Development.
DR. DUNSTAN is Senior Vice President--Corporate Engineering and Secretary,
and has served as an officer of the Company since December 1976.
MS. SCHERER joined Micropolis in November 1987 as Treasury Director, and
became Treasurer in October 1988. In November 1989, she became Vice President
and Treasurer and in March 1995, was promoted to Senior Vice President--
Finance and Chief Financial Officer. She was previously employed by the Boston
Consulting Group from May 1985 to November 1987.
MR. MCDONELL joined Micropolis in August 1986 as Director of Distribution
and Retail Marketing and became Director of Resale-Marketing in November 1986.
In December 1991, he became Director of Sales--Western Region and in January
1993, was promoted to Vice President--Sales, Storage Systems Division.
MS. SACKS joined Micropolis in January 1992 as Director of Marketing,
Storage Systems Division and in 1993 was promoted to Vice President--
Marketing, Storage Systems Division. She held various management positions in
Xerox Corporation from February 1990 to December 1992 and Genicom Corporation
from September 1988 to February 1990.
Officers serve at the discretion of the Board of Directors.
38
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholders, which
will be filed within 120 days of the end of the fiscal year covered by this
Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial
Holders and Management" contained in the Proxy Statement relating to the
Company's 1996 Annual Meeting of Stockholders, which will be filed within 120
days of the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholders, which
will be filed within 120 days of the end of the fiscal year covered by this
Report.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS.
Report of Independent Auditors.
See Index to Consolidated Financial Statements at Item 8 on F-1 of this
Report.
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of Micropolis Corporation is filed as part of the Report
and should be read in conjunction with the Consolidated Financial Statements
of Micropolis Corporation:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
II Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information to be set forth therein is included in
the Consolidated Financial Statements or notes thereto.
3. EXHIBITS:
INCORPORATED BY REFERENCE
<TABLE>
<C> <S>
3.1 Certificate of Incorporation(1)
3.2 By-Laws, as amended to date(2)
4.1 Indenture, dated March 15, 1987, between Micropolis Corporation
and First Interstate Bank of California as trustee, relating to
$75,000,000 principal amount of 6% Convertible Subordinated
Debentures due 2012(3)
4.2 Rights Agreement dated as of May 1989 between the Company and
First Interstate Bank of
California(4)
4.3 Amendment No. 1 to Rights Agreement(14)
10.15* Micropolis Corporation Employees' Stock Purchase Plan(5)
10.19* Micropolis Corporation Employee Savings and Retirement Plan(6)
10.20* Form of Indemnification Agreement between the Company and each of
its directors and officers(7)
10.21* Executive and Key Employees' Stock Option Plan, dated October
1987(1)
10.22* Directors' Stock Option Plan, dated October 1987(1)
10.23* Form of Incentive Stock Option Agreement for Executive and Key
Employees' Stock Option Plan, dated October 1987(1)
10.24* Form of Non-Qualified Stock Option Agreement for Executive and
Key Employees' Stock Option Plan, dated October 1987(1)
10.26* Form of Stock Option Agreement for Directors' Stock Option Plan,
dated October 1987(1)
10.30* Offer letter agreement between Micropolis Corporation and Robert
G. Wallstrom(8)
10.31* First Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.32* Second Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.33* Third Amendment to the Micropolis Corporation Employee Savings
and Retirement Plan(8)
10.34* Fourth Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
10.35 Loan Agreement between the Company and CIT Group Business
Credit(8)
10.37* Severance Agreement between Micropolis Corporation and Taroon
Kamdar(9)
10.38* Severance Agreement between Micropolis Corporation and Robert
Ganter
10.39* Severance Agreement between Micropolis Corporation and Nigel
Macleod(10)
10.40* Summary of Stock Appreciation Bonus Plan(10)
10.41* Summary of Storage System Division Bonus Plan(10)
10.42* Summary of Key Performance Bonus Plan(10)
10.43* Severance Agreement between Micropolis Corporation and Joel
Appelbaum(11)
10.44* Amendment to the Micropolis Corporation Employee Stock Purchase
Plan(12)
10.45* Amended and Restated Stock Option Plan for Independent Directors
of Micropolis Corporation(12)
10.46* Stock Option Plan for Executive and Key Employees of Micropolis
Corporation, as amended(12)
10.47* Agreement for Services between Micropolis Corporation and J.
Larry Smart(13)
10.48* Employment Agreement between Micropolis Corporation and J. Larry
Smart(14)
10.49 Loan Agreement between Micropolis Limited and ST Capital Limited,
and related Guarantee Agreement between Micropolis Corporation
and Singapore Technologies Construction PTE LTD(14)
10.50* Consulting Agreement between Micropolis Corporation and Chriss
Street & Company(14)
- --------
*Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K Report pursuant to Item 14(c).
FILED HEREWITH
10.51 Note Agreement Re: $20,000,000 10% Convertible Secured Notes Due
October 15, 1998, dated as of October 11, 1995 between
Micropolis Corporation and Lindner Dividend Fund, a Series of
Lindner Investments
10.52 Promissory Note between Micropolis Corporation and J. Larry Smart
10.53 Asset Purchase Agreement dated January 24, 1996 between
Micropolis Corporation and ST Chatsworth Pte Ltd, a Singapore
corporation
10.54 Development Agreement dated September 15, 1995 between Micropolis
Corporation and BTS Broadcast Television Systems GmbH
10.55 $10 Million Facility Agreement dated February 16, 1996 between
Micropolis Corporation and ST Chatsworth Pte Ltd.
10.56 StreamLogic OEM Supply Agreement dated March 4, 1996, between
Micropolis Corporation and ST Chatsworth Pte Ltd.
21 Subsidiaries of Registrant
23 Consent of Independent Auditors (See Exhibit 23)
27 Article 5 Financial Data Schedule for 1995 10-K
</TABLE>
- --------
(1) Incorporated by reference to Exhibits 3.1, 10.21, 10.22, 10.23, 10.24 and
10.26, respectively, filed in the Company's Annual Report on Form 10-K,
for the fiscal year ended December 25, 1987.
(2) Incorporated by reference to Exhibit 3.2 filed in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1988.
(3) Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-3 No. 33-12374.
(4) Incorporated by reference to Exhibit I filed in the Company's Form 8-K
Report dated June 2, 1989.
(5) Incorporated by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-8 No. 2-90423.
41
<PAGE>
(6) Incorporated by reference to Exhibits 10.18 and 10.19 respectively, filed
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 27, 1985.
(7) Incorporated by reference to Exhibit D of the Company's Proxy Statement
for the 1987 Annual Meeting of Shareholders.
(8) Incorporated by reference to Exhibits 10.30, 10.31, 10.32, 10.33 and
10.34, respectively, filed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1990.
(9) Incorporated by reference to Exhibits 10.36 and 10.37, respectively,
filed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 27, 1991.
(10) Incorporated by reference to Exhibits 10.39, 10.40, 10.41 and 10.42,
respectively, filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
(11) Incorporated by reference to Exhibit 10.43 filed in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended April 1,
1994.
(12) Incorporated by reference to Exhibits 10.44, 10.45 and 10.46,
respectively, filed in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended July 1, 1994.
(13) Incorporated by reference to Exhibit 10.47 filed in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1995.
(14) Incorporated by reference to Exhibits 4.3, 10.48, 10.49 and 10.50,
respectively, filed in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 29, 1995.
(b) No reports on Form 8-K were filed by the Registrant during the fourth
quarter ended December 29, 1995.
(c) Those exhibits, and the index thereto, required to be filed by Item 601 of
Regulation S-K are attached hereto or incorporated by reference herein.
42
<PAGE>
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.
MICROPOLIS CORPORATION
Dated: March 7, 1996 By: /s/ Barbara V. Scherer
__________________________________
Barbara V. Scherer
Vice President--Finance,
Chief Financial Officer and
Treasurer
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 the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Larry Smart President and Chairman of March 7, 1996
____________________________________ the Board (Chief Executive
J. Larry Smart Officer)
/s/ Barbara V. Scherer Senior Vice President-- March 7, 1996
____________________________________ Finance,
Barbara V. Scherer Chief Financial Officer and
Treasurer (Principal
Financial Officer)
/s/ Lee N. Hilbert Corporate Controller March 7, 1996
____________________________________ (Principal Accounting
Lee N. Hilbert Officer)
/s/ Ericson M. Dunstan Senior Vice President-- March 7, 1996
____________________________________ Corporate Engineering,
Ericson M. Dunstan Director
/s/ Chriss W. Street Director March 7, 1996
____________________________________
Chriss W. Street
/s/ S. Kenneth Kannappan Director March 7, 1996
____________________________________
S. Kenneth Kannappan
</TABLE>
S-1
<PAGE>
MICROPOLIS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR EXPENSES DEDUCTIONS* YEAR
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1995:
Allowance for doubtful accounts,
customer returns and price
protection...................... $4,455,000 $2,950,000 $1,978,000 $5,427,000
1994:
Allowance for doubtful accounts,
customer returns and price
protection...................... $1,375,000 $5,736,000 $2,656,000 $4,455,000
1993:
Allowance for doubtful accounts,
customer returns and price
protection...................... $1,390,000 $ 323,000 $ 338,000 $1,375,000
</TABLE>
- --------
*Write-offs against reserves
S-2
<PAGE>
MICROPOLIS CORPORATION
INDEX TO EXHIBITS
(ITEM 14 (C))
<TABLE>
<C> <S>
10.51 Note Agreement Re: $20,000,000 10% Convertible Secured Notes Due October
15, 1998, dated as of October 11, 1995 between Micropolis Corporation
and Lindner Dividend Fund, a Series of Lindner Investments
10.52 Promissory Note between Micropolis Corporation and J. Larry Smart
10.53 Asset Purchase Agreement dated January 24, 1996 between Micropolis
Corporation and ST Chatsworth Pte Ltd, a Singapore corporation
10.54 Development Agreement dated September 15, 1995 between Micropolis
Corporation and BTS Broadcast Television Systems GmbH
10.55 $10 Million Facility Agreement dated February 16, 1996 between
Micropolis Corporation and ST Chatsworth Pte Ltd.
10.56 StreamLogic OEM Supply Agreement dated March 4, 1996, between Micropolis
Corporation and ST Chatsworth Pte Ltd.
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Article 5 Financial Data Schedule for 1995 10-K
</TABLE>
<PAGE>
EXHIBIT 10.51
================================================================================
MICROPOLIS CORPORATION
NOTE AGREEMENT
Dated as of October 11, 1995
Re: $20,000,000 Principal Amount of 10% Convertible Secured Notes
Due October 15, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not a part of this Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DESCRIPTION OF NOTES AND COMMITMENT...................................... 1\
1.1 Description of Notes............................................. 1
1.2 Commitment, Closing Date......................................... 2
2. REPRESENTATIONS.......................................................... 3
2.1 Representations of the Company................................... 3
2.2 Representations of the Purchaser................................. 5
3. CLOSING CONDITIONS....................................................... 7
3.1 Conditions to the Purchaser's Obligations........................ 7
3.2 Conditions to the Company's Obligations.......................... 8
4. SUBORDINATION............................................................ 8
4.1 Agreement to Subordinate......................................... 8
4.2 Liquidation; Dissolution; Bankruptcy............................. 8
4.3 Default on Senior Debt........................................... 9
4.4 Acceleration of Notes............................................ 10
4.5 Subrogation...................................................... 10
4.6 Relative Rights.................................................. 10
4.7 Subordination May Not Be Impaired by Company..................... 11
4.8 Senior Debt Entitled to Rely..................................... 11
4.9 Seniority of the Notes........................................... 11
5. CONVERSION............................................................... 11
5.1 Conversion Privilege............................................. 11
5.2 Conversion Price................................................. 11
5.3 Requirements for Conversion...................................... 11
5.4 Issuance of Common Stock on Conversion; No Adjustment
for Interest or Dividends........................................ 12
5.5 Cash Payments in Lieu of Fractional Shares....................... 12
5.6 Adjustment of Conversion Price................................... 13
5.7 Taxes on Shares Issued........................................... 15
5.8 Reservation of Shares; Shares to be Fully Paid;
Listing of Common Stock.......................................... 15
</TABLE>
i
<PAGE>
EXHIBIT 10.52
PROMISSORY NOTE
Micropolis Corporation
21211 Nordhoff Street
Chatsworth, California 91311
November 2, 1995
FOR VALUE RECEIVED, the undersigned, J. Larry Smart ("Borrower"), promises
to pay to Micropolis Corporation, a Delaware corporation ("Lender"), or order,
the principal amount of $125,007.05, or so much thereof as Lender shall have
disbursed to Borrower, with interest on the unpaid principal balance hereunder
at the rate of eight percent per annum. One hundred and fifty-six payments in
the amount of $901.94 shall be deducted by the Lender from the net weekly
payroll amount due to the Borrower, commencing with the regularly scheduled
payroll period ending November 24, 1995 (disbursement date of December 1, 1995),
and ending with the regularly scheduled payroll period ending November 13, 1998
(disbursement date of November 20, 1998).
Borrower retains option of repaying principal, in any or the entire
principal amount, plus accrued interest, prior to scheduled repayment dates. No
penalty shall be charged to the Borrower if any or the entire principal amount
is paid prior to the scheduled repayment dates.
Proceeds of this Note received by the Borrower shall be used for the sole
purpose of purchasing shares of the Common Stock of the Lender, as permitted and
in accordance with the requirements of federal securities laws, including,
without limitation, the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
All amounts due hereunder shall be payable without defense, set off or
counterclaim, in lawful money of the United States of America, through weekly
payroll deductions as described hereunder, to Lender at 21211 Nordhoff Street,
Chatsworth, California 91311.
Upon the occurrence of a default hereunder the Lender may, at its option,
without notice to or demand upon Borrower or any other party, declare
immediately due and payable the entire principal balance hereof together with
all accrued and unpaid interest thereon, plus any other amounts then owing
pursuant to this Note, whereupon the same shall be immediately due and payable.
In no event shall interest be charged under this Note which would violate any
applicable law.
If any default occurs in any payment due under this Note, Borrower and all
guarantors and endorsers hereof, and their successors and assigns, promise to
pay all costs and expenses, including attorneys' fees, incurred by each Lender
hereof in collecting or attempting to collect the indebtedness under this Note,
whether or not any action or proceeding is commenced. None of the provisions
hereof and none of the Lender's rights or remedies hereunder on account of any
past or future defaults shall be deemed to have been waived by the Lender's
acceptance of any past due installments or by any indulgence granted by the
Lender to Borrower.
Borrower and all guarantors and endorsers hereof, and their successors and
assigns, hereby waive presentment, demand, diligence, protest and notice of
every kind (except such notices as may be required), and agree that they shall
remain liable for all amounts due hereunder notwithstanding any extension of
time or change in the terms of payment of this Note granted by any Lender
hereof, or any delay or failure by the Lender thereof to exercise any rights
under this Note.
<PAGE>
Promissory Note
November 2, 1995
Page 2
In the event that the Borrower is no longer employed by the Lender, or its
successors and assigns, regardless of cause or method of termination, Borrower
shall remain liable for all amounts due hereunder, and, upon such termination,
payment shall be due immediately and payable in equal monthly installments over
the remaining term of the Note, with a maturity date of November 20, 1998.
This Note shall inure to the benefit of Lender, its successors and assigns
and shall bind the heirs, executors, administrators, successors and assigns of
Borrower. Each reference herein to powers or rights of Lender shall also be
deemed a reference to the same power or right of such assignees to the extent of
the interest assigned to them.
In the event that any one or more provisions of this Note shall be held to
be illegal, invalid or otherwise unenforceable, the same shall not affect any
other provision of this Note and the remaining provisions of this Note shall
remain in full force and effect.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed the
day and year first above written.
Read and Agreed to:
/s/ J. Larry Smart
------------------
By: J. Larry Smart
MICROPOLIS CORPORATION
/s/ Barbara V. Scherer
----------------------
By: Barbara V. Scherer
Title: Vice President--Finance,
CFO & Treasurer
Exhibit A. Promissory Note Amortization Table and Payment Schedule
<PAGE>
EXHIBIT 10.53
DATED THIS 24TH DAY OF JANUARY 1996
-----------------------------------
MICROPOLIS CORPORATION
and
ST CHATSWORTH PTE LTD
********************************
ASSET PURCHASE AGREEMENT
********************************
BIH LI & LEE
Advocates & Solicitors
79 Robinson Road
#24-01 CPF Building
Singapore 068897
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<C> <S> <C>
1. AGREEMENT TO BUY AND SELL ASSETS 1
1.1 Purchase of Assets by ST 1
1.2 Option over Purchased Companies 5
1.3 Option over US Real Property 6
1.4 Excluded Assets 6
1.5 Assumption of Certain Obligations by ST 6
1.6 Excluded Liabilities 7
1.7 Discharge of Excluded Liabilities 9
2. CLOSING AND PAYMENT OF THE PURCHASE PRICE 9
2.1 Closing 9
2.2 Purchase Price 9
2.3 Payment of Initial Payment 10
2.4 Payment of Second Payment 11
2.5 Payment of Final Payment 11
2.6 Allocation of Purchase Price 11
2.7 Transfer of Acquired Assets 12
2.8 Transfer by Delivery 12
2.9 Operative Agreements 12
2.10 Closing in relation to Sale of Shares
in Micropolis Thailand 13
2.11 Closing in relation to Sale of Shares
in the Purchased Companies 14
2.12 Prorations 15
3. DETERMINATION OF NET WORTH
AND CLOSING DATE BALANCE SHEET 15
3.1 Determination of Preliminary Closing
Date Balance Sheet 15
3.2 Supply of Information and Documents 15
3.3 Confirmation of Disk Drive Final Net Worth 16
3.4 Definition of Closing Date Balance Sheet 17
3.5 Application of Accounting Principles 17
4. REPRESENTATIONS AND WARRANTIES OF MCUS 17
4.1 Information and Corporate Capacity 18
(A) Information 18
(B) Organisation and Qualification
of MC 18
</TABLE>
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<C> <S> <C>
(C) Authority of MCUS 18
(D) Assets 19
4.2 Real Property 20
(A) Environmental Matters 20
(B) Violation of Applicable Laws 22
(C) Title 23
(D) Planning 24
(E) State and Condition of the Real Property 25
(F) Leasehold Properties 25
4.3 General Environmental Matters 26
4.4 Conduct of the Business 27
4.5 Permits and Licences 27
4.6 Financial Statements and Undisclosed Liabilities 27
4.7 Compliance with Laws 28
4.8 Patents and Patent Applications 28
4.9 Insolvency 29
4.10 Affiliate Transactions 30
4.11 Litigation 30
4.12 Absence of Changes 31
4.13 Employee Benefit Plans 32
4.14 Governmental and Other Approvals 33
4.15 Brokerage 33
4.16 Labour Relations 33
4.17 Warranties in Respect of Micropolis Thailand 33
(A) Debts to, contracts with,
connected persons 34
(B) Accounts receivable 34
(C) Insurance 35
(D) Title to assets 35
(E) Books and records 35
(F) Options on capital 36
(G) Subsidiaries and associated companies 36
(H) Statutory and other requirements,
consents and licenses 36
(I) The Audited Accounts 37
(J) Taxation 38
(K) Contributions 39
(L) Tax returns 39
</TABLE>
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<C> <S> <C>
4.18 Warranties in Respect of Purchased Companies 40
4.19 Trade Payables 40
4.20 Disclosure 41
5. REPRESENTATIONS AND WARRANTIES OF ST 41
5.1 Organisation and Qualification of ST 41
5.2 Authority 41
6. COVENANTS OF MCUS PRIOR TO CLOSING 42
6.1 Restrictions 42
6.2 Matters Pending Closing 43
6.3 Notice of Breach 45
6.4 Access 45
6.5 Authorisation from Others 45
6.6 HSR Filings 46
6.7 Consummation of Agreement 46
6.8 Relationships with Customers and Suppliers 47
6.9 Defective Disk Drives 47
6.10 Stock Verification 47
6.11 Inventory for System Business 47
6.12 Balance Sheet For Disk Drive Business 47
6.13 Financial Statement of Disk Drive Business 47
6.14 List of Acquired Assets 48
6.15 Accounts of Purchased Companies 48
6.16 Inventory for Evaluation 48
6.17 Purchase of Issued Share Capital 48
7. COVENANTS OF ST CHATSWORTH 48
7.1 Regulatory and Other Approvals 48
7.2 HSR Filings 49
7.3 Maintenance of Goodwill 49
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF ST CHATSWORTH TO CLOSE 50
8.1 Representations and Warranties 50
8.2 Performance of Covenants 50
8.3 Orders and Laws 50
8.4 Regulatory Consents and Approvals 51
</TABLE>
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<C> <S> <C>
8.5 Delivery of Certificates and Documents to
ST Chatsworth 51
8.6 Exon-Florio Amendment 51
8.7 Pledge 51
8.8 Damage or Destruction 52
8.9 Title Insurance 52
8.10 Completion of Due Diligence 52
8.11 Approval of Board of Directors 52
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF MCUS TO
CLOSE 53
9.1 Approval of Board of Directors 53
9.2 Approval of MCUS Stockholders 53
9.3 Delivery of Certificates and Documents to
MCUS 53
9.4 Exon-Florio Amendment 53
9.5 Orders and Laws 53
9.6 Regulatory Consents and Approvals 54
10. CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO
CLOSING 54
10.1 Survival of Representations, Warranties,
Agreements, Covenants and Obligations 54
10.2 Further Assurances 54
10.3 Publicity and Disclosures 54
10.4 Further Co-operation of the Parties 55
10.5 Consents of Third Parties 55
10.6 Mail Received after Closing 55
10.7 Employment of Business Employees by ST 56
10.8 Accounts Receivable 57
10.9 Transfer Tax Liabilities 57
10.10 Provisions in Relation to the name
"Micropolis" 58
10.11 Warranty Servicing 58
10.12 Inventory Sent for Evaluation 59
10.13 AMK Leasehold 59
</TABLE>
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<C> <S> <C>
11. INDEMNIFICATION 59
11.1 General Indemnification by MCUS 59
11.2 Environmental Indemnification by MCUS 60
11.3 Notice and Defence of Claim 61
11.4 No Tax Effect: Insurance 62
12. TERMINATION OF AGREEMENT 63
12.1 Termination 63
12.2 Effects of Termination 63
12.3 Right to Proceed 63
13. MCUS's NON-COMPETITION COVENANTS 64
13.1 Non-Competition of MCUS 64
13.2 Injunctive Relief 65
13.3 Enforcement 65
14. NON-DISCLOSURE COVENANTS 65
14.1 Non-Disclosure of Information by MCUS 65
14.2 Definition of Confidential Information 65
14.3 Injunctive Relief 66
15. MISCELLANEOUS 66
15.1 Expenses 66
15.2 Notices 66
15.3 Waiver 67
15.4 Bulk Sales Act 67
15.5 Section Headings 68
15.6 Exhibits and Schedules 68
15.7 Severability 68
15.8 Entire Understanding 68
15.9 Binding Effect 68
15.10 Governing Law 68
15.11 Choice of Forum and Consent to Jurisdiction 69
15.12 Assignability 69
15.13 Counterparts: Delivery by Facsimile 69
15.14 Certain Definitions 69
15.15 No Rights to Third Parties 72
15.16 Pronouns and Plurals 72
</TABLE>
<PAGE>
C O N T E N T S
---------------
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<S> <C> <C>
Schedule 1 73
Schedule 2 74
Schedule 3 75
Schedule 4 76
Schedule 5 77
Schedule 6 82
Schedule 7 83
Schedule 8 84
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement") entered into this 24th day
---------
of January 1996, by and between:-
(1) MICROPOLIS CORPORATION, of 21211 Nordhoff St., Chatsworth, CA 91311,
United States of America (hereinafter called "MCUS"); and
----
(2) ST CHATSWORTH PTE LTD of 83 Science Park Drive, #01-01/02 The Curie,
Singapore Science Park, Singapore 118258 (hereinafter called
"ST Chatsworth").
-------------
WITNESSETH:-
WHEREAS, ST Chatsworth desires to purchase or cause one or more of its
affiliated corporations to purchase the business and certain assets of the disk
drive business of MCUS including the business and the assets used in the
development, manufacturing, sales marketing and distribution of disk drives as
carried on by MCUS and its affiliates (each such affiliate is hereinafter
referred to as a "MC Affiliate") (MCUS and each such MC Affiliate are sometimes
------------
hereinafter referred to individually and collectively as "MC") excluding the
--
business and assets associated with the systems business (the "Disk Drive
----------
Business");
- --------
WHEREAS, ST Chatsworth intends to assign all or a portion of its rights
and obligations under this Agreement to one or more of its affiliates (each such
affiliate to which any such rights and obligations are assigned is hereinafter
referred to as a "ST Affiliate") (ST Chatsworth and each such ST Affiliate are
------------
sometimes hereinafter referred to individually and collectively as "ST"); and
--
WHEREAS, MC desires to sell and cause the MC Affiliates to sell to ST the
business and certain assets of the Disk Drive Business.
NOW, THEREFORE, in consideration of the representations and warranties,
covenants and agreements hereinafter made, the parties hereto do hereby agree as
hereinafter set forth, and each of ST Chatsworth and MCUS hereby agrees to cause
the ST Affiliates and the MC Affiliates respectively to perform their respective
obligations pursuant to this Agreement.
1. AGREEMENT TO BUY AND SELL ASSETS
--------------------------------
1.1 Purchase of Assets by ST
------------------------
At the Closing (as defined in Section 2.1), on the terms and subject to
the conditions set forth in this Agreement, MCUS shall and shall procure
the MC Affiliates to sell, convey, transfer, assign and deliver to ST,
and ST shall purchase and acquire from MC, free and clear of all Liens
(as defined in
C-1
<PAGE>
2
Section 15.14) all of MC's right, title and interest in and to the
following assets, properties and business of the Disk Drive Business as
the same may exist on the Closing Date (as defined in Section 2.1),
whether or not in the possession or control of MC:-
(a) (in the event ST Chatsworth exercises the option pursuant to Section
1.3) the real property and all buildings and improvements located
thereon owned by MCUS and located in Chatsworth, California, United
States of America and more fully described in Schedule 1 of the
-----------------
Disclosure Schedule annexed hereto (the "Disclosure Schedule")
------------------- -------------------
(which real property, together with all buildings, structures and
improvements thereon and all rights, easements and appurtenances
pertaining thereto are referred to as the "US Real Property");
----------------
(b) (in the event ST Chatsworth exercises the option pursuant to Section
1.3) the leasehold interest and all buildings and improvements
located thereon leased by MCUS from Northpark Industrial and more
fully described in Schedule 2 of the Disclosure Schedule together
-------------------------------------
with all buildings, structures and improvements thereon and all
rights, easements and appurtenances pertaining thereto and together
with any options to purchase the underlying property and leasehold
improvements thereon, and all other rights, subleases, licences,
permits, deposits and profits appurtenant to or related to the lease
(the "US Leasehold");
------------
(c) an irrevocable licence to use, to the exclusion of Micropolis
Singapore (as defined in Section 15.14), the leasehold interest and
all buildings and improvements located thereon leased by Micropolis
Singapore from Technology Parks Private Limited and more fully
described in Schedule 3 of the Disclosure Schedule subject to
-------------------------------------
Section 10.13 for the remaining of the leasehold interest (the "AMK
---
Leasehold");
---------
(d) the leasehold interest and all buildings and Improvements located
thereon leased by Micropolis Singapore from Jurong Town Corporation
and more fully described in Schedule 4 of the Disclosure Schedule
-------------------------------------
(the "SN Leasehold"),
------------
(the SN Leasehold together with all buildings, structures and
improvements thereon and all rights, easements and appurtenances
pertaining thereto and together with any options to purchase the
underlying property and leasehold improvements thereon, and all
other rights, subleases, licences, permits, deposits and profits
appurtenant to or related to the lease and the AMK leasehold are
referred to as the "Singapore Leasehold");
-------------------
(e) the total issued share capital of Micropolis Thailand (as defined in
Section 15.14);
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(f) (at the election of ST Chatsworth pursuant to Section 1.2) the total
issued share capital of each or any of the Purchased Companies (as
defined in Section 15.14);
(g) the machinery, plant and equipment, office furniture, fixtures,
vehicles and trailers and other tangible personal property (other
than inventory) held for use in the conduct of the Disk Drive
Business at the locations at which the Disk Drive Business is
conducted or at customers' premises on consignment of MC used or
useful in the Disk Drive Business (the "Machinery and Equipment")
-----------------------
including, without limitation, the foregoing purchased subject to
any conditional sales or title retention agreement in favour of any
other person other than items disposed of between the date hereof
and the Closing Date in the ordinary course of business consistent
with past practice and on an arm's length basis;
(h) the corporate assets of MCUS located in Chatsworth, California,
United States of America, used in the conduct of the Disk Drive
Business including the MIS computer software and other related
equipment (the "Corporate Assets");
-----------------
(i) subject to Section 6.11, the finished goods inventory related to the
Disk Drive Business of MC, the raw materials, supplies, work-in-
progress on hand at MC's facilities at which the Disk Drive Business
is conducted which are used solely in the Disk Drive Business (the
"Inventory");
---------
(j) the sundry assets and all notes and other evidence of such
indebtedness occurring in the conduct of or related to the Disk
Drive Business (collectively the "Sundry Assets");
-------------
(k) all, but not less than all of the customer lists and related data,
lists of suppliers, sales reports, cost sheets, bills of material,
inventions, technical information, engineering data, production
data, manufacturing process and process control data, blueprints and
specifications, drawings, formulae, laboratory notebooks, all data
regarding product development, processes, trade secrets, know-how
and the Confidential Information (as defined in Section 14.2), and
all files, financial and business information and records of MC
relating to the Disk Drive Business, all of which shall be in
machine readable form to the extent available; provided, that if any
of the foregoing do not relate exclusively to the Disk Drive
Business, MC shall deliver to ST extracts of the foregoing which
relate to the Disk Drive Business provided that (except in relation
to Micropolis Thailand and each or any of the Purchased Companies
where ST Chatsworth has elected to purchase the issued share
capital) MC shall be entitled to retain the original copies of
financial and business information and records which are required
for the filing of tax returns;
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(l) all, but not less than all, patents, trademarks, trade names,
service marks, brand names, business and product names, logos,
copyrights and applications for any of the foregoing of MC, relating
to or used in the conduct of the Disk Drive Business and including
MC's rights, title and interest including goodwill to the word and
name "Micropolis";
(m) subject to Section 10.5 all right, title and interest of MC in and
to:-
(i) the leases for real property (collectively the "Real Property
-------------
Leases") together with any options to purchase the underlying
------
property and leasehold improvements thereon, and in each case
all other rights, subleases, licences, permits, deposits and
profits appurtenant to or related to such leases and
subleases of MC listed in Schedule 5 of the Disclosure
----------------------------
Schedule;
--------
(ii) the leases or subleases of tangible personal property
described in Schedule 6 of the Disclosure Schedule as to
-------------------------------------
which MC is the lessor or sublessor and the leases of
tangible personal property described in Schedule 6 of the
-----------------
Disclosure Schedule as to which MC is the lessee or
-------------------
sublessee, together with any options to purchase the
underlying property;
(iii) all purchase orders given by MC in the ordinary course of
business consistent with past practice for the purchase of
products, materials, supplies, parts and other items related
to the Disk Drive Business;
(iv) all purchase orders related to the Disk Drive Business
submitted to MC by customers of MC in the ordinary course of
business and consistent with past practice with respect to
which MC has not received full payment thereon on or prior to
the Closing Date; and
(v) all contracts to which MC is a party and which are utilized
in the conduct of the Disk Drive Business, including without
limitation contracts relating to suppliers, sales
representatives, distributors, purchase orders, marketing
arrangements and manufacturing arrangements listed in
Schedule 7 of the Disclosure Schedule,
-------------------------------------
(all of such leases, contracts, purchase orders and sales
commitments specified in this Section 1.1(m) are hereinafter
referred to as the "Assumed Contracts");
-----------------
(n) all government licences and permits of MC necessary to the conduct
of the Disk Drive Business which are transferable to the extent
permitted under applicable law;
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(o) all prepaid expenses and other assets of MC related to the Disk
Drive Business;
(p) any security deposits deposited by or on behalf of MC as lessee or
sublessee under the Real Property Leases and the SN Leasehold;
(q) the goodwill of MC related to the Disk Drive Business;
(r) subject to Section 10.5, all manufacturers', vendors' and suppliers'
warranties in respect of any asset of the Acquired Assets (as
hereinafter defined);
(s) subject to Section 10.5, all rights, contractual or otherwise, in
favour of MC regarding Confidential Information related to the Disk
Drive Business;
(t) all books and records used or held for use in the conduct of the
Disk Drive Business or otherwise relating to the Acquired Assets
(except in relation to Micropolis Thailand and the Purchased
Companies where ST has elected to purchase the issued share capital)
other than the minute books, stock transfer books and corporate seal
of MC; and
(u) all other assets and properties of MC used or held for use in
connection with the Disk Drive Business except as otherwise provided
in Section 1.4.
Provided that in the case where the assets described above are owned by,
belonging to or to be sold by the Purchased Companies, such assets shall
only be included in the sale and purchase if ST Chatsworth makes the
election pursuant to Section 1.2 to purchase these assets.
All of the assets of MC described above to be acquired by ST are
hereinafter collectively referred to as the "Acquired Assets."
---------------
1.2 Option Over Purchased Companies
-------------------------------
MC irrevocably grant to ST Chatsworth or a ST Affiliate nominated by ST
Chatsworth an option to be exercised in its absolute discretion in
relation to each of the Purchased Companies to either:-
(i) purchase the assets set out in Section 1.1 owned by, belonging to or
to be sold by that Purchased Company; or
(ii) purchase the total issued share capital of that Purchased Company.
The option shall be exercised no later than the date falling 30 days
prior to the Closing Date, by ST Chatsworth giving written notice to MCUS
of the exercise of the option under this Section 1.2.
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1.3 Option Over US Real Property
----------------------------
MCUS irrevocably grants to ST Chatsworth or a ST Affiliate nominated by
ST Chatsworth an option to purchase the US Real Property and/or the US
Leasehold.
The option may be exercised no later than the date falling 30 days prior
to the Closing Date by ST Chatsworth giving written notice to MCUS of the
exercise of the option.
1.4 Excluded Assets
---------------
Notwithstanding anything in Section 1.1 to the contrary, the following
shall be specifically excluded from the Acquired Assets:-
(a) cash, commercial paper, certificates of deposit and other bank
deposits, treasury bills and other cash equivalents;
(b) life insurance policies of officers and other employees of MC and
all other insurance policies relating to the operation of the Disk
Drive Business;
(c) all refunds or credits, if any, of Taxes (as defined in Section
15.14) due to or from MC which cannot be assigned by law;
(d) any rights (including indemnification) and claims and recoveries
under litigation of MC against third parties arising out of or
relating to events prior to the Closing Date;
(e) the rights of MC in, to and under all contracts of any nature, the
obligations of MC under which expressly are not assumed by ST
pursuant to Section 1.6;
(f) the assets and properties of Tulip Memory System Inc; and
(g) except as provided in Section 1.1(j) in relation to the Sundry
Assets, the accounts receivable related to the Disk Drive Business
of MC.
1.5 Assumption of Certain Obligations by ST
---------------------------------------
In addition to the contractual obligations of ST under this Agreement on
and as of the Closing Date, ST shall assume and pay, perform or discharge
when due the following obligations (collectively, the "Assumed
-------
Liabilities"):-
-----------
(a) the liabilities as of the (Closing Date under the Assumed Contracts
except for any liability under any of the Assumed Contracts arising
out of MC's failure to perform its obligations thereunder to the
extent such performance is due on or prior to the Closing Date;
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(b) the liabilities as of the Closing Date of Micropolis Limited (as
defined in Section 15.14) under the contract in relation to the
design, construction and completion of a proposed 4/part 5-storey
factory building on Plot A14269 Mukim 18, Singapore, dated 20 June
1994 between Micropolis Limited, CDC-Construction & Development Pte
Ltd and Design Team Pte Ltd;
(c) the liabilities as of the Closing Date of Micropolis Limited under
the contract in relation to the design, supply, installation and
commissioning into operation of a cleanroom dated 12 September 1995
between Takasago Thermal Engineering Co. Ltd and Micropolis Limited;
(d) the liabilities as of the Closing Date of Micropolis Limited under
the Loan Agreement dated 8 September 1995 between Micropolis Limited
and ST Capital Limited;
(e) the liabilities as of the Closing Date of Micropolis Limited to
Garytech Engineering & Trading pursuant to the letter dated 13
November 1995;
(f) trade payables occurring in the conduct of or related to the Disk
Drive Business not paid prior to the Closing Date (collectively the
"Trade Payables");
--------------
(g) the warranty claims reserve amounting to US$8,000,000; and
(h) any benefits relating to the employment of the Transferred Employees
(as defined in Section 10.7) which are imposed or required by
statutory provisions of the relevant country where the Transferred
Employees are employed but only to the extent reflected dollar for
dollar on the Closing Date Balance Sheet (as defined in Section
3.4).
1.6 Excluded Liabilities
--------------------
With the exception of the Assumed Liabilities, ST assumes no liabilities
or other obligations, commercial or otherwise, of MC, known or unknown,
fixed or contingent, choate or inchoate, liquidated or unliquidated,
secured or unsecured or otherwise (the "Excluded Liabilities"). Without
--------------------
in any way limiting the generality of the foregoing, ST shall not assume
any obligation or liability to any person with respect to the following:-
(a) any liability of MC for Taxes other than Transfer Tax Liabilities
(as set out in Section 10.9);
(b) except as provided in Section 10.11, any liability for defects,
returns or allowances, losses, personal injury, property damage or
other damages of any kind whatsoever, whether suffered or incurred
by a customer of MC or a customer of ST or any other person, arising
out
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of products manufactured or sold by MC or services performed by MC
on or prior to the Closing Date, whether the occurrence giving rise
to such liability occurs before or after the Closing Date, whether
the claim is asserted before or after the Closing Date;
(c) except as provided in Section 1.5(h), any responsibility, liability
or obligation (whether contractual, statutory or otherwise) with
respect to salary, wages, sick pay, vacation pay, severance pay,
redundancy pay, savings plans, deferred compensation, MC's pension,
profit-sharing, retirement and other fringe benefit plans, or other
obligations (whether contractual, governmentally mandated or
otherwise) for the benefit of any employees of MC (including the
Transferred Employees) including accounts payable and accrued
payroll and pension benefits accrued (vested or unvested), or
arising out of their employment through the Closing Date and/or
their termination of employment by MC upon the consummation of the
transactions contemplated hereby;
(d) any liability with respect to the environmental condition of the
Real Property (as defined in Section 4.2(A)(a)) or the clean-up
thereof including, without limitation, the clean-up of any Hazardous
Materials (as defined in Section 4.2(A)(d)) either on the Real
Property or originating on the Real Property;
(e) any liability resulting from the failure of MC to comply with the
requirements of all applicable building, fire, zoning and
Environmental Laws (as defined in Section 4.2(A)(c)), laws relating
to occupational health and safety, anti-trust laws, and other laws
(foreign or domestic) applicable to MC or the conduct of their
business as previously or currently in effect;
(f) any liability under any Assumed Contract to the extent such
liability arises out of MC's failure to perform its obligations
thereunder on or prior to the Closing Date;
(g) any liability of MC arising out of indebtedness for borrowed money;
(h) any obligation or liability under MC's employee health and dental
plans arising out of or relating to, medical or dental services
provided or rendered to employees on or before the Closing Date;
(i) any obligation of MC due and payable under non-competition covenants
or consulting agreements or the like;
(j) any liability arising from or related to tort claims or any
penalties or fines, whether criminal or civil, assessed against MC;
and
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(k) the liability to reinstate the premises in relation to the AMK
Leasehold.
1.7 Discharge of Excluded Liabilities
---------------------------------
MCUS shall and shall procure the MC Affiliates to discharge in a timely
manner or shall make adequate provision for all of the Excluded
Liabilities, provided that MC shall have the ability to contest, in good
faith, any such claim of liability asserted in respect thereof by any
person other than ST and ST Affiliates.
2. CLOSING AND PAYMENT OF THE PURCHASE PRICE
-----------------------------------------
2.1 Closing
-------
The closing of the transactions contemplated hereby (the "Closing") shall
-------
be held at the offices of Messrs Bih Li & Lee, Singapore counsel to ST
Chatsworth at 4.00 p.m. on 29 March 1996 or at such other time, date or
place as MCUS and ST Chatsworth shall mutually agree (the "Closing
-------
Date").
----
2.2 Purchase Price
--------------
The aggregate consideration to be paid by ST to MCUS for the Acquired
Assets and the non-competition covenant set forth in Section 13 (the
"Purchase Price") shall be the amount equal to the Disk Drive Final Net
--------------
Worth. For the purpose hereof, the term "Disk Drive Final Net Worth"
--------------------------
shall be the result of the following amounts:-
(a) the purchase price of the goodwill of MC related to the Disk Drive
Business and the name "Micropolis" which shall be US$7,000,000;
(b) the purchase price of the following which shall be the net book
value as of the Closing Date as reflected in the Closing Date
Balance Sheet:-
(i) the Inventory and the Machinery and Equipment;
(ii) the SN Leasehold;
(iii) the Real Property Leases;
(iv) if applicable, the US Real Property; and
(v) the Sundry Assets;
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(c) the purchase price of the total issued share capital of Micropolis
Thailand which shall be the net book value as of the Closing Date
but excluding goodwill, if any, as reflected in the Closing Date
Balance Sheet except that the land (excluding the building and the
improvements) of Micropolis Thailand located at 733/1-8 Phaholyothin
Road, Lumlookkar Pathumthani (the "Thai Land") shall be deemed to
---------
have a value of US$2,000,000;
(d) if applicable, the purchase price of the total issued share capital
of each of the Purchased Companies which shall be the net book value
as of the Closing Date but excluding goodwill, if any, as reflected
in the Closing Date Balance Sheet; and
(e) the purchase price of the Corporate Assets which shall be the fair
market value, to be determined by an appraiser of international
repute to be agreed between ST Chatsworth and MCUS;
minus
-----
(a) the amount of the net book value of the Assumed Liabilities other
than the warranty claims reserve as of the Closing Date as reflected
in the Closing Date Balance Sheet; and
(b) the warranty claims reserve of US$8,000,000,
Provided that under no circumstances shall the Purchase Price exceed the
mount equal to the Disk Drive Final Net Worth determined as of 29
December 1995 in accordance with the Financial Statements (as defined in
Section 4.6) plus 10 per cent and if the Purchase Price exceeds the said
amount, it shall be reduced by an amount equal to the difference.
For the avoidance of doubt, no other payment will be made by ST for any
other Acquired Assets.
ST Chatsworth shall pay the Purchase Price in the manner hereinafter set
forth by telegraphic transfer of immediately available funds to such
account or accounts as may be specified by MCUS for such purpose.
2.3 Payment of Initial Payment
--------------------------
At the Closing, on the conveyance, transfer, assignment and delivery of
the Acquired Assets, ST shall pay to MCUS for and on behalf of MC the
initial payment (the "Initial Payment") which shall be an amount equal to
---------------
the result of the following amounts:-
(a) 90 per cent of the net book value of the Acquired Assets other than
the Inventory; and
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(b) 50 per cent of the net book value of the Inventory,
minus
-----
(a) the amount of the net book value of the Assumed Liabilities other
than the warranty claims reserve as of the Closing Date; and
(b) the warranty claims reserve of US$8,000,000.
For the purpose of calculating the Initial Payment only, the net book
value as aforesaid shall be as reflected in the Preliminary Closing Date
Balance Sheet as defined in Section 3.1).
2.4 Payment of Second Payment
-------------------------
(a) In the event no ST Disapproval Notice (as defined in Section 3.3(a))
is given by ST Chatsworth within the 21-day period set forth in
Section 3.3(a), within 3 days of the determination of the Closing
Date Balance Sheet, ST Chatsworth shall pay to MCUS for and on
behalf of MC, the balance of the Purchase Price, after subtracting
five (5) per cent from the said balance.
(b) In the event ST Chatsworth gives the ST Disapproval Notice to MCUS
within the 21-day period set forth in Section 3.3(a), within 3 days
of the delivery of the ST Disapproval Notice by ST Chatsworth to
MCUS, ST Chatsworth shall pay to MCUS for and on behalf of MC, the
balance of the Purchase Price in relation to the items not in
dispute, after subtracting five (5) per cent from the said balance.
The balance of the Purchase Price in relation to the disputed items,
after subtracting five (5) per cent from the said balance shall be
paid within 3 days of the resolution of the dispute in accordance
with Section 3.3(a) or (b) as the case may be.
2.5 Payment of Final Payment
------------------------
On or prior to the date falling 6 months from the Closing Date, ST shall
pay to MCUS for and on behalf of MC, the remaining five (5) per cent of
the Purchase Price, after deducting and netting-off any sums owing by MC
or for which MC are liable to ST under this Agreement whether as a result
of any claims for breach of warranty or otherwise.
2.6 Allocation of Purchase Price
----------------------------
ST Chatsworth and MCUS shall negotiate in good faith prior to the Closing
Date and determine the allocation of the consideration paid by ST
Chatsworth for the Acquired Assets. ST and MC shall report the purchase
and sale of the Acquired Assets in accordance with the allocation for all
national, federal, state, provincial and local tax and other purposes.
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2.7 Transfer of Acquired Assets
---------------------------
At the Closing, MCUS shall or shall procure the appropriate MC Affiliate
to deliver to ST Chatsworth or the appropriate ST Affiliate duly executed
deeds, bills of sale, endorsements, assignments and other instruments of
transfer and assignment of the Acquired Assets sufficient to vest in such
party the interests in the Acquired Assets being conveyed in accordance
with the terms of this Agreement in form and substance reasonably
satisfactory to ST.
In the event that local laws, custom and practice require that the
transactions contemplated by this Agreement be the subject of an
instrument or other agreement under applicable local law ("Local
-----
Agreement"), such Local Agreement shall be in form and substance
---------
reasonably satisfactory to ST Chatsworth and MCUS, provided that such
Local Agreement will give full force and effect to the provisions of this
Agreement, and in the event of conflict, the terms of this Agreement
shall prevail. (The deeds, bills of sale, endorsements, assignments,
instruments and agreements and Local Agreements referred to in this
Section 2.7 are hereinafter referred to collectively as the "Ancillary
---------
Documents").
---------
2.8 Transfer by Delivery
--------------------
At the Closing or such other date and time thereafter as may reasonably
be determined by ST, MCUS shall or shall procure the appropriate MC
Affiliate to deliver to ST Chatsworth or the appropriate ST Affiliate:-
(a) such of the Acquired Assets which are capable of transfer by
delivery; and
(b) possession of the Real Property.
2.9 Operative Agreements
--------------------
At the Closing, each of ST Chatsworth and MCUS shall enter into or shall
procure the relevant ST Affiliate or MC Affiliate as the case may be to
enter into the following agreements:-
(a) computer services agreement in relation to the use by MCUS (or such
other person as ST Chatsworth and MCUS may agree) of the MIS
computer system;
(b) patent cross-licensing agreement whereby MCUS shall license to ST
Chatsworth (or such other person as ST Chatsworth and MCUS may
agree) the use of all its patents in relation to the system
application business and ST Chatsworth shall license MCUS (or such
other person as ST Chatsworth and MCUS may agree) the use of all the
patents in relation to the Disk Drive Business to be sold and
transferred herein; and
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(c) a distributorship agreement whereby MCUS shall appoint ST Chatsworth
(or such other person as ST Chatsworth and MCUS may agree) to
distribute its products in relation to the system business in
Europe, for a period of 2 years.
2.10 Closing in Relation to Sale of Shares in Micropolis Thailand
------------------------------------------------------------
(a) At the Closing, MCUS shall deliver to ST Chatsworth:-
(i) duly executed transfers in favour of ST Chatsworth or as it
may direct accompanied by the relative share certificates in
respect of the shares in Micropolis Thailand to be sold by
MCUS to ST Chatsworth;
(ii) the written resignations of all directors from their
directorships in Micropolis Thailand to take effect as ST
Chatsworth may determine with acknowledgements signed by each
of them in the form required by ST Chatsworth to the effect
that he has no claim against Micropolis Thailand for
compensation for loss of office or otherwise howsoever;
(iii) a certified copy of board resolutions of Micropolis Thailand
in the form required by ST Chatsworth:-
(aa) approving the registration of the said share transfers;
(bb) appointing such persons as ST Chatsworth may nominate
as directors of Micropolis Thailand; and
(cc) revoking all existing authorities to bankers in respect
of the operation of its bank accounts and giving
authority in favour of such persons as ST Chatsworth
may nominate to operate such accounts and appointing
such persons as ST Chatsworth may nominate as the
signatories of all the bank accounts of Micropolis
Thailand; and
(iv) MCUS shall deliver to ST Chatsworth a list of all Micropolis
Thailand's bank accounts and banking facilities.
(b) At the Closing, ST Chatsworth shall procure the discharge of all
guarantees given by MCUS to secure the liabilities of Micropolis
Thailand.
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2.11 Closing in Relation to Sale of Shares in the Purchased Companies
----------------------------------------------------------------
In the event ST Chatsworth elects to purchase the total issued share
capital of each or any of the Purchased Companies pursuant to the option
in Section 1.2, at the Closing:-
(a) MCUS shall deliver to ST Chatsworth:-
(i) duly executed transfers in favour of ST Chatsworth or as it
may direct accompanied by the relative share certificates or
other analogous documents in respect of the shares in the
Purchased Companies to be sold by MCUS to ST Chatsworth;
(ii) the written resignations of all directors from their
directorships in the relevant Purchased Companies to take
effect as ST Chatsworth may determine with acknowledgements
signed by each of them in the form required by ST Chatsworth
to the effect that he has no claim against the relevant
company for compensation for loss of office or otherwise
howsoever;
(iii) a certified copy of board resolutions of the Purchased
Companies in the form required by ST Chatsworth:-
(aa) approving the registration of the said share transfers;
(bb) appointing such persons as ST Chatsworth may nominate
as directors of the relevant company; and
(cc) revoking all existing authorities to bankers in respect
of the operation of its bank accounts and giving
authority in favour of such persons as ST Chatsworth
may nominate to operate such accounts and appointing
such persons as ST Chatsworth may nominate as the
signatories of all the bank accounts of the relevant
company; and
(iv) MCUS shall deliver to ST Chatsworth a list of the Purchased
Companies' bank accounts and banking facilities.
(b) At the Closing, ST Chatsworth shall procure the discharge of all
guarantees issued by MCUS to secure the liabilities of the relevant
Purchased Companies.
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2.12 Prorations
----------
The following prorations relating to the Acquired Assets and the
ownership and operation of the Disk Drive Business will be made as of the
Closing Date, with MC liable to the extent such items relate to any time
period prior to the Closing Date and ST liable to the extent such items
relate to periods beginning with and subsequent to the Closing Date:-
(a) real estate taxes on or with respect to the Acquired Assets;
(b) rents, additional rents, taxes and other items payable by MC under
the Real Property Leases and the AMK Leasehold so long as ST
Chatsworth occupies and continues to occupy the AMK Leasehold;
(c) the amount of rents, taxes and charges for sewer, water, telephone,
electricity and other utilities relating to the Real Property and
the Real Property Leases; and
(d) all other items (excluding personal property taxes and other taxes)
normally adjusted in connection with similar transactions.
Except as otherwise agreed by the parties, the net amount or all such
prorations will be settled and paid on the Closing Date. If the Closing
shall occur before a real estate tax rate is fixed, the apportionment of
taxes shall be based upon the tax rate for the preceding year applied to
the latest assessed valuation.
3. DETERMINATION OF NET WORTH AND CLOSING DATE BALANCE SHEET
---------------------------------------------------------
3.1 Determination of Preliminary Closing Date Balance Sheet
-------------------------------------------------------
MCUS shall prepare a combined balance sheet of the Disk Drive Business
(the "Preliminary Closing Date Balance Sheet") as of the Closing Date
--------------------------------------
and shall deliver the Preliminary Closing Date Balance Sheet to ST
Chatsworth or ST's Accountants as promptly as possible and in any event
no later than the date falling 21 days after the Closing Date. The
Preliminary Closing Date Balance Sheet shall be prepared in accordance
with the generally accepted accounting principles applicable in the
United States of America and applied on a consistent basis (collectively,
the "Accounting Principles"). ST and ST's Accountants shall have the
---------------------
obligation to participate in the physical inventory.
3.2 Supply of Information and Documents
-----------------------------------
(a) MCUS agrees to provide ST and ST's Accountants the opportunity to
review the Preliminary Closing Date Balance Sheet delivered by MCUS
and the underlying work papers with a view to confirming the Disk
Drive Final Net Worth.
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(b) As promptly as possible and in any event no later than 28 days after
the Closing Date, MCUS shall give or shall procure for ST's
Accountants all such information and documentation relating to the
Disk Drive Business as ST's Accountants shall require to enable them
to confirm the Disk Drive Final Net Worth.
3.3 Confirmation of Disk Drive Final Net Worth
------------------------------------------
(a) If ST Chatsworth notifies MCUS in writing of its disagreement with
the Preliminary Closing Date Balance Sheet within 21 days after
receipt thereof, specifying the nature of each disagreement and the
basis therefor (the "ST Disapproval Notice"), then ST Chatsworth
---------------------
and MCUS shall attempt to resolve their differences with respect
thereto within fourteen (14) days after MCUS's receipt of the ST
Disapproval Notice, in which case, the Preliminary Closing Date
Balance Sheet, as amended to the extent necessary to reflect
resolution of all such disagreements, shall be the Closing Date
Balance Sheet (as hereinafter defined) and shall be conclusive and
binding on ST and MC.
(b) Any disputes not resolved by ST Chatsworth and MCUS within such 14
day period regarding the Preliminary Closing Date Balance Sheet
shall be submitted by the parties promptly after the expiration of
the applicable 14-day period to an internationally recognized
accounting firm mutually acceptable to both parties, which firm
shall not have had a material relationship with either ST Chatsworth
or MCUS or any of their respective affiliates within the two years
preceding the selection (the "Independent CPA"). Within thirty (30)
---------------
days after its acceptance of its appointment as Independent CPA, the
Independent CPA shall determine, based solely on presentations by ST
Chatsworth and MCUS, and not by independent review, those items in
dispute and shall render a written report as to the resolution of
each dispute and the resulting calculation of the Closing Date
Balance Sheet and the Disk Drive Final Net Worth. Materiality shall
not be a basis for rejection of a disputed item in the calculation
of the Disk Drive Final Net Worth. In resolving any disputed item,
the Independent CPA may not assign a value to such item greater than
the greatest value for such item claimed by either party or less
than the smallest value for such item claimed by either party. The
Independent CPA shall have exclusive jurisdiction over (and resort
to the Independent CPA as provided in this Section 3.3) shall be the
sole recourse and remedy of the parties against one another or any
other person with respect to) any disputes (without prejudice to the
parties' rights to claim a breach of any representation or warranty
or to indemnification under Section 11 hereof) arising out of or
relating to the Preliminary Closing Date Balance Sheet and the
Closing Date Balance Sheet; and the Independent CPA's determination
(without prejudice to the parties' rights to claim a breach of any
representation or warranty or to indemnification under Section 11
hereof) shall be conclusive and
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17
binding on the parties and shall be enforceable in a court of law.
In the event ST Chatsworth does not deliver the ST Disapproval
Notice within 21 days from ST Chatsworth's receipt of the
Preliminary Closing Date Balance Sheet, ST Chatsworth shall be
deemed to have accepted MCUS's determination and the Preliminary
Closing Date Balance Sheet shall be deemed to be the Closing Date
Balance Sheet and shall be conclusive and binding (without prejudice
to the parties' rights to claim a breach of any representation or
warranty or to indemnification under Section 11 hereof) on ST
Chatsworth and MCUS.
(c) MCUS and ST Chatsworth shall bear the fees and expenses of their
respective accountants and other representatives. The fees and
expenses of the Independent CPA shall be borne equally by MCUS and
ST Chatsworth.
3.4 Definition of Closing Date Balance Sheet
----------------------------------------
As used herein, the term "Closing Date Balance Sheet" shall mean:-
--------------------------
(a) the Preliminary Closing Date Balance Sheet if no ST Disapproval
Notice is given by ST Chatsworth within the 21-day period set forth
in Section 3.3(a); or
(b) if the ST Disapproval Notice is given in accordance with Section
3.3(a) and all of the disputed items are resolved by mutual
agreement of the parties, the Preliminary Closing Date Balance
Sheet, as amended, if necessary, to reflect such resolution of all
disputes; or
(c) if any or all of the disputed items are submitted to the Independent
CPA for resolution, the Preliminary Closing Date Balance Sheet, as
amended, if necessary, to reflect any resolution of any disputes by
mutual agreement of the parties and the resolution of all other
disputes by the Independent CPA.
3.5 Application of Accounting Principles
------------------------------------
ST's Accountants in confirming the Disk Drive Final Net Worth shall apply
the Accounting Principles.
4. REPRESENTATIONS AND WARRANTIES OF MCUS
--------------------------------------
MCUS makes the following representations and warranties to each of ST
Chatsworth and the ST Affiliates (with the intent that the provisions of
this Section 4 shall continue to have full force and effect
notwithstanding Closing):-
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18
4.1 Information and Corporate Capacity
----------------------------------
(A) Information
-----------
All information in writing which has been given by or on behalf of
MC or their agents to ST or their agents before and during the
negotiations leading to this Agreement was, when given, and remains
to the best of the knowledge of MC true, complete and accurate in
all respects and not misleading and that after making all proper
enquiries MC is not aware of any fact or matter, not in the public
domain, in relation to the Disk Drive Business which would render
any such information untrue, incomplete, inaccurate or misleading or
might reasonably affect the willingness of ST to purchase the Disk
Drive Business or the price at or the terms upon which the purchase
is made.
(B) Organisation and Qualification of MC
------------------------------------
Each of MCUS and the MC Affiliates is duly organised, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation (except in the case where under the laws of a
jurisdiction in which the concept of good standing is inapplicable,
as to which no representation or warranty regarding good standing is
made). Except for the approval by the shareholders of MCUS of the
transactions contemplated hereby, which approval shall be obtained
before the Closing, each of MCUS and the MC Affiliates has full
corporate power and authority to enter into and perform the
transactions contemplated by this Agreement.
(C) Authority of MCUS
-----------------
(i) This Agreement and each of the Ancillary Documents delivered
or to be delivered by MCUS when executed and delivered in
accordance with their respective terms will constitute the
valid and binding obligations of each of MCUS and the MC
Affiliates and shall be enforceable against it in accordance
with their respective terms.
(ii) The execution, delivery and performance of this Agreement and
each of the Ancillary Documents delivered or to be delivered
by MCUS have been, or when delivered will be, duly authorised
by all necessary corporate action of MCUS.
(iii) The execution, delivery and performance by MCUS of this
Agreement or any Ancillary Documents does not and will not
with the passage of time or the giving of notice or both:-
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19
(aa) result in a breach of or constitute a default by MC or
result in any right of termination or other effect
adverse to MC under any agreement, lease or instrument
pertaining to the Disk Drive Business to which MC is a
party or by which any Acquired Asset is bound or
affected or under any other agreement binding on MC the
effect of which breach or default would hinder, delay,
interfere with or prohibit the transactions
contemplated by this Agreement;
(bb) result in a violation of any law, rule or regulation
now in effect to which MC is subject, or any order,
writ, judgement, injunction, decree, determination or
award, now in effect which is applicable to MC; and
(cc) violate any provisions of the memorandum and articles
of association or equivalent, or bylaws of MC, as
amended.
(D) Assets
------
(i) To the best of the knowledge of MCUS after making due and
careful inquiries, the Machinery and Equipment conforms to
all applicable laws, ordinances and regulations.
(ii) Except as listed in Schedule 8 of the Disclosure Schedule,
-------------------------------------
MC have good and marketable title to the Acquired Assets,
free and clear of all claims, liens, pledges, charges,
mortgages, security interests, encumbrances, equities or
other imperfections of title.
(iii) To the best of the knowledge of MCUS after making due and
careful inquiries, the inventories of MC are of a quality and
quantity saleable or usable in the ordinary course of MC's
business.
(iv) All of the Acquired Assets are located on the premises owned
or leased by MC or on consignment to its customers.
(v) To the best of the knowledge of MCUS after making due and
careful inquiries, the Acquired Assets comprise all assets
now used in the Disk Drive Business and which are necessary
for the continuation of the Disk Drive Business as now
carried on.
(vi) The Machinery and Equipment:-
(aa) are in a proper state of repair and condition and
satisfactory working order;
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20
(bb) have been regularly and properly maintained; and
(cc) are adequate for and not surplus to the requirements of
the Disk Drive Business.
(vii) The Sundry Assets:-
(aa) arose from bona fide transactions in the ordinary
course of business and are payable on ordinary trade
terms;
(bb) are legal, valid and binding obligations of the
respective debtors enforceable in accordance with their
terms;
(cc) are not subject to any valid set-off or counterclaim;
(dd) are collectible in the ordinary course of business
consistent with past practice in the aggregate recorded
amounts thereof, net of any applicable reserve
reflected in the balance sheet included in the annual
financial statements; and
(ee) are not the subject of any actions or proceedings
brought by or on behalf of MC.
4.2 Real Property
-------------
(A) Environmental Matters
---------------------
(i) The Real Property and the operations thereon and the uses
made thereof, are in compliance with all, and are not in
violation of any Environmental Laws (as hereinafter defined).
(ii) There has been no generation, use, treatment, handling,
storage or disposal of Hazardous Materials on or from the
Real Property by any person (including, without limitation,
MC and the past and present officers, employees and agents of
MC and all past and present owners, operators and lessees of
the Real Property) at any time except in full compliance with
all Environmental Laws.
(iii) The Real Property has not been used at any time by any person
in such a manner as to cause a violation of any Environmental
Law or to potentially give rise to any liability or
obligation for the remediation or restoration of the Real
Property or for the treatment, storage, removal, disposal,
release, arrangement for removal or disposal or
transportation of any Hazardous Materials.
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21
(iv) None of MCUS or the MC Affiliates has received any notice of,
and no circumstances exist that could form the basis of, an
Environmental Action (as hereinafter defined) arising out of
or relating to the Real Property or the generation, use,
treatment, handling, storage or disposal of Hazardous
Materials thereon, or the release or transportation of
Hazardous Materials thereto or therefrom.
(v) Each of MCUS and the MC Affiliates has obtained all permits,
approvals, licences and other authorisations required under
Environmental Laws, such licenses and permits being in full
force and effect and is complying in all respects therewith.
(vi) No employees of MC or its predecessors or any past owner,
operator or lessee of the Real Property have been exposed to
Hazardous Materials.
(vii) Each of MCUS and the MC Affiliates has delivered to ST true,
complete and correct copies or results of any and all
reports, studies or tests in the possession of or initiated
by it pertaining to the existence of Hazardous Materials and
other environmental concerns on any part of the Real Property
or concerning compliance with or liability under
Environmental Laws in the operation of the business of MC or
as conducted by any prior owner, operator or lessee of the
Real Property.
As used in this Section 4.2 and elsewhere in this Agreement:-
(a) The term "Real Property" shall mean the US Real Property (in
-------------
the event ST Chatsworth exercises the option pursuant to
Section 1.3), the US Leasehold (in the event ST Chatsworth
exercises the option pursuant to Section 1.3), the Singapore
Leasehold and the Thai Land and the Real Property Leases;
(b) "Environmental Action" means any administrative, regulatory
--------------------
or judicial action, suit, demand, demand letter, claim,
notice of non-compliance or violation, investigation,
proceeding, consent order or consent agreement relating in
any way to any Environmental Law, including, without
limitation:-
(aa) any claim by any Governmental or Regulatory Authority
(as defined in Section 15.14) for enforcement, clean-
up, removal, response, remedial or other actions or
damages pursuant to any Environmental Law; and
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22
(bb) any claim by any third party seeking damages,
contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or
threat of injury to the environment;
(c) "Environmental Laws" and "Environmental Law" mean any
------------------ -----------------
applicable national, federal, provincial, state or local law
of any country or any political subdivision thereof, rule,
regulation, order, writ, judgement, injunction, decree,
determination or award of any jurisdiction relating to the
environment or Hazardous Materials; and
(d) "Hazardous Materials" means:-
-------------------
(aa) petroleum or petroleum products, natural or synthetic
gas and asbestos in any form;
(bb) any substances defined as or included in the definition
of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants" or
words of any similar import under any Environmental
Law; and
(cc) any other substance exposure to which is regulated
under any Environmental Law.
(B) Violation of Applicable Laws
----------------------------
(i) No notice of violation of any applicable federal, national,
provincial, state or local statute, ordinance, order,
requirement, law, rule, regulation (including, without
limitation, any Environmental Law), or of any covenant,
condition, restriction or easement affecting the Real
Property with respect to the use or occupancy of the Real
Property has been given to MC by any person having
jurisdiction over the Real Property or by any other person
entitled to enforce the same, or by any private citizen or
citizen action group and, to the best knowledge of each of
MCUS and the MC Affiliates, no such notice has been given to
any other person.
(ii) To the best of the knowledge of each of MCUS and the MC
Affiliates, there is not:-
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23
(aa) any intended or proposed federal, national, provincial,
state, or local statute, ordinance, order, requirement,
law, rule or regulation (including, but not limited to,
zoning changes) which may prevent or hinder ST's
continued use of the Real Property as heretofore used
in the conduct of the Disk Drive Business; or
(bb) any suit, action, claim or legal, administrative,
arbitration or other proceeding or governmental
investigation (other than Environmental Actions)
pending or threatened in writing against or affecting
either the Real Property or the use thereof or that
would prevent or hinder ST's continued use thereof in
the Disk Drive Business.
(C) Title
-----
In relation to each Real Property:-
(i) MCUS or the MC Affiliates as indicated as the owner or lessee
of the Real Property in Schedule 5 is the beneficial owner or
lessee of and is beneficially entitled to the whole of the
proceeds of sale of and has a good and marketable title to
the whole of the Real Property.
(ii) MCUS has in its possession or unconditionally held to its
order all the original documents of title and other documents
and papers relating to the Real Property.
(iii) There are no mortgages, charges or debentures (whether legal
or equitable and whether fixed or floating), rent charges,
liabilities to maintain roadways, liens (whether for costs or
to any unpaid vendor or otherwise), annuities or other
unusual outgoings or trusts (whether for securing money or
otherwise) affecting the Real Property or the proceeds of
sale thereof.
(iv) Except for the lots-tie restriction in relation to the US
Real Property and the US Leasehold, the Real Property is not
subject to any lease, sub-lease, tenancy, concession,
occupancy agreement or similar right, adverse estate, right,
interest, covenant, restriction, stipulation, easement,
option, right of pre-emption, wayleave, profit a prendre,
licence or other right or informal arrangement in favour of
any third party (whether in the nature of a public or private
right or obligation) nor is there any agreement or commitment
to give or create any of the foregoing and where the Real
Property is subject to any such arrangement no breach has
occurred of any of the terms
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<PAGE>
24
thereof and all rights of light, air and support are enjoyed
fully is of right.
(v) The Real Property enjoys access and egress over roads which
prior to the date of this Agreement have been adopted by the
appropriate highway authority and are maintainable at the
public expense. The Real Property drains into a public sewer
and is serviced by water, electricity and gas utilities. The
pipes, sewers, wires, cables, conduits and other conducting
media serving the Real Property connect directly to the mains
without passing through land in the occupation and ownership
of a third party or if they do, the facilities, easements or
rights necessary for the enjoyment and present use of the
Real Property are enjoyed on terms which do not entitle any
person to terminate or curtail the same.
(D) Planning
--------
In relation to each Real Property:-
(i) No development at the Real Property or use of the Real
Property has been undertaken in breach of any planning,
building or construction legislation or any regulations, by-
laws, orders, consents or permissions made or given
thereunder.
(ii) The planning consents and permissions affecting the Real
Property are either unconditional or are subject only to
conditions which are neither unusual, personal nor temporary
and which have been satisfied or fully observed and performed
up to the date of this Agreement.
(iii) There is no resolution, proposal, scheme or order, whether
formally adopted or not, for the compulsory acquisition of
the whole or any part of the Real Property or any access or
egress, or for the alteration, construction or improvement of
any road, sub-way, underpass, footbridge, elevated road, dual
carriageway or flyover upon or adjoining the Real Property or
any access or egress.
(iv) There is no outstanding statutory or informal notice relating
to the Real Property or any business carried on thereat or
the use thereof.
(v) To MC's knowledge, there are no encroachments onto the Real
Property by any improvements on any adjoining property which
would materially and adversely impair the utility of the Real
Property for the uses for which it is currently used in the
Disk Drive Business.
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25
(vi) To MC's knowledge, there are no material encroachments onto
any adjoining property by any improvements on the Real
Property.
(E) State and Condition of the Real Property
----------------------------------------
In relation to each Real Property:-
(i) The buildings and other structures on the Real Property are
in good and substantial repair and fit for the purposes for
which they are presently used.
(ii) None of the following has in the past affected the Real
Property:-
(aa) structural or other defects in the Real Property or the
building of which the Real Property is part or in any
drains, pipes, wires or services;
(bb) flooding;
(cc) subsidence; and
(dd) rising damp, wet or dry rot or any infestation.
(F) Leasehold Properties
--------------------
Where the interest of MC in any Real Property is a leasehold
interest:-
(i) Any consent necessary for the grant of the lease under which
MC holds its interest in the Real Property (the "Lease") was
-----
duly obtained and a copy of the consent is with the documents
of title and the receipt for the payment of rent which fell
due immediately prior to the date of this Agreement
unqualified.
(ii) There is no material subsisting breach, nor any material non-
observance of any covenant, condition or agreement contained
in the Lease on the part of either the relevant landlord or
MC and no landlord has refused to accept rent or made any
complaint or objection.
(iii) There are no restrictions in the Lease which prevent the Real
Property being used now or in the future for the present or
proposed use.
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26
(iv) No alterations have been made to the Real Property at the
expense of MC without all necessary consents and approvals
and all such alterations to the Real Property are to be
disregarded on rent reviews and do not have to be reinstated
at the expiry of the term.
(v) All steps in rent reviews have been duly taken and no rent
reviews are or should be currently under negotiation or the
subject of a reference to an expert or arbitrator or the
courts.
(vi) The Lease does not contain any unusual or objectionable
covenants or agreements having regard to the use to which the
Real Property is currently put.
4.3 General Environmental Matters
-----------------------------
(a) MC have obtained all licences which are required under applicable
Environmental Laws in connection with the conduct of the Disk Drive
Business or the Acquired Assets. Each of such licences is in full
force and effect. MC have conducted the Disk Drive Business in
compliance in all material respects with the terms and conditions of
such licences and with any applicable Environmental Law.
(b) No order has been issued, no Environmental Claim (as defined in
Section 15.14) has been filed, no penalty has been assessed and no
investigation or review is pending or, to the knowledge of MC,
threatened by any Governmental or Regulatory Authority with respect
to any alleged failure by MC to have any licence required under
applicable Environmental Laws in connection with the conduct of the
Disk Drive Business or with respect to any generation, treatment,
storage, recycling, transportation, discharge, disposal or release
of any Hazardous Material in connection with the Disk Drive Business
and to the knowledge of MC there are no facts or circumstances in
existence which could reasonably be expected to form the basis for
any such order, Environmental Claim, penalty or investigation.
(c) MC has not transported or arranged for the transportation of any
Hazardous Material in connection with the operation of the Disk
Drive Business to any location that is:-
(i) listed on the NPL (as defined in Section 15.14) under CERCLA
(as defined in Section 15.14);
(ii) listed for possible inclusion on the NPL by the Environmental
Protection Agency in CERCLIS (as defined in Section 15.14) or
on any similar state or local list; or
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27
(iii) the subject of enforcement actions by federal, state or local
Governmental or Regulatory Authority that may lead to
Environmental Claims against MC or the Disk Drive Business.
(d) No Hazardous Material generated in connection with the operation of
the Disk Drive Business has been recycled, treated, stored, disposed
of or released by MC at any location.
4.4 Conduct of the Business
-----------------------
No supplier, distributor or customer of MC has notified MC that it
intends to discontinue its relationship with MC other than any supplier,
distributor or customer, the loss of which would not have a Material
Adverse Effect (as defined in Section 4.12).
4.5 Permits and Licences
--------------------
(a) MC have obtained all governmental authorisations, licences, permits
and orders necessary for the conduct of the Disk Drive Business as
presently conducted. MC is not required to have any form of security
clearance from any governmental agency in order to conduct the Disk
Drive Business in the manner it is presently conducted.
(b) The execution, delivery and performance by MC of this Agreement and
the Ancillary Documents to which it is a party, and the consummation
of the transactions contemplated hereby and thereby, will not:-
(i) result in or give to any person any right of termination,
cancellation, acceleration or modification in or with respect
to,
(ii) result in or give to any person any additional rights or
entitlement to increased, additional, accelerated or
guaranteed payments under, or
(iii) result in the creation or imposition of any Lien upon MC or
any of the Acquired Assets and under,
any business licence.
4.6 Financial Statements and Undisclosed Liabilities
------------------------------------------------
(a) MCUS will deliver to ST Chatsworth the audited accounts of MC on a
consolidated basis for the twelve months ended 29 December 1995
together with all notes thereto. The foregoing accounts are referred
to herein as the "Financial Statements".
--------------------
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28
(b) The Financial Statements:-
(i) will present fairly the results of operations of MC as of 29
December 1995 in accordance with the Accounting Principles
applied on a consistent basis; and
(ii) are based on the books and records of MC.
4.7 Compliance with Laws
--------------------
Each of MCUS and the MC Affiliates has been and is, and its business and
operations have been and are being conducted, in compliance with all
requirements of all applicable statutes, laws, ordinances, regulations,
rules, codes or decrees, whether foreign or domestic, federal, national,
provincial, state or local, which are currently in effect and apply to
the Disk Drive Business or the Acquired Assets including, without
limitation, those relating to fair labour practices and standards, equal
employment practices, occupational safety and health, export/import
licences or controls, foreign exchange controls, restraint of trade and
unfair competition, immigration, and federal procurement. MC has not
received any written notice from any person with respect to an alleged,
actual or potential violation and/or failure to comply with any of the
foregoing.
4.8 Patents and Patent Applications
-------------------------------
(a) All patents and patent applications owned by or licensed to or used
by each of MCUS and the MC Affiliates in connection with the Disk
Drive Business have been duly filed in or issued by the United
States Patent and Trademark Office or the corresponding offices of
other countries or other jurisdictions and have been properly
maintained in accordance with all applicable provisions of law and
administrative regulations in the United States and each such
country or other jurisdictions. To the best of the knowledge of
MCUS, after making due and careful inquiries, each of MCUS and the
MC Affiliates' use of the said patent does not require the consent
of any third party. Also the same are freely transferable and are
owned exclusively by MC free and clear of any attachments, liens,
royalties, encumbrances, adverse claims, licences or any other
ownership or other interest of any person whatsoever, including,
without limitation, any ownership or other interest of any other
affiliate of MC. To the best of the knowledge of MCUS, after making
due and careful inquiries, no person has a licence to use any of
such patents or any claim which may arise from the existence of such
patent application and no outstanding order, decree, judgement or
stipulation, and no proceeding charging MC or its affiliates with
infringement of any adversely held patent with respect to the Disk
Drive Business, has been served upon MC or its affiliates at any
time during the 1-year period prior to and ending upon the Closing
Date or, except as disclosed by MCUS's patent counsel in its
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29
attorney representation letter to ST Chatsworth or its
representatives and to the best of MC's knowledge, is threatened to
be filed; and to the best of the knowledge of MCUS, after making due
and careful inquiries, the continuing conduct of the Disk Drive
Business by ST, as heretofore conducted by MC, will not result in
the infringement of any patents or patent application or other
rights owned by or owed to any third party. To the best knowledge of
MC after a review of the current files of MC and their affiliates,
no person or entity is infringing upon the patents referred to
herein.
(b) To the best of the knowledge of MCUS, after making due and careful
inquiries, each of MCUS and the MC Affiliates owns and has the right
to use, free and clear of any claims or rights of any third party,
including without limitation, any affiliate of MC, all trademarks,
trade names, service marks, brand names, business and product names,
logos, trade secrets, customer lists, secret processes, technology,
know-how and any other Confidential Information required for or used
in the manufacture, sale, distribution or marketing of all products
either being or proposed to be manufactured, sold, distributed or
marketed by MC and included in the Disk Drive Business, including,
without limitation, any products licensed by MC from others in
connection with the Disk Drive Business.
(c) MC is not in any way making any unlawful or wrongful use of any
trade secrets, customer lists, manufacturing processes, secret
processes, technology, know-how or any other confidential
information of any third party, including, without limitation, any
former employer of any present or past employee of MC. The
manufacturing processes, secret processes, know-how and any other
intellectual property and confidential information resulting from
the development activities engaged in by any employees of MC with
respect to the Disk Drive Business is the property of MC.
(d) Neither MC nor any Transferred Employees of MC is a party to any
non-competition agreement or similar agreement with any third party
pertaining to the Disk Drive Business.
(e) MC has not provided to any entities in which MC has a beneficial
equity or ownership interest but which are not affiliates
("Investees") any material know-how or technology with respect to
---------
the Disk Drive Business and to the knowledge of MC, no Investees
have any material know-how or technology with respect to the Disk
Drive Business.
4.9 Insolvency
----------
(a) No order has been made or petition presented or resolution passed
for the winding up of MC or for the appointment of a provisional
liquidator to MC or for an administration order to be made in
respect
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30
of MC and no meeting has been convened for the purposes of winding
up MC.
(b) No receiver or receiver and manager has been appointed by any person
and no steps have been taken for the appointment of a receiver or a
receiver and manager over the whole or any part of the business or
assets of MC.
(c) There is no unfulfilled or unsatisfied judgement or court order
outstanding against MC.
(d) No judicial management order has been made and no petition for such
an order has been presented in respect of MC.
(e) No distress, charging order, garnishee order, execution or other
process has been levied against MC or the Acquired Assets and no
action has been taken to repossess any of the Acquired Assets.
(f) MC has not made or proposes to make any arrangement or composition
with its creditors or any class of its creditors.
4.10 Affiliate Transactions
----------------------
(a) No officer, director, affiliate or associate of MC or any associate
of any such officer, director or affiliate provides or causes to be
provided any assets, services or facilities used or held for use in
connection with the Disk Drive Business.
(b) The Disk Drive Business does not provide or cause to be provided any
assets, services or facilities to any such officer, director,
affiliate or associate.
4.11 Litigation
----------
(a) There are no actions or proceedings pending or, to the knowledge of
MC, threatened against, relating to or affecting MC with respect to
the Disk Drive Business or any of the Acquired Assets which:-
(i) could reasonably be expected to result in the issuance of an
order restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Ancillary
Documents or otherwise result in a material diminution of the
benefits contemplated by this Agreement or any of the
Ancillary Documents to ST; or
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31
(ii) if determined adversely to MC, could reasonably be expected
to result in any injunction or other equitable relief that
would interfere in any material respect with the Disk Drive
Business.
(b) There are no facts or circumstances known to MC that could
reasonably be expected to give rise to any action or proceeding that
would be required to be disclosed pursuant to Section 4.11(a).
(c) There are no orders outstanding against MC with respect to the Disk
Drive Business.
4.12 Absence of Changes
------------------
Since 29 December 1995, MC has conducted the Disk Drive Business only in
the ordinary course, and MC has not (in connection with or pertaining to
the Disk Drive Business), as of the date hereof and as of the date of the
Closing, either directly or indirectly:-
(a) suffered any change in the financial condition, assets, liabilities
of the Disk Drive Business, whether or not arising in the ordinary
course of business, which change by itself or in conjunction with
any or all other such changes has a Material Adverse Effect (the
term "Material Adverse Effect" shall mean a material adverse effect
-----------------------
on the business or financial condition of the Disk Drive Business,
excluding any general economic, market or industry changes);
(b) incurred any obligation or liability (absolute, accrued, contingent
or otherwise) with respect to the Disk Drive Business other than
liabilities in the ordinary course of business consistent with past
practice;
(c) permitted any Acquired Assets to become subject to any Lien,
mortgage, pledge or encumbrance other than in the ordinary course of
business;
(d) (i) purchased, sold, assigned, transferred, abandoned or
otherwise disposed of any asset of the Disk Drive Business
other than in the ordinary and normal course of its business
consistent with past practice; or
(ii) cancelled any debts or claims of the Disk Drive Business,
other than in the ordinary and normal course of business
consistent with past practice;
(e) entered into any transaction or agreement other than in the ordinary
and normal course of the Disk Drive Business consistent with past
practice;
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(f) entered into any compromise or settlement of any litigation or
governmental investigation relating to the Disk Drive Business or
the Acquired Assets;
(g) suffered any damage, destruction or loss to the Acquired Assets,
whether or not covered by insurance, which has a Material Adverse
Effect;
(h) made or suffered any amendment, modification or termination of any
of the Assumed Contracts which has a Material Adverse Effect;
(i) received notice or acquired knowledge of any labour trouble,
difficulty, dispute or organizing effort involving employees of the
Disk Drive Business;
(j) entered into any lease or sub-lease, pledge or hypothecation of any
Acquired Asset; or
(k) (except where it has given written notice thereof to ST) suffered
any loss of employees, customers or suppliers that has a Material
Adverse Effect on the Disk Drive Business or been advised by any
customer or supplier that such customer or supplier intends to
discontinue its relationship with MC with respect to the Disk Drive
Business.
4.13 Employee Benefit Plans
----------------------
In relation to all employee benefit plans, agreements, policies,
arrangements and understandings (whether or not written) relating to
employee benefits provided to the Business Employees (as defined in
Section 10.7), including, without limitation, all plans, agreements,
arrangements, policies or understandings relating to sick pay, vacation
pay or severance pay, deferred compensation, pensions, profit sharing,
retirement income or other benefits, stock purchase and stock option
plans, bonuses, severance arrangements, health benefits, disability
benefits, insurance benefits and all other employee benefits or fringe
benefits (individually referred to as "a Plan" and collectively referred
------
to as the "Plans").
-----
(a) True, correct and complete copies of each such Plan (or in the case
of any unwritten Plan, a description thereof) have been furnished to
ST.
(b) Each Plan has been administered and operated in accordance with its
terms and applicable law.
(c) Full payment has been made of all amounts which MC was required,
under the terms of any of the Plans, to have paid as contributions
to such Plans on or prior to the date hereof. There are no accrued
liabilities under any Plans, programmes or practices maintained on
behalf of the employees of MC which are not provided for on their
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33
books or financial statements or which have not been fully provided
for by contributions to such Plans, programmes, or practices.
(d) Other than for claims in the ordinary course for benefits under the
Plans, there are no actions, suits, claims or proceedings, pending
or, to the best of MC's knowledge, threatened, nor, to the best of
MC's knowledge does there exist any basis therefor, which would
result in any liability with respect to any Plan of MC.
(e) MC does not maintain any employee welfare benefit plans which
provide post-retirement benefits to employees.
4.14 Governmental and Other Approvals
--------------------------------
MC is not required to obtain or make any application for any approval,
licence or permit from or take other action or effect any filing with,
any foreign or domestic, federal, national, provincial, state, municipal
or other governmental body, commission, board, department or agency or
third party in order to execute this Agreement and/or consummate the
transactions contemplated hereby in accordance with applicable laws and
regulations.
4.15 Brokerage
---------
MCUS agree to indemnify and hold ST harmless in connection with any
claims for commissions or other compensation made by any broker or finder
claiming to have been employed by or on behalf of MC in connection with
the transactions contemplated herein.
4.16 Labour Relations
----------------
None of the Business Employees is covered by a collective bargaining
agreement between a collective bargaining unit, trade union, works
council, or other employees' association and MC.
4.17 Warranties in Respect of Micropolis Thailand
--------------------------------------------
(a) MCUS hereby makes the representations and warranties contained in
Sections 4.1 to 4.16 in respect of Micropolis Thailand insofar as
the same would be applicable as if the assets, business, undertaking
and liabilities of such company were being acquired by ST.
(b) In respect of Micropolis Thailand, MCUS hereby warrants and
represents to ST that:-
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34
(A) Debts to, contracts with, connected persons
-------------------------------------------
(i) There are:-
(aa) no loans made by Micropolis Thailand to its
shareholder and/or any director of Micropolis
Thailand;
(bb) no debts owing to Micropolis Thailand by its
shareholder and/or any director of Micropolis
Thailand;
(cc) except in relation to inter-company balances, no
debts owing by Micropolis Thailand other than
debts which have arisen in the ordinary course of
business; and
(dd) no securities for any such loans or debts as
aforesaid.
(ii) There are no existing contracts or engagements to which
Micropolis Thailand is a party and in which any
director of Micropolis Thailand is interested.
(B) Accounts receivable
-------------------
(i) None of the accounts receivable which are included in
the audited accounts (the "Audited Accounts") of
----------------
Micropolis Thailand for the year ended 29 December 1995
(the "Balance Sheet Date") or which have subsequently
------------------
arisen have been outstanding for more than three (3)
months from their due dates for payment and all such
debts have realized or will realize in the normal
course of collection their full value as included in
the Audited Accounts or in the books of Micropolis
Thailand after taking into account the provisions for
bad and doubtful debts in the Audited Accounts.
(ii) No part of the amounts included in the Audited Accounts
or in the books of Micropolis Thailand as due from
debtors has been released on terms that any debtors
pays less than the net book value after any provisions
made in the Audited Accounts as at the Balance Sheet
Date or has been written off or has proved to any
extent to be irrecoverable or is now regarded as being
irrecoverable.
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(C) Insurance
---------
All the assets of Micropolis Thailand which are of an
insurable nature have at all material times been and are as
at the date hereof insured in amounts reasonably regarded as
adequate against fire and other risks normally insured
against by companies carrying on similar businesses or owning
property of a similar nature and Micropolis Thailand has at
all material times been, and is at the date hereof,
adequately covered against accident, third party errors and
omissions and other risks normally covered by insurance by
such companies. The particulars of the insurance of
Micropolis Thailand which have been supplied to ST are true
and correct. In respect of all such insurances:-
(i) all premiums have been duly paid; and
(ii) all the policies are in force and are not voidable on
account of any act, omission or non-disclosure on the
part of the insured party.
(D) Title to assets
---------------
All assets of Micropolis Thailand and all debts due to it
which are included in the Audited Accounts or have otherwise
been represented as being the property of or due to
Micropolis Thailand or at the Balance Sheet Date used or held
for the purposes of its business were at the Balance Sheet
Date the absolute property of Micropolis Thailand and (save
for those subsequently disposed of or realized in the
ordinary course of trading) all such assets and all assets
and debts which have subsequently been acquired or arisen are
as at the date hereof the absolute property of Micropolis
Thailand free from all and any encumbrance of whatever nature
and there are no circumstances under which by operation of
law or otherwise Micropolis Thailand's title, right or
interest in and to such assets may be adversely affected in
any way whatsoever.
(E) Books and records
-----------------
The records, statutory books and books of account of
Micropolis Thailand are duly entered up and maintained in
accordance with all legal requirements applicable thereto and
contain true, full and accurate records of all matters
required to be dealt with therein and all such books and all
records and documents (including documents of title) which
are its property are in its possession or under its control
and all accounts, documents and returns required to be
delivered to or made to
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36
the relevant authority in Thailand have been duly and
correctly delivered or made.
(F) Options on capital
------------------
(i) MCUS is entitled to sell and transfer to ST the full
legal and beneficial ownership of the total issued
share capital of Micropolis Thailand on the terms of
this Agreement without the consent of any third party.
(ii) No person has the right (whether exercisable now or in
the future and whether contingent or not) to call for
the allotment, issue, sale or transfer of any share or
loan capital of Micropolis Thailand under any option or
other agreement (including conversion rights and rights
of pre-emption) and there are no claims, charges,
liens, equities or encumbrances on the share capital of
Micropolis Thailand.
(G) Subsidiaries and associated companies
-------------------------------------
(i) Micropolis Thailand has no subsidiaries or associated
companies (that is to say a company in which Micropolis
Thailand has not less than 20 per cent of its issued
share capital and in whose commercial and financial
policy decisions Micropolis Thailand participates) and
is not a partner in any partnership.
(ii) Micropolis Thailand does not carry on any business
outside Thailand.
(iii) Micropolis Thailand has not, other than in the ordinary
course of business, made any material investment in, or
material advance of cash to, guarantee of indebtedness
of, or other extension of credit to any company.
(H) Statutory and other requirements, consents and licenses
-------------------------------------------------------
(i) All statutory and other requirements applicable to the
carrying on of the business of Micropolis Thailand as
now carried on, and all conditions applicable to any
licences and consents involved in the carrying on of
such business, have been complied with and MCUS is not
aware (after making due and careful enquiries) of any
breach thereof or of any intended or contemplated
refusal or revocation of any such licence or consent.
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37
(ii) No notice has been issued and received and, to the
knowledge of MCUS, no investigation or review is
pending or threatened by any governmental or self-
regulatory entity:-
(aa) with respect to any alleged violation by
Micropolis Thailand or, to the best knowledge of
MCUS, any officer, director or employee of
Micropolis Thailand, of any law, ordinance, rule,
regulation, order, policy or guideline of any
governmental or self-regulatory entity, the
sanction for which violation could be reasonably
expected to have a Material Adverse Effect on the
business, assets or prospects or the financial
condition or the results of operations of
Micropolis Thailand; or
(bb) with respect to any alleged failure to have all
permits, certificates, licences, registrations,
approvals and other authorisations required in
connection with the operation of the business of
Micropolis Thailand, the absence of which may
have a Material Adverse Effect on the business,
assets or prospects or the financial condition or
the results of operations of Micropolis Thailand.
(iii) The Promotion Certificate of the Board of Investment
No. 1555 issued to Micropolis Thailand is valid and has
not been revoked and Micropolis Thailand is not in
breach of the Promotion Certificate and has complied
with all the terms and conditions of the Promotion
Certificate.
(I) The Audited Accounts
--------------------
(i) The Audited Accounts have been prepared in accordance
with all applicable laws and on a consistent basis in
accordance with accounting principles, standards and
practices generally accepted at the date hereof in
Thailand so as to give a true and fair view of the
state of affairs of Micropolis Thailand at the Balance
Sheet Date and of the profits or losses for the period
concerned and as at that date make:-
(aa) full provision for all actual liabilities;
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(bb) proper provision (or note in accordance with good
accountancy practice) for all contingent and
disputed liabilities;
(cc) provision reasonably regarded as adequate for all
bad and doubtful debts; and
(dd) due provision for depreciation and amortisation
and any obsolescence of assets.
(ii) Full provision or reserve has been made in the Audited
Accounts for all taxation liable to be assessed on
Micropolis Thailand or for which it is or may become
accountable in respect of:-
(aa) profits, gains or income (as computed for
taxation purposes) arising or accruing or deemed
to arise or accrue on or before the Balance Sheet
Date;
(bb) any transactions effected or deemed to be
effected on or before the Balance Sheet Date or
provided for in the Audited Accounts; and
(cc) distributions made or deemed to be made on or
before the Balance Sheet Date or provided for in
the Audited Accounts.
(iii) Proper provision or reserve for deferred taxation in
accordance with accounting principles and standards
generally accepted at the date hereof in Thailand has
been made in the Audited Accounts.
(iv) The profits of Micropolis Thailand as shown by the
Audited Accounts have not been affected to a material
extent by inconsistencies of accounting practices, by
the inclusion of non-recurring items of income or
expenditure, by transactions entered into otherwise
than on normal commercial terms or by any other factors
rendering such profits exceptionally high or low.
(J) Taxation
--------
There is no liability for Taxes in respect of which a claim
could be made against Micropolis Thailand (other than as
specifically provided for in the Audited Accounts and other
than taxes on income arising from transactions entered into
in the ordinary course of business after the Balance Sheet
Date)
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39
and there are no circumstances likely to give rise to such a
Liability.
(K) Contributions
-------------
(i) All deductions and payments required to be made by
Micropolis Thailand in respect of contributions
(including employer's contributions) to any relevant
competent authority have been so made.
(ii) Proper records have been maintained in respect of all
such deductions and payments and all regulations
applicable thereto have been complied with.
(L) Tax returns
-----------
(i) Micropolis Thailand has duly made all returns and given
or delivered all notices, accounts and information
which on or before the date hereof ought to have been
made, given or delivered for the purposes of taxation
and all such returns, notices, accounts and information
(and all other information supplied to the inland
revenue or the customs and excise or other fiscal
authority concerned for any such purpose) have been
correct and made on a proper basis and none of such
returns, notices, accounts or information is disputed
in any material respect by the fiscal authority
concerned and there is not in existence any fact which
might be the occasion of any such dispute or of any
claim for taxation in respect of any financial period
down to and including the Balance Sheet Date not
provided for in the Audited Accounts.
(ii) Without limiting the generality of Section
4.17(b)(L)(i), except as disclosed in the audited
accounts for the period ending 29 December 1995, the
tax returns of Micropolis Thailand have at all times
been correct and on a proper basis and no taxes, levies
or duties, including but not limited to goods and
services tax, value added tax, sales tax and property
tax, if any, are the subject of any arrears or other
dispute with the fiscal authorities in Thailand or
elsewhere and there is no liability to taxation in
respect of which a claim could be made against
Micropolis Thailand and there are no circumstances
likely to give rise to such a claim.
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(iii) All documents the enforcement of which Micropolis
Thailand may be interested in and which are subject to
ad valorem stamp duty have been duly stamped and no
document belonging to Micropolis Thailand which is
subject to ad valorem stamp duty is or will be
unstamped or insufficiently stamped; nor has any relief
from such duty been improperly obtained, nor has any
event occurred as a result of which any such duty from
which relief has been obtained will become payable.
(iv) Micropolis Thailand has not received any tax
concession, relief or other special tax treatment,
whether in relation to its assets or the business
carried on by it or otherwise which, if revoked or
otherwise removed, will or may give rise to any
additional liability to taxation and, to the extent
that Micropolis Thailand has received any such tax
concession, relief or other special tax treatment,
there are not in existence any facts or circumstances
which will or may lead to the revocation or removal of
the same.
4.18 Warranties in Respect of Purchased Companies
--------------------------------------------
In the event ST Chatsworth elects to purchase the total issued share
capital of each or any of the Purchased Companies pursuant to the option
in Section 1.2:-
(a) MCUS hereby makes the representations and warranties contained in
Sections 4.1 to 4.16 in respect of the Purchased Company whose share
capital is to be purchased insofar as the same would be applicable
as if the assets, business, undertaking and liabilities of such
companies were being acquired by ST; and
(b) in respect of the Purchased Company whose share capital is to be
purchased, MCUS warrants and represents to ST in the terms of
Section 4.17(b) mutatis mutandis and all references therein to
Micropolis Thailand shall be construed as references to the
Purchased Company whose share capital is to be purchased and all
references therein to Thailand shall be construed as references to
the country of incorporation of the Purchased Company whose share
capital is to be purchased.
4.19 Trade Payables
--------------
The Trade Payables:-
(a) arose from bona fide transactions in the ordinary course of business
and are payable on ordinary trade terms;
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41
(b) are legal, valid and binding obligations of MC enforceable in
accordance with their terms;
(c) are not subject to any valid set-off or counterclaim; and
(d) will be paid on normal credit terms.
4.20 Disclosure
----------
No representation or warranty in this Section 4 and the Disclosure
Schedule, and no statement contained therein contains or will contain any
untrue statement of a material fact or omits or will omit to state a
material fact or any fact necessary to make the statements contained
herein or therein not misleading in any material respect.
5. REPRESENTATIONS AND WARRANTIES OF ST
------------------------------------
ST Chatsworth hereby makes the following representations and warranties
to MCUS:-
5.1 Organisation and Qualification of ST
------------------------------------
ST Chatsworth is duly organised and validly existing under the laws of
Singapore. ST Chatsworth has full corporate power and authority to enter
into and perform the transactions contemplated by this Agreement.
5.2 Authority
---------
This Agreement and each of the Ancillary Documents delivered or to be
delivered by ST Chatsworth or a ST Affiliate will constitute the valid
and binding obligation of ST Chatsworth or such ST Affiliate, as
appropriate, when executed and delivered in accordance with its terms,
and shall be enforceable against ST Chatsworth or such ST Affiliate in
accordance with their respective terms, except to the extent such
enforceability:-
(a) may be limited by bankruptcy, insolvency, reorganisation, moratorium
or similar laws affecting the enforcement of creditors' rights
generally;
(b) is subject to equitable principles generally.
The execution, delivery and performance of this Agreement and of the
Ancillary Documents delivered or to be delivered by ST Chatsworth or such
ST Affiliate have been, or when delivered will be, duly authorised by all
necessary corporate action of ST Chatsworth or such ST Affiliate. The
execution, delivery and performance by ST Chatsworth or such ST
Affiliate, as the case may be, of this Agreement or any Ancillary
Documents does not and will not with the passage of time or the giving of
notice or both:-
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42
(a) violate any provisions of the memorandum and articles of association
or equivalent, or bylaws of ST Chatsworth or the ST Affiliate; or
(b) require any approval, consent or waiver of, or filing with, any
entity, private or governmental except such approvals which are
required under Section 8.4.
6. COVENANTS OF MCUS PRIOR TO CLOSING
----------------------------------
MCUS covenants and agrees as follows throughout the period from the date
hereof through and including the Closing:-
6.1 Restrictions
------------
Except as may be otherwise contemplated by this Agreement or except as ST
Chatsworth may otherwise consent to in writing, MCUS shall cause the Disk
Drive Business in all material respects to be conducted in the ordinary
course of business and in substantially the same manner in which such
business and operations have been previously conducted prior to the date
hereof and shall:-
(a) deliver or make, duly and correctly all accounts, documents and
returns required by applicable law to be made to such authorities as
is appropriate;
(b) conduct its business and affairs in all material respects in
accordance with its memorandum and articles of association or
equivalent and all applicable laws and regulations of any country in
which it operates;
(c) keep ST Chatsworth informed and consult with ST Chatsworth on all
material proposals and matters affecting or potentially affecting
the Disk Drive Business;
(d) hold meetings from time to time with the representatives of ST
Chatsworth at such times as may be requested by ST Chatsworth on
reasonable notice in order that ST Chatsworth may be informed as to
the progress of the Disk Drive Business;
(e) use all efforts to:-
(i) preserve intact the present business organisation and
reputation of the Disk Drive Business;
(ii) keep available (subject to dismissals and retirements in the
ordinary course of business consistent with past practice)
the services of the employees;
(iii) maintain the Acquired Assets in good working order and
condition, ordinary wear and tear excepted;
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(iv) maintain the goodwill of customers, suppliers, lenders and
other persons to whom MC sell goods or provide services or
with whom MC otherwise have significant business
relationships in connection with the Disk Drive Business; and
(v) continue all current sales, marketing and promotional
activities relating to the Disk Drive Business; and
(f) except to the extent required by applicable law:-
(i) cause the Disk Drive Business books and records to be
maintained in the usual, regular and ordinary manner, and
(ii) not permit any material change in any pricing, investment,
accounting, financial reporting, inventory, credit, allowance
or tax practice or policy of MC that would adversely affect
the Disk Drive Business, the Acquired Assets and the Assumed
Liabilities.
6.2 Matters Pending Closing
-----------------------
Without limiting the generality of Section 6.1 with respect to the Disk
Drive Business throughout the period from the date hereof through and
including the Closing, MCUS shall not (except with the prior written
consent of ST Chatsworth) cause or permit MC to:-
(a) suffer or permit any event or condition within MC's control which
will have a Material Adverse Effect on the Disk Drive Business or
the Acquired Assets;
(b) effect any dissolution, winding up, liquidation or termination of
MC;
(c) effect any merger or consolidation of MC unless MC is the survivor
thereof;
(d) institute, settle or dismiss any litigation, claim or other
proceeding with respect to the Disk Drive Business or the Acquired
Assets before any court or governmental agency;
(e) make any change in the memorandum and articles of association or
equivalent, or bylaws of MC which would hinder, delay or prohibit
the transactions contemplated by this Agreement;
(f) dispose of or agree to dispose of any interest in the Disk Drive
Business or grant any option or right of pre-emption over, or
mortgage, charge or otherwise encumber the assets of the Disk Drive
Business including the Acquired Assets;
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(g) take any action which is inconsistent with the provisions of this
Agreement or the consummation of the transactions contemplated
hereunder;
(h) enter into any transaction, agreement, contract, commitment or
arrangement:-
(i) which involves or is likely to involve negotiations or
resources on the Disk Drive Business of an unusual or
exceptional nature; or
(ii) which is not in the ordinary course of business and on arm's
length terms;
(i) amending, modifying, terminating (partially or completely), granting
any waiver under or giving any consent with respect to any contract
in relation to the Disk Drive Business;
(j) violating, breaching or defaulting under in any material respect, or
taking or failing to take any action that (with or without notice or
lapse of time or both) would constitute a material violation or
breach of, or default under any term or provision of any contract in
relation to the Disk Drive Business;
(k) fail to take any action required to maintain any of its insurances
in force or knowingly do anything to make any policy of insurance
void or voidable;
(l) make or agree to make any change in the nature or organisation of
the Disk Drive Business;
(m) make any material change to the accounting procedures or principles
by reference to which its accounts are drawn up otherwise than as
required by any accounting standards authorities;
(n) borrow any money or agree to (other than by bank overdraft or
similar facility in the ordinary course of business and within
limits subsisting as at the date of this Agreement);
(o) incurring, purchasing, cancelling, prepaying or otherwise providing
for a complete or partial discharge in advance of a scheduled
payment date with respect to, or waiving any right of MC under, any
liability of or owing to MC in connection with the Disk Drive
Business, other than in the ordinary course of business consistent
with past practice;
(p) make or agree to make any capital commitment, including for this
purpose, the acquisition of any capital asset under a finance lease;
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(q) create, grant or issue, agree to create, grant or issue, any
mortgages, charges (other than liens arising by operation of law),
debentures or other securities or give or agree to give any
guarantees or indemnities; and
(r) engaging in any transaction with respect to the Disk Drive Business
with any officer, director, affiliate or associate of MC, or any
associate of any such officer, director or affiliate or in relation
to the system business, either outside the ordinary course of
business consistent with past practice or other than on an arm's
length basis.
6.3 Notice of Breach
----------------
To the extent MCUS obtains knowledge that any of the representations or
warranties contained in Section 4 would be incorrect in any respect were
those representations or warranties made immediately after such knowledge
was obtained, MCUS shall notify ST Chatsworth in writing promptly of such
fact and MCUS shall or shall procure the MC Affiliates to exercise their
best efforts to remedy the same.
6.4 Access
------
MCUS shall or shall procure the MC Affiliates to provide ST and ST's
solicitors, auditors, environmental consultants and appraisers, officers,
directors, employees, agents, financial advisors, consultants and other
representatives, with such information as ST may from time to time
reasonably request with respect to the Disk Drive Business and the
transactions contemplated by this Agreement, and shall provide ST and
such representatives reasonable access during regular business hours and
upon reasonable notice to the properties, books and records of the Disk
Drive Business as ST may from time to time reasonably request.
6.5 Authorisation from Others
-------------------------
MCUS will or will procure the MC Affiliates to:-
(a) take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially
reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to
give all notices to Governmental or Regulatory Authority or any
other person required of MC to consummate the transactions
contemplated hereby and by the Ancillary Documents;
(b) provide such other information and communications to such
Governmental or Regulatory Authority or other persons as ST or such
Governmental or Regulatory Authority or other persons may reasonably
request in connection therewith; and
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(c) co-operate with ST as promptly as practicable in obtaining all
consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authority or other
persons required of ST to consummate the transactions contemplated
hereby and by the Ancillary Documents and in connection with the
voluntary notice to CFIUS (as defined in Section 15.14). MCUS will
provide prompt notification to ST when any such consent, approval,
action, filing or notice referred to in Section 6.5(a) is obtained,
taken, made or given, as applicable, and will advise ST of any
communications (and, unless precluded by law, provide copies of any
such communications that are in writing) with any Governmental or
Regulatory Authority or other person regarding any of the
transactions contemplated by this Agreement or any of the Ancillary
Documents.
6.6 HSR Filings
-----------
In addition to and not in limitation of MCUS's covenants contained in
Section 6.5, MCUS will:-
(a) take promptly all actions necessary to make the filings required or
MC under the HSR Act (as defined in Section 15.14);
(b) comply at the earliest practicable date with any request for
additional information received by MC from the Federal Trade
Commission or the Antitrust Division of the Department of Justice
pursuant to the HSR Act; and
(c) co-operate with ST in connection with ST's filing under the HSR Act
and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced
by either the Federal Trade Commission or the Antitrust Division of
the Department of Justice or state attorneys general and CFIUS under
the Exon-Florio Amendment (as defined in Section 15.14) of the
transactions contemplated by this Agreement and by the Ancillary
Documents and, in connection therewith, provide CFIUS with such
information concerning the transactions contemplated by this
Agreement and the Ancillary Documents as is reasonably necessary or
desirable.
6.7 Consummation of Agreement
-------------------------
MCUS and ST Chatsworth shall use their reasonable efforts and due
diligence to satisfy all conditions to the Closing to the end that the
transactions contemplated by this Agreement shall be fully carried out.
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6.8 Relationships with Customers and Suppliers
------------------------------------------
MCUS shall and shall procure the MC Affiliates to use their best efforts
to keep available until the Closing its key employees and shall not make
any material variation to the terms and conditions of employment of such
employees and to maintain its relationship with material customers,
distributors and suppliers and other persons having material business
dealings with it such that the Disk Drive Business will not be impaired.
6.9 Defective Disk Drives
---------------------
MCUS shall notify ST Chatsworth on a weekly basis of the number of disk
drives that are returned by customers for after-sales service or to meet
warranty claims or the subject of complaint by customers and a reasonably
detailed description of the reason for the return of the disk drives.
6.10 Stock Verification
------------------
MCUS shall conduct a joint stock verification exercise with ST Chatsworth
of the Machinery and Equipment and Inventory as of the Closing Date.
Provided that the stock verification exercise shall not in any way
relieve or discharge MCUS from any liability for breach of warranty or
otherwise which would have arisen under this Agreement.
6.11 Inventory for System Business
-----------------------------
MCUS shall ensure that at the Closing the finished goods inventory sold
or transferred to or otherwise in the possession or control of its system
business shall not exceed the value of US$4,000,000.
6.12 Balance Sheet For Disk Drive Business
-------------------------------------
MCUS shall at Closing provide ST Chatsworth with a list of the Acquired
Assets owned by, belonging to or to be sold by it and the relevant MC
Affiliate and the country of location of the relevant Acquired Assets.
6.13 Financial Statement of Disk Drive Business
------------------------------------------
MCUS shall at Closing deliver to ST Chatsworth the audited accounts of
MCUS on a consolidated basis for the twelve months ended 29 December 1995
together with all notes thereto and a division of the audited accounts
between the Disk Drive Business and the system business and an analysis
supporting such division.
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6.14 List of Acquired Assets
-----------------------
On or before 1 February 1996, MCUS shall deliver to ST Chatsworth a
detailed list of all the Acquired Assets together with copies of the
relevant contract, agreement or document in relation thereto as ST
Chatsworth may require to identify the Acquired Assets.
6.15 Accounts of Purchased Companies
-------------------------------
MCUS shall on or before 29 February 1996 deliver to ST Chatsworth the
audited accounts of Micropolis Thailand and each of the Purchased
Companies for the year ending 29 December 1995.
6.16 Inventory for Evaluation
------------------------
MCUS shall obtain the written consent of ST Chatsworth prior to sending
any inventory to any customer for evaluation.
6.17 Purchase of Issued Share Capital
--------------------------------
In relation to Micropolis Thailand and each of the Purchased Companies
which ST Chatsworth has elected to purchase the issued share capital,
MCUS shall not and shall ensure that without the prior written consent of
ST Chatsworth:-
(a) no dividend or other distribution will be declared, made or paid to
its members;
(b) no material change will be made in the basis of the emoluments or
other terms of employment of its directors or any of its employees;
and
(c) it has not terminated the lease in relation to any of the premises
where the business of the relevant companies are carried on.
7. COVENANTS OF ST CHATSWORTH
--------------------------
7.1 Regulatory and Other Approvals
------------------------------
ST Chatsworth will:-
(a) take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially
reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to
give all notices to Governmental or Regulatory Authority or any
other person required of ST Chatsworth to consummate the
transactions contemplated hereby and by the Ancillary Documents;
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(b) provide such other information and communications to such
Governmental or Regulatory Authority or other persons as MCUS or
such Governmental or Regulatory Authority or other persons may
reasonably request in connection therewith; and
(c) co-operate with MCUS as promptly as practicable in obtaining a
consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authority or other
persons required of MCUS to consummate the transactions contemplated
hereby and by the Ancillary Documents. ST Chatsworth will provide
prompt notification to MCUS when any such consent, approval, action,
filing or notice referred to in Section 7.1(a) is obtained, taken,
made or given, as applicable, and will advise MCUS of any
communications (and, unless precluded by law, provide copies of any
such communications that are in writing) with any Governmental or
Regulatory Authority or other person regarding any of the
transactions contemplated by this Agreement or any of the Ancillary
Documents.
7.2 HSR Filings
-----------
In addition to and without limiting ST Chatsworth's covenants contained
in Section 7.1, ST Chatsworth will:-
(a) take promptly all actions necessary to make the filings required of
ST Chatsworth under the HSR Act;
(b) comply at the earliest practicable date with any request for
additional information received by ST Chatsworth from the Federal
Trade Commission or the Antitrust Division of the Department of
Justice pursuant to the HSR Act; and
(c) co-operate with MCUS in connection with MCUS's filing under the HSR
Act and in connection with resolving any investigation or other
regulatory inquiry concerning the transactions contemplated by this
Agreement commenced by either the Federal Trade Commission or the
Antitrust Division of the Department of Justice or state attorneys
general and CFIUS under the Exon-Florio Amendment of the
transactions contemplated by this Agreement and by the Ancillary
Documents and, in connection therewith, provide CFIUS with such
information concerning the transactions contemplated by this
Agreement and the Ancillary Documents as is reasonably necessary or
desirable.
7.3 Maintenance of Goodwill
-----------------------
ST Chatsworth shall use such reasonable efforts to assist MCUS to
maintain the goodwill of the Disk Drive Business, including making visits
to the suppliers and customers.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ST CHATSWORTH TO CLOSE
-----------------------------------------------------------------
The obligation of ST Chatsworth to acquire the Acquired Assets and assume
the Assumed Liabilities as contemplated hereby shall be subject to the
fulfilment, on or prior to the Closing Date, unless otherwise waived, in
whole or in part, in writing by ST Chatsworth, of the following
conditions:-
8.1 Representations and Warranties
------------------------------
The representations and warranties of MCUS set forth in Section 4 hereof
shall be true and correct in all respects when made and shall be true and
correct in all respects on the Closing Date as if made on and as of such
date, except to the extent that such representations and warranties were
made as of a specified date as to such representations and warranties the
same shall continue on the Closing Date to have been true as of the
specified date.
8.2 Performance of Covenants
------------------------
MCUS shall have performed in all material respects all of its obligations
contained in this Agreement to be performed on or prior to the Closing
Date, and ST Chatsworth shall have received a certificate to such effect,
executed by MCUS and dated as of the Closing Date, in form satisfactory
to ST Chatsworth. Notwithstanding the provisions of Sections 8.1 and 8.2
hereof, ST Chatsworth shall be entitled to enforce, without regard to
materiality, the representations, warranties, agreements, covenants and
obligations which are made by MCUS herein and which are not, by their
terms, qualified as to materiality.
8.3 Orders and Laws
---------------
There shall not be in effect on the Closing Date any order or law
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or
any of the Ancillary Documents or which could reasonably be expected to
otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement or any of the Ancillary
Documents to ST and there shall not be pending or threatened on the
Closing Date any action or proceeding or any other action in, before or
by any Governmental or Regulatory Authority which could reasonably be
expected to result in the issuance of any such order or the enactment,
promulgation or deemed applicability to ST or the transactions
contemplated by this Agreement or any of the Ancillary Documents of any
such law.
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8.4 Regulatory Consents and Approvals
---------------------------------
All consents, approvals and actions of, filings with and notices to any
Governmental or Regulatory Authority necessary to permit ST and MCUS to
perform their obligations under this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and
thereby:-
(a) shall have been duly obtained, made or given;
(b) shall be in form and substance reasonably satisfactory to ST
Chatsworth;
(c) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived; and
(d) shall be in full force and effect, and all terminations or
expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement and the Ancillary
Documents, including under the HSR Act, shall have occurred,
including without limitation, the approval of MCUS's stockholders of the
transactions contemplated hereby, and ST shall have been furnished with
copies of all applicable resolutions certified by the Secretary or
Assistant Secretary or other appropriate officer of MCUS.
8.5 Delivery of Certificates and Documents to ST Chatsworth
-------------------------------------------------------
MCUS shall have delivered, or caused to be delivered to ST Chatsworth the
certificates as to the legal existence and corporate good standing of
each of MCUS and the MC Affiliates and copies of their respective
memorandum and articles of association, or equivalent, as amended, issued
or certified by the Secretary or Assistant Secretary or other appropriate
officer of MCUS (except for any jurisdiction in which the concept of good
standing is inapplicable).
8.6 Exon-Florio Amendment
---------------------
ST Chatsworth shall have received written notice from CFIUS of its
determination pursuant to the Exon-Florio Amendment not to undertake an
investigation of the transactions contemplated by this Agreement and the
Ancillary Documents.
8.7 Pledge
------
That the pledge in favour of the CIT Group/Business Credit Inc, over all
the assets of MC and all other Liens shall be discharged to the extent
that the Acquired Assets shall cease to be subject to such pledge on or
prior to Closing.
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8.8 Damage or Destruction
---------------------
MC shall not have suffered prior to the Closing Date any loss on account
of fire, flood, accident or any other calamity or casualty to an extent
that would materially interfere with the conduct of the Disk Drive
Business or materially impair the value of the Disk Drive Business as a
going concern, regardless of whether any such loss or losses have been
insured against.
8.9 Title Insurance
---------------
In the event ST Chatsworth exercises the option to purchase the US Real
Property, ST Chatsworth shall have received a policy of title insurance
on forms of and issued by one or more title companies reasonably
satisfactory to ST Chatsworth insuring the title of MCUS to the US Real
Property, subject only to such exceptions as are reasonably satisfactory
to ST Chatsworth, and MCUS shall have paid to such title companies all
expenses and premiums of such title companies in connection with the
issuance of such policies.
8.10 Completion of Due Diligence
---------------------------
The completion of a due diligence investigation on each of MCUS and the
MC Affiliates (including, without limitation):-
(a) an audit of the financial condition of Micropolis Thailand and each
of the Purchased Companies whose issued share capital is to be
purchased by ST Chatsworth; and
(b) a legal and financial analysis of each of MCUS and the MC Affiliates
and the Acquired Assets and the Assumed Liabilities on or before
Closing,
and the result of such due diligence exercise being satisfactory to ST
Chatsworth.
Provided that if ST Chatsworth shall not have informed MCUS to the
contrary on or before 29 February 1996, it shall be deemed to be
satisfied with the said due diligence.
8.11 Approval of Board of Directors
------------------------------
The approval by the board of directors of ST Chatsworth of the purchase
or the Disk Drive Business by ST Chatsworth and the entry into this
Agreement by ST Chatsworth.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF MCUS TO CLOSE
----------------------------------------------------
The obligation of MCUS to sell or procure the MC Affiliates to sell the
Acquired Assets as contemplated hereby shall be subject to the
fulfilment, on or prior to the Closing Date, unless otherwise waived in
writing by MCUS of the following conditions:-
9.1 Approval of Board of Directors
------------------------------
The approval of the board of directors of MCUS of the sale of the Disk
Drive Business by MCUS and the entry into this Agreement by MCUS.
9.2 Approval of MCUS Stockholders
-----------------------------
The stockholders of MCUS shall have approved the transactions
contemplated hereby.
9.3 Delivery of Certificates and Documents to MCUS
----------------------------------------------
ST Chatsworth shall have delivered, caused to be delivered, to MCUS the
certificates as to the legal existence and corporate good standing of ST
Chatsworth and the ST Affiliate and copies of their respective memorandum
and articles of association or equivalent, as amended, issued or
certified by the Secretary or Assistant Secretary or other appropriate
officer of ST Chatsworth or the ST Affiliate as appropriate (except for
any of such entities organised under the laws of a jurisdiction in which
the concept of good standing is inapplicable).
9.4 Exon-Florio Amendment
---------------------
ST Chatsworth shall have received written notice from CFIUS of its
determination pursuant to the Exon-Florio Amendment not to undertake an
investigation of the transactions contemplated by this Agreement and the
Ancillary Documents.
9.5 Orders and Laws
---------------
There shall not be in effect on the Closing Date any order or law that
became effective after the date of this Agreement restraining, enjoining
or otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or any of the Ancillary
Documents or which could reasonably be expected to otherwise result in a
material diminution of the benefits of the transactions contemplated by
this Agreement or any of the Ancillary Documents to MCUS and there shall
not be pending or threatened on the Closing Date any action or proceeding
or any other action in, before or by any Governmental or Regulatory
Authority which could reasonably be expected to result in the issuance of
any such order or the enactment, promulgation or deemed applicability to
MCUS or the transactions
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contemplated by this Agreement or any of the Ancillary Documents of any
such law.
9.6 Regulatory Consents and Approvals
---------------------------------
All consents, approvals and actions of, filings with and notices to any
Governmental or Regulatory Authority necessary to permit MC and ST to
perform their obligations under this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and
thereby:-
(a) shall have been duly obtained, made or given;
(b) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived; and
(c) shall be in full force and effect, and all terminations or
expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement and the Ancillary
Documents, including under the HSR Act, shall have occurred.
10. CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING
----------------------------------------------------
10.1 Survival of Representations, Warranties, Agreements, Covenants and
------------------------------------------------------------------
Obligations
-----------
All representations, warranties, agreements, covenants and obligations
herein or in any exhibit, schedule, certificate or financial statement
delivered by any party to another party incident to the transactions
contemplated in this Agreement or in any Ancillary Document shall be
deemed to have been relied upon by the other party, shall survive the
execution and delivery of this Agreement, any investigation made by any
party hereto, and the sale and purchase of the Acquired Assets and
payment therefor.
10.2 Further Assurances
------------------
From time to time after the Closing and without further consideration,
the parties will execute and deliver, or arrange for the execution and
delivery of, such other instruments of conveyance and transfer and take
such other action or arrange for such other actions as the other parties
may reasonably request in order to evidence the consummation of the
transactions contemplated hereby and to further effectuate the
transactions contemplated by this Agreement.
10.3 Publicity and Disclosures
-------------------------
No press release or any public disclosure, either written or oral, of the
transactions contemplated by this Agreement shall be made without the
prior knowledge and written consent of MCUS and ST Chatsworth, provided
that
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either MCUS or ST Chatsworth may make such disclosures as are required by
law or the rules and regulations of any stock exchange on which their
shares are quoted after notice to, and, to the extent practicable,
consultation with, the other.
10.4 Further Co-operation of the Parties
-----------------------------------
(a) MCUS and ST Chatsworth agree to use their reasonable efforts and
cooperate in good faith to secure the transfer to ST or the re-
issuance or issuance in the name of ST of all consents, licences and
permits required under applicable law or regulation, federal, state
and local or necessary to the ownership of the Acquired Assets or
the operation of the Disk Drive Business.
(b) After Closing, ST Chatsworth shall at the request of MCUS provide
MCUS access to the records and books sold and transferred herein to
ST Chatsworth for the purpose of enabling MCUS to prepare and file
its tax returns and to comply with other regulatory requirement.
10.5 Consents of Third Parties
-------------------------
To the extent that any transfer or assignment of any Acquired Assets or
Assumed Contract to be transferred and assigned to ST as provided herein
shall require the consent of the other party thereto, or of any other
person or governmental or other authority, and such consent is not
obtained, then as between MC and such other party, person or authority
this Agreement shall not constitute an agreement to assign the same
unless and until such consent shall have been obtained. MCUS agrees that,
at the request of ST, they will use their best efforts, before and after
Closing, to obtain and deliver the consent of the other parties and the
approvals of other persons or authorities, to the extent necessary, to
the assignment of all such contracts, leases, licences, commitments or
rights to ST. Until such consent or approval is obtained, MCUS, at their
expense, shall or shall procure the MC Affiliates to either act as ST's
agent in order to obtain for it the benefits thereunder or will co-
operate with ST in any reasonable arrangement designed to provide for ST
all benefits under such contracts, leases, licenses, commitments or
rights and, to the extent ST obtains the benefit of any such Acquired
Assets or Assumed Contract, ST shall perform its obligations with respect
thereto.
10.6 Mail Received after Closing
---------------------------
(a) In the event that ST receives after the Closing any mail or other
communications addressed to MC, ST may open such mail or other
communications and deal with the contents thereof in its discretion
to the extent that such mail or other communications and the
contents thereof relate to any of the Acquired Assets or to any of
the Assumed Liabilities, including the right to endorse without
recourse the name of MC on any cheque received by ST with respect to
the Acquired
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Assets, and to deal with the proceeds in accordance with the terms
of this Agreement. ST agrees to deliver or cause to be delivered to
MC all other mail and the contents thereof which does not relate to
the Acquired Assets or the Assumed Liabilities, including any
amounts received by ST on or after the Closing Date not in respect
of Acquired Assets or Assumed Liabilities. If any cheque or other
evidence of indebtedness endorsed by ST represents a payment not on
account of an Acquired Asset or Assumed Liability, ST shall pay MC
on the date ST receives payment the amount of such payment.
(b) In the event that MC receive after the Closing Date any mail or
other communications addressed to MC which relates to any of the
Acquired Assets or the Assumed Liabilities, MCUS shall or shall
procure the MC Affiliates to promptly deliver or cause to be
delivered all such mail or other written communication and the
contents thereof to ST. MCUS agrees to co-operate with ST and to
make arrangements reasonably necessary in order to properly deal
with cheques addressed to MC but which belong to ST pursuant to this
Agreement, and to properly direct the proceeds thereof to ST.
10.7 Employment of Business Employees by ST
--------------------------------------
(a) ST Chatsworth or the ST Affiliate may at any time hereafter, offer
employment to such of the current employees of MC employed in the
Disk Drive Business as ST in its absolute discretion deems fit (such
employees to whom ST shall offer employment shall hereinafter be
referred to as the "Business Employees"). ST's or the ST
------------------
Affiliate's offer of employment to the Business Employees shall be
on such terms as ST or the ST Affiliate in its absolute discretion
deems fit. Provided that ST shall offer employment to Mr Ray Vapian
and Mr Terry Atkins, such offer of employment shall be on such terms
as ST in its absolute discretion deems fit and shall commence 120
days after the Closing Date or such earlier date as the parties may
agree. Such Business Employees who accept such offers of employment
are hereinafter referred to as "Transferred Employees." To the
---------------------
extent assignable, MCUS shall and shall procure the MC Affiliates to
assign to ST Chatsworth all confidentiality and non-compete
covenants related to the Disk Drive Business of all Transferred
Employees.
(b) For injuries arising out of employment by MC prior to the Closing
Date, MC shall be liable for any damages, costs, losses, expenses or
liabilities including, without limitation, any workers' compensation
(including benefits, medical and rehabilitation expenses and any
other expenses or obligations) payable under tort, occupational
health and safety laws or otherwise in respect of MC's Business
Employees. ST shall be liable for any such damages, costs, losses,
expenses or liabilities payable for injuries arising out of the
employment of the Transferred Employees by ST on or after the
Closing Date.
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(c) ST shall have no liabilities or obligations under or with respect to
MC's Plans (as defined in Section 4.13).
(d) ST shall have no liabilities or obligations with respect to MC's
employees other than Transferred Employees as set out in Section
1.5(h), and MC shall be solely responsible for such other employees
for all purposes, including, without limitation, any health benefit
continuation, severance, redundancy or other entitlements under any
applicable law.
10.8 Accounts Receivable
-------------------
(a) In relation to the accounts receivable related to the Disk Drive
Business of MC except the Sundry Assets, ST shall render such
reasonable assistance to MC in the collection of the accounts
receivable, however, ST shall not be required to initiate legal
proceedings or to engage a collection agent for this purpose or to
terminate its business relationship with the debtor.
(b) ST shall at the written request of MC supported by reasonable
grounds, stop or suspend the sale of disk drives to any customer
which has unreasonably failed to discharge its debt giving rise to
the aforesaid accounts receivable of MC.
(c) In the event within a period of 90 days after the Closing Date, any
pricing policy adopted by ST Chatsworth has an adverse effect on the
price protection policy of MCUS towards customers, resulting in a
reduction of the aforesaid accounts receivable, ST Chatsworth will
indemnify MCUS for the reduction in the aforesaid accounts
receivable during the 90-day period.
10.9 Transfer Tax Liabilities
------------------------
(a) ST Chatsworth shall be responsible for all documentary, stamp,
sales, use, notarisation, excise, transfer or other taxes or fees
payable in respect of the sale and transfer of the Acquired Assets
and Assumed Liabilities including any value added tax, but excluding
any income taxes payable by MC in relation to or arising from the
sale of the Acquired Assets and the Assumed Liabilities (the
"Transfer Tax Liabilities" or "Transfer Taxes").
------------------------ --------------
(b) ST Chatsworth and MCUS shall use reasonable efforts to minimise the
Transfer Tax or to recover any Transfer Taxes paid and shall
cooperate with each other in such efforts and in the filing of any
exemption, application, returns or reports relating to the Transfer
Taxes. MCUS shall deliver on a timely basis to ST Chatsworth any
documents which may be used by ST Chatsworth under applicable state
or local law to support the position that the sale of any Acquired
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Assets pursuant hereto is not subject to a Transfer Tax (including
resale certificates and similar documents relating to the sale of
inventory for resale of property incorporated into inventory for
resale), and shall promptly deliver to ST Chatsworth any other
documents reasonably requested by ST Chatsworth with respect to the
applicability of any Transfer Tax.
10.10 Provisions in Relation to the Name "Micropolis"
-----------------------------------------------
(a) MC undertakes that at no time after the Closing Date shall it or the
MC Affiliates or related company use as or as part of its corporate
name or as, or as part of, any trade mark, service mark or logo
(whether any of the foregoing is registered or unregistered) or as
or as part of any trading or business name, the name "Micropolis" or
any name which is the same as, similar to or a colourable imitation
of, the name "Micropolis".
(b) Within 3 months, in the case of premises, sales literature and
stationery and 6 months in the case of products, following the
Closing Date, MCUS shall and shall procure the MC Affiliates or
other related company to remove the "Micropolis" name or mark from
its premises, products, sales literature and stationery and by the
last day of the relevant period and so far as practicable during the
relevant period shall delete from existing stocks of sales
literature and stationery, references to the "Micropolis" name or
mark by taking reasonable steps to delete the same with an ink
marker so that no trace can be seen of the "Micropolis" name or
mark.
(c) Promptly after the Closing, MCUS shall and shall procure the MC
Affiliates or other related company whose corporate name or title is
or includes the name "Micropolis" to change the corporate name or
title to remove the name "Micropolis" therefrom.
(d) After the Closing Date, MCUS undertakes to provide ST with such
assistance as may be required to enable ST or such party nominated
by ST Chatsworth to register the name "Micropolis" with the relevant
registry of companies and businesses or other similar or analogous
body as ST may determine.
10.11 Warranty Servicing
------------------
After the Closing Date, ST shall take all reasonable steps to perform, in
accordance with its normal business standards, the obligations of MC to
provide after-sales service or to meet warranty claims of customers in
relation to inventory sold in the normal course of the Disk Drive
Business by MC prior to the Closing Date, insofar as the same are
required by MC's conditions of sale.
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10.12 Inventory Sent for Evaluation
-----------------------------
In relation to the inventory delivered to customers of MC prior to the
date hereof for evaluation, on the return of such inventory by the
customers, ST shall return the inventory to MCUS.
10.13 AMK Leasehold
-------------
At the request of ST Chatsworth, Micropolis Singapore shall use its best
endeavours to obtain from the lessor such extension of the lease of the
AMK Leasehold as ST Chatsworth may require and upon such extension the
irrevocable licence granted to ST Chatsworth to use the leasehold
interest in relation to the AMK Leasehold to the exclusion of Micropolis
Singapore shall be extended accordingly.
11. INDEMNIFICATION
---------------
11.1 General Indemnification by MCUS
-------------------------------
(a) MCUS agrees to indemnify and hold each of ST Chatsworth and the ST
Affiliates and their respective officers, directors, affiliates,
employees and agents (individually a "ST Indemnified Party" and
--------------------
collectively the "ST Indemnified Parties"), harmless from and
----------------------
against any damages, liabilities, losses and expenses and any claims
by third persons (including, without limitation, reasonable
solicitors' fees, amounts paid in settlement of any claim or suit,
fines, penalties or interest, of any kind or nature whatsoever
including loss of profits and/or consequential damages) ("Loss" or
----
"Losses"), which may be sustained or suffered by an ST Indemnified
------
Party arising out of or by reason of:-
(i) a breach of any representation or warranty of MCUS made in
this Agreement, the Disclosure Schedule or any Ancillary
Document;
(ii) any failure to perform any agreement or covenant of MCUS in
this Agreement or in any Ancillary Document to be performed
or complied with; and
(iii) any liability of MCUS that is not an Assumed Liability.
(b) Provided that no claim shall be made in respect of the aforesaid
indemnity by the ST Indemnified Parties unless notice shall have
been given by ST Chatsworth to MCUS within 12 months following
Closing in the case where the claim relates to the Acquired Assets
and the Assumed Liabilities (except Micropolis Thailand and the
Purchased Companies where ST Chatsworth has elected to purchase the
issued share capital thereof) and 24 months following Closing in the
case
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where the claim relates to Micropolis Thailand and the Purchased
Companies where ST Chatsworth has elected to purchase the issued
share capital thereof.
(c) The maximum aggregate liability of MCUS for all claims in respect of
the aforesaid indemnity shall not exceed the Purchase Price.
(d) No claim shall be made in respect of the aforesaid indemnity unless
the aggregate amount of all such claims exceeds US$100,000.
11.2 Environmental Indemnification by MCUS
-------------------------------------
MCUS agrees to indemnify and hold each of the ST Indemnified Parties
harmless from and against any Losses including any claim by third persons
(including, without limitation, any foreign, provincial, state or local
agency having jurisdiction over environmental matters or Environmental
Laws) (including, without limitation, reasonable solicitors' fees,
amounts paid in settlement of any claim or suit and costs of clean-up,
restoration, remediation or removal required under Environmental Laws)
which may be sustained or suffered by any of the ST Indemnified Parties
arising out of or by reason of:-
(a) any environmental matters disclosed in the Disclosure Schedule;
(b) any of the following occurring prior to the Closing Date;
(i) generation, use, treatment, handling, storage or disposal, or
arrangement for the treatment, handling, storage or disposal,
of Hazardous Materials on, or release of Hazardous Materials
to or from, the Real Property permitted, taken or made by any
person whomsoever, whether or not in compliance with
Environmental Laws then in force;
(ii) the removal of Hazardous Materials from the Real Property
and/or the ultimate disposition of such Hazardous Materials,
by any person whomsoever, whether or not in compliance with
Environmental Laws then in force;
(iii) the use of the Real Property by any person whomsoever in such
a manner as to cause a violation of any Environmental Laws or
to potentially give rise to any liability or obligation for
the remediation or restoration of the Real Property or any
other affected property, or for the treatment, storage,
removal, disposal, release or arrangement for removal or
disposal or transportation of any Hazardous Materials;
(iv) any violation of Environmental Laws in relation to the Real
Property;
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(v) the failure by any person to obtain, maintain current, and
comply with the terms and conditions of, all permits,
approvals, licenses and other authorisations and renewals
thereof, required by the Environmental Laws for the use and
operation of the Real Property; and
(vi) the exposure of employees of any owner, operator or lessees
of the Real Property to Hazardous Materials on or in relation
to the Real Property.
The obligations of MCUS under this Section 11.2 shall survive
indefinitely.
11.3 Notice and Defence of Claim
---------------------------
(a) In the event that any party shall incur or suffer any Losses in
respect of which indemnification may be sought by such party
pursuant to the provisions of this Section 11, the party seeking to
be indemnified hereunder (the "Indemnified Party") shall assert a
-----------------
claim for indemnification by written notice (a "Notice") to the
------
party from whom indemnification is sought (the "Indemnifying Party")
------------------
stating the nature and basis of such claim. In the case of Losses
arising by reason of any third party claim, the Notice shall be
given within sixty (60) days of the filing or other written
assertion of any such claim against the Indemnified Party, but the
failure of the Indemnified Party to give the Notice within such time
period shall not relieve the Indemnifying Party of any liability
that the Indemnifying Party may have to the Indemnified Party except
to the extent that the Indemnifying Party is actually prejudiced
thereby.
(b) The Indemnified Party shall provide to the Indemnifying Party on
request all information and documentation reasonably necessary to
support and verify any Losses which the Indemnified Party believes
give rise to a claim for indemnification hereunder and shall give
the Indemnifying Party reasonable access to all premises (including
the Real Property), books, records and personnel in the possession
or under the control of the Indemnified Party which would have
bearing on such claim.
(c) In the case of any claims for which indemnification is sought, the
Indemnified Party shall have the option:-
(i) to conduct and control or cause the Indemnifying Party to
conduct and control any proceedings or negotiations in
connection therewith; and
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(ii) to perform and control or direct or cause the Indemnifying
Party to perform and control or direct the performance of
activities required, including remedial activities, under
Environmental Laws.
The parties agree to cooperate fully with one another in connection
with the matters set out in this Section 11.3(c).
(d) Notwithstanding anything in this Agreement to the contrary, MCUS
shall be responsible for any liability or obligation as a result of
ST's failure to comply with applicable law in connection with the
ownership or operation of the Disk Drive Business by ST after the
Closing if the Disk Drive Business is owned or operated after the
Closing in the manner owned or operated prior to Closing except that
MCUS shall be responsible for such on-going failure to comply until
the earlier of:-
(i) the first anniversary of the Closing Date; or
(ii) the date upon which ST obtains actual knowledge that such
manner of operation is in violation of applicable law.
11.4 No Tax Effect; Insurance
------------------------
(a) Indemnification for Losses payable pursuant to the indemnification
provisions in this Section 11 shall be on a dollar for dollar basis
and shall be determined without regard to deductibility for tax
purposes or other tax benefits to the Indemnified Party or any other
person or entity resulting therefrom.
(b) The Indemnifying Party shall make any indemnification payments
determined to be payable to the Indemnified Party hereunder promptly
after such determination is made, without delay, and without regard
to any expectation that the Indemnified Party will recover insurance
proceeds as a direct result of the matter giving rise to the claim
for which indemnification payments are to be made. The Indemnified
Party shall have no obligation whatsoever to seek to recover or make
a claim for insurance proceeds as a result of any matter giving rise
to an indemnification claim of the Indemnified Party against the
Indemnifying Party. Notwithstanding the foregoing, if the
Indemnified Party receives any insurance proceeds as a direct result
of the matter giving rise to any indemnification claim of the
Indemnified Party prior to the date upon which the Indemnifying
Party is given notice of the claim, the Indemnifying Party's
indemnification obligation with respect to such claim shall be
reduced by the amount of any such insurance proceeds actually
received by the Indemnified Party. If the Indemnified Party receives
any insurance proceeds as a direct result of the matter giving rise
to any indemnification claim of the Indemnified Party against the
Indemnifying Party after the
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63
Indemnifying Party has paid such indemnification claim to the
Indemnified Party, then the Indemnified Party shall promptly turn
over my such insurance proceeds received to the Indemnifying Party
to the extent of the payments made by the Indemnifying Party to the
Indemnified Party on the claim.
12. TERMINATION OF AGREEMENT
------------------------
12.1 Termination
-----------
At any time prior to the Closing Date, this Agreement may be terminated:-
(a) by the written agreement of ST Chatsworth and MCUS;
(b) by MCUS if there has been a material misrepresentation, breach of
warranty or breach of covenant by ST Chatsworth in its
representation, warranties and covenants set forth herein and such
breach results in a failure to satisfy a condition to MCUS's
obligation to consummate the transactions provided herein;
(c) by ST Chatsworth if there has been a material misrepresentation,
breach of warranty or breach of covenant by MCUS in their
representations, warranties and covenants set forth herein and such
breach results in a failure to satisfy a condition to ST
Chatsworth's obligation to consummate the transactions provided
herein;
(d) by MCUS if the conditions stated in Section 9 have not been
satisfied on or prior to the Closing Date; or
(e) by ST Chatsworth if the conditions stated in Section 8 have not been
satisfied on or prior to the Closing Date.
12.2 Effects of Termination
----------------------
If this Agreement shall be terminated as above provided, all obligations
of the parties hereunder shall terminate without liability of any party
to the other whether for costs, damages or otherwise; provided however,
that termination pursuant to Section 12.1(b) or (c) by reason of a
knowing and wilful breach by ST Chatsworth or MCUS of its representations
and warranties or covenants shall not relieve the breaching party from
any liability to the other party hereto.
12.3 Right to Proceed
----------------
Anything in this Agreement to the contrary notwithstanding, if any of the
conditions specified in Section 8 have not been satisfied at or prior to
the Closing, ST Chatsworth shall have the right to proceed with the
transactions contemplated hereby without waiving any of its rights
hereunder, and if any
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64
of the conditions specified in Section 9 have not been satisfied at or
prior to the Closing, MCUS may determine to proceed with the transactions
contemplated hereby without waiving any of their rights hereunder.
13. MCUS's NON-COMPETITION COVENANTS
--------------------------------
13.1 Non-Competition of MCUS
-----------------------
MCUS covenants and agrees with each of ST Chatsworth and each of the ST
Affiliates that it and the MC Affiliates and other affiliates which are
controlled by or under common control with MCUS and/or the MC Affiliates
will not without the prior written consent of ST, directly or indirectly,
anywhere within the world (the "Territory"), during the period
---------
commencing on the Closing Date and expiring on the fifth (5th)
anniversary of the Closing Date (the "Restrictive Period"):-
------------------
(a) form, acquire (except for the ownership of less than five (5%)
percent of the issued and outstanding capital stock of a publicly
traded company), finance, assist, support, provide premises,
facilities, goods or services to, or become associated in any
capacity or to any extent, directly or indirectly with, an
enterprise which is substantially similar to, as to types of
customers or products or otherwise competitive with the Disk Drive
Business of MC as heretofore conducted (a "Competing Business")
------------------
provided that the foregoing shall not prohibit MC from engaging in
transactions with parties which conduct a Competing Business so long
as such transactions with such parties are not directly or
indirectly connected with such other parties Competing Business;
(b) interfere with or attempt to interfere with or induce or attempt to
induce any Transferred Employee to leave the employ of ST or any of
it affiliates, or violate the terms of their contract with any of
them;
(c) cause or attempting to cause:-
(i) any client, customer or supplier of the Disk Drive Business
to terminate or materially reduce its business with ST, or
(ii) any officer, employee or consultant of ST engaged in the Disk
Drive Business to resign or sever a relationship with ST; or
(d) disclose (unless compelled by judicial or administrative process) or
using any confidential or secret information relating to the Disk
Drive Business or any client, customer or supplier of the Disk Drive
Business.
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13.2 Injunctive Relief
-----------------
The parties hereto acknowledge and agree that the breach by MCUS and the
MC Affiliates of the restrictive covenant contained in Section 13.1 would
cause irreparable injury to each of ST Chatsworth and/or each of the ST
Affiliates or any of them and that the remedy at law for any such breach
would be inadequate, and MCUS agrees and consents that, in addition to
any other available remedy, temporary and permanent injunctive relief may
be granted in any proceeding which may be brought by ST or any ST
Affiliate to enforce such restrictive covenant without necessity of proof
that any other remedy at law is adequate.
13.3 Enforcement
-----------
ST Chatsworth and MCUS intend that the covenants of Section 13.1 shall be
deemed to be a series of separate covenants, one for each country or
province of each and every state, territory or jurisdiction of, each
country included within the Territory and one for each month of the
Restrictive Period. If, in any judicial proceeding, a court shall refuse
to enforce any of such covenants, then such unenforceable covenants shall
be deemed eliminated from the provisions hereof for the purpose of such
proceedings to the extent necessary to permit the remaining separate
covenants to be enforced in such proceeding. If, in any judicial
proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time thereof is deemed to be
excessive or unreasonable, then it is the intent of the parties hereto
that such covenants, which would otherwise be unenforceable due to such
excessive or unreasonable period of time, be in force for such lesser
period of time as shall be deemed reasonable and not excessive by such
court.
14. NON-DISCLOSURE COVENANTS
------------------------
14.1 Non-Disclosure of Information by MCUS
-------------------------------------
It is understood that the Disk Drive Business acquired by ST hereunder is
of a confidential nature. MCUS agrees that it will and will procure that
the MC Affiliates will never divulge or appropriate to their own use, or
to the use of any third party, any Confidential Information (as
hereinafter defined).
14.2 Definition of Confidential Information
--------------------------------------
As used in this Section 14 and elsewhere in this Agreement, the term
"Confidential Information" means the following oral or written
------------------------
information relating to the business operations and affairs of the Disk
Drive Business of MC including know-how, technology, inventions, designs,
methodologies, trade secrets, patents, secret processes and formula,
information and data relating to the development, research, testing,
manufacturing, marketing, sale, distribution and use of products, sources
of supplies, budgets and strategic
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plans, the identity and special need of customers, plants and other
properties, provided that the term "Confidential Information" shall not
include:-
(a) any such information that can be shown to have been in the public
domain or generally known or available to customers, suppliers or
competitors of ST through no breach of the provisions of this
Section 14 or other non-disclosure covenants;
(b) any such information that rightfully comes into the receiving
party's possession after the Closing Date, without violation of the
provisions of this Section 14 or other non-disclosure covenants; and
(c) any such information that was independently developed after the
Closing Date by the receiving party without violation of the
provisions of this Section 14 or other non-disclosure covenants; and
provided further that MC may retain and use Confidential Information to
the extent it relates to any business of MC other than the-Disk Drive
Business.
14.3 Injunctive Relief
-----------------
The parties hereto acknowledge and agree that the breach by MCUS and the
MC Affiliates and employees of the restrictive covenant contained in
Section 14.1 would cause irreparable injury to each of ST Chatsworth
and/or each of the ST Affiliates or any of them and that the remedy at
law for any such breach would be inadequate, and MCUS agrees and consents
that, in addition to any other available remedy, temporary and permanent
injunctive relief may be granted in any proceeding which may be brought
by ST or any ST Affiliate to enforce such restrictive covenant without
necessity of proof that any other remedy at law is adequate.
15. MISCELLANEOUS
-------------
15.1 Expenses
--------
ST Chatsworth and MCUS shall pay the fees and expenses of their
respective accountants and legal advisors incurred in connection with the
transactions contemplated by this Agreement, except as otherwise provided
in Section 3.
15.2 Notices
-------
Any notice or other communication required or permitted to be given to
any party hereunder shall be in writing and shall be given to such party
at such party's address set forth below or such other address as such
party may hereafter specify by notice in writing to the other party. Any
such notice or other communication shall be addressed as aforesaid and
given (and shall be deemed to have been duly given upon receipt) by:-
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(a) registered air mall;
(b) hand delivery;
(c) reputable overnight courier; or
(d) facsimile transmission.
To MCUS: 21211 Nordhoff St.
Chatsworth, CA 91311
United States of America
Fax: 1 (818) 709 3302
To ST Chatsworth: 83 Science Park Drive
#01-01/02 The Curie
Singapore Science Park
Singapore 118258
Fax: 65 775 3233
15.3 Waiver
------
The failure of any party hereto at any time or times hereafter to
exercise any right, power, privilege or remedy hereunder or to require
strict performance by the other or another party of any of the
provisions, terms or conditions contained in this Agreement or in any
other document, instrument or agreement contemplated hereby or delivered
in connection herewith shall not waive, affect, or diminish any right,
power, privilege or remedy of such party at any time or times thereafter
to demand strict performance thereof; and, no rights of any party hereto
shall be deemed to have been waived by any act or knowledge of such
party, or any of its agents, officers or employees, unless such waiver is
contained in an instrument in writing, signed by such party. No waiver by
any party hereto of any of its rights on any one occasion shall operate
as a waiver of any of its other rights or any of its rights on a future
occasion.
15.4 Bulk Sales Act
--------------
The parties hereby waive compliance with the bulk sales act or comparable
statutory provisions of each applicable jurisdiction. MCUS shall
indemnify ST and its officers, directors, employees and agents in respect
of, and hold each of them harmless from and against, any and all losses
suffered, incurred or sustained by any of them or to which any of them
becomes subject, resulting from, arising out of or relating to the
failure of MCUS to comply with the terms of any such provisions
applicable to the transactions contemplated by this Agreement.
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15.5 Section Headings
----------------
The Section headings in this Agreement are for convenience of reference
only and shall not be deemed to be a part of this Agreement or to alter
or affect any provisions, terms or conditions contained herein.
15.6 Exhibits and Schedules
----------------------
Any exhibits, schedules, financial statements and other documents
referenced herein shall be deemed to be attached hereto and made a part
hereof.
15.7 Severability
------------
Wherever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law. If
any portion of this Agreement is declared invalid for any reason in any
jurisdiction, such declaration shall have no effect upon the remaining
portions of this Agreement which shall continue in full force and effect
as if this Agreement has been executed with the invalid portions thereof
deleted. Furthermore, the entirety of this Agreement shall continue in
full force and effect in all other jurisdictions.
15.8 Entire Understanding
--------------------
This Agreement sets forth the entire agreement and understanding between
the parties with respect to the subject matter hereof and merges any and
all discussions, negotiations, letters of intent or agreements in
principle between them. None of the parties shall be bound by any
conditions, warranties, understandings or representations with respect to
such subject matter other than as expressly provided herein, or as duly
set forth on or subsequent to the date hereof in writing and signed by a
duly authorised officer of the party to be bound thereby.
15.9 Binding Effect
--------------
This Agreement shall be binding upon and shall inure to the exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and permitted assigns.
Except as otherwise expressly provided in this Agreement, this Agreement
is not intended to, nor shall it, create any rights in any other person.
15.10 Governing Law
-------------
This Agreement is and shall be deemed to be a contract entered into and
made pursuant to the laws of Singapore, and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of
Singapore.
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15.11 Choice of Forum and Consent to Jurisdiction
-------------------------------------------
Each party hereby irrevocably submits to the exclusive jurisdiction of
the district or state court of California in any action, suit or
proceeding arising out of or relating to this Agreement or any of the
Ancillary Documents or any of the transactions contemplated hereby or
thereby, provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this Section 15.11 and shall not be deemed
to be a general submission to the jurisdiction of said courts or in the
State of California other than for such purpose. Each party hereby
irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such
action, suit or proceeding brought in such a court and any claim that any
such action, suit or proceeding brought in such a court has been brought
in an inconvenient forum. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
15.12 Assignability
-------------
Except as set forth in this Section 15, neither this Agreement nor any
rights or obligations hereunder are assignable by MCUS or ST Chatsworth.
Rights of ST Chatsworth under this Agreement are assignable in part or
wholly to any affiliate of ST Chatsworth and any assignee of ST
Chatsworth shall succeed to and be possessed of the rights of ST
Chatsworth hereunder to the extent of the assignment made, provided,
however, that any such assignment by ST Chatsworth shall not relieve ST
Chatsworth of its obligations hereunder and any assignee of ST shall also
assume any of the obligations of ST Chatsworth hereunder. In addition,
after the Closing, ST Chatsworth may assign all or any part of its rights
and/or obligations under this Agreement to any person who acquires
substantially all of the assets of the Disk Drive Business from ST
Chatsworth.
15.13 Counterparts; Delivery by Facsimile
-----------------------------------
This Agreement may be executed in counterparts and by each party hereto
on a separate counterpart, all of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one
and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier or facsimile transmission
shall be effective as delivery of a manually executed counterpart of this
Agreement.
15.14 Certain Definitions
-------------------
For the purposes of this Agreement:-
(a) an "affiliate" of any specified natural persons shall mean and
---------
include the members of such person's immediate family;
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(b) an "affiliate" of any specified other person shall mean and
---------
include any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such person;
(c) a "person" shall mean and include any natural person, firm,
------
partnership, association, corporation, limited liability company,
company, unincorporated organisation, trust, public body or
government or any department or agency thereof; and
(d) the following defined terms have the meanings indicated below:-
"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended, and the rules
and regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response and
-------
Liability Information System, as provided for by 40 C.F.R. S300.5.
"CFIUS" means The Committee on Foreign Investments in the United
-----
States.
"Environmental Claim" means, with respect to any person, any
-------------------
written or oral notice, claim, demand or other communication
(collectively, a "claim") by any other person alleging or asserting
such person's liability for investigatory costs, cleanup costs,
Governmental or Regulatory Authority response costs, damages to
natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from:-
(a) the presence, or release into the environment, of any
Hazardous Material at any location, whether or not owned by
such person; or
(b) circumstances forming the basis of any violation or alleged
violation, of any Environmental Law.
The term "Environmental Claim" shall include, without limitation,
any claim by any Governmental or Regulatory Authority for
enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the
environment.
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"Exon-Florio Amendment" means Section 721 of the Defense Production
---------------------
Act of 1950, as amended, and any successor thereto and the
regulations issued pursuant thereto or in consequence thereof.
"Governmental or Regulatory Authority" means any court, tribunal,
------------------------------------
arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any
domestic or foreign state, county, city or other political
subdivision.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
-------
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended)
and the rules and regulations promulgated thereunder.
"Liens" means any mortgage, pledge, assessment, security interest,
-----
lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale contract, title retention contract or
other contract to give any of the foregoing.
"Micropolis Limited" means the company registered in the Cayman
------------------
Islands with its address c/o Roy West Trust Corporation (Cayman)
Limited, Post Office Box 707, Grand Cayman, British West Indies.
"Micropolis Thailand" means Micropolis Corporation (Thailand) Ltd
-------------------
with its address at 733/1-8 Phaholyothin Road, Lumlookkar
Pathumthani, Thailand.
"Micropolis Singapore" means the Singapore branch of Micropolis
--------------------
Limited with its address at Block 5004, Ang Mo Kio Avenue 5 #01-11,
Singapore 569872.
"NPL" means the National Priorities List under CERCLA.
---
"Purchased Companies" means Micropolis GmbH, Micropolis Ltd.,
-------------------
Micropolis S.A.R.L., Micropolis Japan Limited and Micropolis
Australia Pty. Limited.
"ST's Accountants" means Messrs Arthur Andersen.
----------------
"Taxes" means all forms of taxation, whenever created or imposed
-----
of any jurisdiction, and whether imposed by a local, municipal,
governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, capital-
based, sales, use, ad valorem, gross receipts, license, value added,
franchise, transfer, recording, withholding, payroll, employment,
excise, occupation, premium, utility and property taxes, together
with any deficiencies, related interest, penalties and additions to
any such tax, or additional amounts imposed by any taxing authority
(domestic or foreign).
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"US Dollars" and "US$" mean the lawful currency of the United
---------- ---
States of America.
15.15 No Rights to Third Parties
--------------------------
Nothing in this Agreement is intended, or shall be construed, to confer
upon or give any person or entity other than the parties to this
Agreement any rights or remedies under or by reason of this Agreement.
15.16 Pronouns and Plurals
--------------------
All pronouns used herein shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as the identity of the person or
persons may require in the context, and the singular form of nouns,
pronouns and verbs will include the plural, and vice versa, whichever the
context may require.
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73
Schedule 1
----------
21223 Nordhoff
Chatsworth
California
United States of America
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74
Schedule 2
----------
21211 Nordhoff
Chatsworth
California
United States of America
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75
Schedule 3
----------
First, Second, Third and Fifth Storey
Block 5004, Ang Mo Kio Avenue 5
TechPlace II
Singapore
First to Fifth Storey
Block 5002, Ang Mo Kio Avenue 5
TechPlace II
Singapore
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76
Schedule 4
----------
Private Lot A14269 forming part of
Government Survey Lots 7634, 9419, 10979 and 12500,
Mukim No. 18, Ang Mo Kio, Singapore.
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Schedule 5
----------
MICROPOLIS CORPORATION
WORLD-WIDE LOCATIONS
<TABLE>
<CAPTION>
ADDRESS/ START DATE
LESSOR/ DATE END
SQ. FT. /TERM MO. RENT 1995 1996
--------------------------------------------------------------------------------------------
UNITED STATES MUSA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type: SALES OFFICE
Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $2,300.00 $27,600 $27,600
South Central District Sales Office PLANO, TX 75093 1/31/97
Plano, TX, USA
# of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC.
SQ. FT. 2,253
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE
Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $4,212.00 $50,544 $50,544
Western Regional Sales Office SAN JOSE, CA 95112 4/30/98
San Jose, CA, USA
# of Employees: 7 LESSOR: 100 HOMELAND CORP
SQ. FT. 2,568 Lease Signed 3/1/94
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $1,905.00 $22,860.00 $0
Micropolis Corporation SUITE 320 12/31/96
Southern Calif. District Sales Office IRVINE, CA 92715
Irvine, CA, USA
# of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL
SQ. FT. 1,732 Month-to-Month
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 1 STILES ROAD 2/1/93 $4,350.00 $52,200 $0
Micropolis Corporation UNIT 303 11/30/96
Eastern Regional OEM Sales Office SALEM, NH
Salem, NH, USA
# of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST
SQ. FT. 3,527
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ. FT. /TERM 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES MUSA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type: SALES OFFICE
Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $2,300 $0 $0
South Central District Sales Office PLANO, TX 75093 1/31/97
Plano, TX, USA
# of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC.
SQ. FT. 2,253
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE
Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $50,544 $16,848 $0
Western Regional Sales Office SAN JOSE, CA 95112 4/30/98
San Jose, CA, USA
# of Employees: 7 LESSOR: 100 HOMELAND CORP
SQ. FT. 2,568 Lease Signed 3/1/94
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $0 $0 $0
Micropolis Corporation SUITE 320 12/31/96
Southern Calif. District Sales Office IRVINE, CA 92715
Irvine, CA, USA
# of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL
SQ. FT. 1,732 Month-to-Month
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 1 STILES ROAD 2/1/93 $0 $0 $0
Micropolis Corporation UNIT 303 11/30/96
Eastern Regional OEM Sales Office SALEM, NH
Salem, NH, USA
# of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST
SQ. FT. 3,527
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE TOTAL FUTURE
SQ. FT. /TERM THEREAFTER COMMITMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES MUSA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Type: SALES OFFICE
Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $0 $29,900
South Central District Sales Office PLANO, TX 75093 1/31/97
Plano, TX, USA
# of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC.
SQ. FT. 2,253
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE
Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $0 $117,936
Western Regional Sales Office SAN JOSE, CA 95112 4/30/98
San Jose, CA, USA
# of Employees: 7 LESSOR: 100 HOMELAND CORP
SQ. FT. 2,568 Lease Signed 3/1/94
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $0 $0
Micropolis Corporation SUITE 320 12/31/96
Southern Calif. District Sales Office IRVINE, CA 92715
Irvine, CA, USA
# of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL
SQ. FT. 1,732 Month-to-Month
Facility Leased
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 1 STILES ROAD 2/1/93 $0 $0
Micropolis Corporation UNIT 303 11/30/96
Eastern Regional OEM Sales Office SALEM, NH
Salem, NH, USA
# of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST
SQ. FT. 3,527
Branch of: Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Approximate number of employees based on 12/15/95 Manpower Report
Page 1
C-77
<PAGE>
78
MICROPOLIS 1/17/96
MICROPOLIS CORPORATION
WORLD-WIDE LOCATIONS
<TABLE>
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ FT. /TERM MO. RENT 1995 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type: SALES OFFICE 220 E. DEVON 11/1/95 $1,325.00 $9,135.00 $15,900
North Central District Sales Office SUITE 215 10/31/97
Des Plaines, IL, USA DES PLAINES, IL
# of Employees: 3
LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC.
Branch of: Micropolis Corporation SQ. FT. 1,116
--------------------------------------------------------------------------------------------
SUBTOTAL - US PROPERTIES $1,065,819 $94,044
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ FT. /TERM 1997 1998 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type: SALES OFFICE 220 E. DEVON 11/1/95 $0 $0 $0
North Central District Sales Office SUITE 215 10/31/97
Des Plaines, IL, USA DES PLAINES, IL
# of Employees: 3
LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC.
Branch of: Micropolis Corporation SQ. FT. 1,116
--------------------------------------------------------------------------------------------
SUBTOTAL - US PROPERTIES $52,844 $16,848 $0
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE TOTAL FUTURE
SQ FT. /TERM THEREAFTER COMMITMENTS
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Type: SALES OFFICE 220 E. DEVON 11/1/95 $0 $15,900
North Central District Sales Office SUITE 215 10/31/97
Des Plaines, IL, USA DES PLAINES, IL
# of Employees: 3
LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC.
Branch of: Micropolis Corporation SQ. FT. 1,116
--------------------------------------------------------------------------------------------
SUBTOTAL - US PROPERTIES $0 $163,736
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Approximate number of employees based on 12/15/95 Manpower Report
Page 2
C-78
<PAGE>
79
MICROPOLIS CORPORATION
WORLD-WIDE LOCATION
<TABLE>
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ.FT. /TERM MO.RENT 1995 1996 1997
-------------------------------------------------------------------------------------------------------
EUROPE
ENGLAND
<S> <C> <C> <C> <C> <C> <C>
Type: WAREHOUSE ACRE ROAD 10/23/86 (Pounds)5,208 $98,119 $98,119 $98,119
Micropolis Ltd. READING 7/7/11 AT 1.57 $/(Pounds)
Berkshire, England BERKSHIRE 25 years
# of Employees: N/A ENGLAND
Facility: Leased LESSOR: GRIMWADE AND MORRELL
wholly owned subsidiary of: SQ.FT. 8,000
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE 4 WORTON DRIVE 9/21/93 (Pounds)15,583 $0 $85,629 $293,584
Micropolis Ltd. WORTON GRANGE 9/17/05 AT 1.57 $/(Pounds)
Berkshire, England READING
# of Employees: 36 BERKSHIRE 12 years Note: 1 or 2 yrs - free
ENGLAND
Facility: Leased
wholly owned subsidiary of: LESSOR: LLOYDS BANK SF NOMINEES LTD
Micropolis Corporation SQ.FT. 34,000
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE MICROPOLIS SARL 12/1/87 FF10,000 $20,636 $0 $0
Micropolis S.A.R.L. 2 RUE DE BUISSON AUX FRAISES 11/30/95 AT .1876 $/FF
Massey, France Z.1. DE LA BLONDE, 91300 MASSEY
# of Employees: 3 FRANCE
Facility: Leased LESSOR: ACTIPIERRE
wholly owned subsidiary of: SQ.FT. Cancellable every 3 years with 6 month notice
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE MICROPOLIS GmbH 9/1/93 DM 6,809 $53,061 $55,719 $58,501
Micropolis GmbH BEHRINGSTRASSE 10 8/31/98 AT .6494 $/DM
Munchen, Germany 8033 PLANEGG BEI MUNCHEN
# of Employees: 6 WEST GERMANY
LESSOR: HERR FRANZ BAUER
wholly owned subsidiary of: SQ.FT. 3,600
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE MICROPOLIS SRL 6/1/95 IL 1,668,122 $12,395 $0 $0
Micropolis S.r.l. VIA STEPHENSON, 43/A 5/31/96 AT IL 1,588/$
Milan, Italy 20157 MILAN
# of Employees: 3 ITALY
Facility: Leased LESSOR:
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE MICROPOLIS A.B. 7/1/92 SEK 5170 $9,274 $0 $0
Micropolis A.B. APRIL VAGEN 3 AT 6.69 Krona/$
Jardalla, Sweden 17540 JARFALLA Mo. to Mo.
# of Employees: 1 SWEDEN
LESSOR:
wholly owned subsidiary of: SQ.FT. 269
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - EUROPEAN PROPERTIES $193,484 $239,466 $450,203
-------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL FUTURE
1998 1999 THEREAFTER COMMITMENTS
------------------------------------------------------------------------------------------------------
EUROPE
ENGLAND
<S> <C> <C> <C> <C>
Type: WAREHOUSE $98,119 $98,119 $1,177,425 $1,569,900
Micropolis Ltd.
Berkshire, England
# of Employees: N/A
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE $293,584 $293,584 $1,761,502 $2,727,882
Micropolis Ltd.
Berkshire, England
# of Employees: 36
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE $0 $0 $0 $0
Micropolis S.A.R.L.
Massey, France
# of Employees: 3
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE $40,949 $0 $0 $ 155,168
Micropolis GmbH
Munchen, Germany
# of Employees: 6
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE $0 $0 $0 $0
Micropolis S.r.l.
Milan, Italy
# of Employees: 3
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Type: SALES OFFICE $0 $0 $0 $0
Micropolis A.B.
Jardalla, Sweden
# of Employees: 1
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - EUROPEAN PROPERTIES $432,651 $391,702 $2,938,927 $4,452,949
-------------------------------------------------------------------------------------------------------
</TABLE>
*Approximate number of employees based on 12/15/95 Manpower Report
Page 3
C-79
<PAGE>
80
<TABLE>
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ.FT. /TERM MO.RENT 1995 1996 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TYPE WAREHOUSE BLK 302 UBI AVE 1 - 17 UNITS 7/1/94 S$11900 $0 $0 $0
Micropolis Limited SINGAPORE 1440 6/30/95 AT .685 $/S$
Singapore Mo. to Mo.
# of Employees: N/A LESSOR: HOUSING & DEVELOPMENT BOARD
SINGAPORE
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SINGAPORE $2,785,270 $1,247,714 $616,500
------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL FUTURE
1998 1989 THEREAFTER COMMITMENTS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TYPE WAREHOUSE $0 $0 $0 $0
Micropolis Limited
Singapore
# of Employees: N/A
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SINGAPORE $616,500 $616,500 $15,412,500 $21,294,983
------------------------------------------------------------------------------------------------------
</TABLE>
*Approximate number of employees based on 12/15/95 Manpower Report
Page 4
C-80
<PAGE>
81
<TABLE>
<CAPTION>
MICROPOLIS CORPORATION
WORLD-WIDE LOCATIONS
ADDRESS/ START DATE
LESSOR/ END DATE
SQ. FT. /TERM MO. RENT 1995
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SINGAPORE $52,200
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAIWAN
Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 NT$ 114,434 $33,534
Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96 AT 27.30$/NT$
Micropolis Corporation ROOM 1111, 11F, NO. 333
Taipei, Taiwan KEELUNG ROAD, SEC. 1
# of Employees: 2 TAIPEI, TAIWAN, ROC
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
A.$6,692 $53,536
Type: SALES OFFICE LEVEL 21, 201 MILLER STREET AT 1.35S/A.$
Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA
North Sydney, Australia
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN
Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312 Y707,797 $82,462
Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU AT 103.00Y/$
Tokyo, Japan TOKYO, JAPAN 102
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ASIAN PROPERTIES $3,007,001
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ALL PROPERTIES $4,266,305
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE
SQ. FT. /TERM 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SINGAPORE $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAIWAN
Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 $33,534 $0 $0
Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96
Micropolis Corporation ROOM 1111, 11F, NO. 333
Taipei, Taiwan KEELUNG ROAD, SEC. 1
# of Employees: 2 TAIPEI, TAIWAN, ROC
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
Type: SALES OFFICE LEVEL 21, 201 MILLER STREET
Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA
North Sydney, Australia
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN
Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312
Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU
Tokyo, Japan TOKYO, JAPAN 102
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ASIAN PROPERTIES $1,281,247 $616,500 $616,500
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ALL PROPERTIES $1,614,757 $1,119,547 $1,065,999
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDRESS/ START DATE
LESSOR/ END DATE TOTAL FUTURE
SQ. FT. /TERM 1999 THEREAFTER COMMITMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SINGAPORE $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAIWAN
Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 $0 $0 $33,534
Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96
Micropolis Corporation ROOM 1111, 11F, NO. 333
Taipei, Taiwan KEELUNG ROAD, SEC. 1
# of Employees: 2 TAIPEI, TAIWAN, ROC
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
Type: SALES OFFICE LEVEL 21, 201 MILLER STREET
Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA
North Sydney, Australia
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN
Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312
Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU
Tokyo, Japan TOKYO, JAPAN 102
# of Employees: 2
Facility: Leased
wholly owned subsidiary of:
Micropolis Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ASIAN PROPERTIES $616,500 $15,412,500 $21,328,517
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL - ALL PROPERTIES $1,008,202 $18,351,427 $25,945,202
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Approximate number of employees based on 12/15/95 Manpower Report
Page 5
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<PAGE>
82
Schedule 6
----------
1. Leased data transmission lines from AT&T with a monthly payment of
US$26,500.
2. Computer rental equipment leases from Hewlett-Packard, with a total
amount to be financed of US$116,820 and monthly payments of US$3,893.61.
3. One car leasing agreement, with a remaining amount to be financed of
approximately US$90,000.
4. Leases of photocopy machines, at a monthly rate of approximately $4,500.
C-82
<PAGE>
83
Schedule 7
----------
1. Distribution Agreements
2. OEM Contracts for the sale of disk drives
3. Spring Board Agreement
4. Sales Agreement/Representative Agreements
5. Advertising Contracts and Contracts/Commitments for Trade shows with a
total commitment of not more than US$1,000,000
6. Computer software, licence and maintenance agreements related to the
purchase of the Chatsworth Corporate Assets.
C-83
<PAGE>
84
Schedule 8
----------
1. Deed of Assignment of Building Agreement dated 27 September 1995 between
Micropolis Limited and ST Capital Limited.
2. Deed of Assignment of Building Contract dated 27 September 1995 between
Micropolis Limited and ST Capital Limited.
3. Mortgage in Escrow between Micropolis Limited and ST Capital Limited.
4. Deed of Assignment of Building Agreement between Micropolis Limited and
Singapore Technologies Construction Pte Ltd.
5. Mortgage in Escrow between Micropolis Limited and Singapore Technologies
Construction Pte Ltd.
6. Pledge Agreement dated 18 March 1992 between Micropolis Corporation,
Micropolis Limited and The CIT Group/Business Credit, Inc.
C-84
<PAGE>
85
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Seller
- ------
Signed by J. LARRY SMART )
for and on behalf of )
MICROPOLIS CORPORATION )
in the presence of:- )
Buyer
- -----
Signed by CHEN YUK FU )
for and on behalf of )
ST CHATSWORTH PTE LTD )
in the presence of:- )
C-85
<PAGE>
EXHIBIT 10.54
DEVELOPMENT
AGREEMENT
<PAGE>
Page 1 of 64
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT having an effective date at the date of the last signature
hereto and is entered into by and between MICROPOLIS Corporation with an
office and principal place of business at 21211 Nordhoff Street,
Chatsworth, California 91311, USA and BTS Broadcast Television Systems
GmbH, with an office and principal place of business at Im Leuschnerpark
1, 64347 Griesheim, Germany.
WHEREAS, MICROPOLIS and BTS want to cooperate in the design, development
and manufacturing of a family of video disk recorders.
NOW, THEREFORE, the PARTIES agree that the PRODUCT development activities
shall be conducted under this AGREEMENT subject to the following terms and
conditions
1 DEFINITIONS
1.1 MICROPOLIS shall mean MICROPOLIS CORPORATION and its AFFILIATES.
1.2 BTS shall mean BTS BROADCAST TELEVISION SYSTEMS GMBH and its AFFILIATES.
1.3 AFFILIATE shall mean any company. partnership Joint venture, or other
entity which is controlled by a PARTY. Control shall mean the possession
of fifty percent (50%) or more of the voting stock or the power to direct
or cause the direction of the management and policies of the controlled
entity, whether through the ownership of voting securities by. contract or
otherwise.
1.4 PARTY or PARTIES shall mean MICROPOLIS and/or BTS.
1.5 PRODUCT shall mean a family of video disk recorders with SPECIFICATIONS as
described in Appendices A and B.
1.6 CUSTOMER SPECIFICATION shall mean a written document setting forth the
customer-observable characteristics of the PRODUCT, including but not
limited to the performance, interfaces and user features as defined in
Appendix A.
<PAGE>
Page 2 of 64
1.7 TECHNICAL SPECIFICATION shall mean a written document setting forth the
measurable characteristics of the PRODUCT and the SPARE PARTS including
internal and external interfaces and components as described in the
Appendix B.
1.8 SPECIFICATION shall mean CUSTOMER and TECHNICAL SPECIFICATION jointly.
1.9 PROGRAM shall mean the development program undertaken pursuant to
Article 2 for the purposes of developing a PRODUCT.
1.10 BACKGROUND TECHNOLOGY shall mean any and all patents, know-how, methods
procedures processes, computer programs, information, designs and data
which a PARTY owns solely or jointly with any third party and have the
free right to grant licenses without payment to third parties, which are
pertinent to the PRODUCT, and have a priority date (or date of first
written documentation in the case of unpatented know-how and designs) that
is earlier than the effective date of this AGREEMENT.
1.11 INVENTION shall mean any technological discovery relating to the PRODUCT
made in the performance of work under the PROGRAM, not being BACKGROUND
TECHNOLOGY.
1.12 PROGRAM PATENT(S) shall mean all valid or enforceable patents, utility
models, and patent applications filed in any country by a PARTY, which are
based on or cover INVENTIONS, including any and all divisions,
continuations, continuations-in-part, extensions, additions
substitutions, renewals, or reissues thereof.
1.13 PROGRAM TECHNOLOGY shall mean any and all unpatented know-how, methods,
procedures, processes, computer programs, information, designs, data,
materials, compositions, equipment, devices, components and prototypes,
including unpatented INVENTIONS, which are made or developed by or on
behalf of either PARTY or jointly by the PARTIES in the performance of
work under the PROGRAM.
1.14 PURCHASE AND SALE AGREEMENT shall mean an agreement to be concluded
between the PARTIES in which the conditions for selling the PRODUCT from
MICROPOLIS to BTS will be fixed.
1.15 SPARE PARTS shall be the modules, as defined in Appendix B.
<PAGE>
Page 3 of 64
2 PROGRAM
2.1 The PROGRAM to be performed hereunder shall comprise the activities of the
PARTIES directed to development of the PRODUCT as described in Appendix D.
BTS and MICROPOLIS shall share the responsibility to provide the
technological means to achieve the TECHNICAL SPECIFICATION.
2.2 The PARTIES shall participate in the PROGRAM in accordance with the
timetable contained in Appendix C and the responsibilities of the PARTIES
as described in Appendix D.
2.3 Except as otherwise specifically described herein or agreed upon between
the PARTIES, each Party shall conduct its own work under the PROGRAM at
its own facilities. BTS shall provide development funding to MICROPOLIS
presuming to MICROPOLIS meeting its designated milestones as described in
Appendix E.
2.4 During the PROGRAM term as described in Article 4 neither PARTY shall
enter into any cooperative development agreement regarding video disk
recorders similar to or identical with the PRODUCT with any third party
that develops, manufactures or markets such video disk recorders.
2.5 Each PARTY shall make its best efforts to realize the PROGRAM targets
pursuant to the timetable described in Appendix C. In the event that a
PARTY foresees a possible delay in its development work, such PARTY shall
promptly inform the other PARTY. Penalty Clauses as follows will apply:
2.5.1 BTS will be entitled, to withhold
a) for a delay of more than 2 weeks in meeting any funding development
milestone, as defined in Appendix E, a sum of 10% of the development
funding.
b) for a delay of more than 4 weeks in meeting any funding development
milestone, as defined in Appendix E, a sum of 20% of the development
funding.
2.5.2 In case MICROPOLIS will be at least able to avoid a delay in meeting the
milestone "Acceptance test", (even a delay of meeting a previous milestone
event occurred) and this milestone will be passed by successfully, BTS
will be obliged to provide the development funding in total. This means
that if the last milestone, "Acceptance test" is met, BTS will pay to
Micropolis the agreed development funds associated with that milestone,
and the agreed development funds that were earlier withheld due to the
failure of Micropolis to meet one or several milestones.
<PAGE>
Page 4 of 64
3 PROGRAM DIRECTION
3.1 The following PROGRAM Directors are hereby appointed to direct the course
of PROGRAM activities in accordance with Article 2:
BTS PROGRAM Director: Adam Schmidt
MICROPOLIS PROGRAM Director: Reza Rassool
Any change in the designated PROGRAM Directors shall require advance
written notice to the other PARTY. The PROGRAM Directors shall have no
authority to modify or amend the terms of this AGREEMENT. All decisions
with regard to changes in any of the Appendices, including any changes as
described in Articles 2.1 and 2.2, and any proposals, issues and courses
of action under the PROGRAM shall be made by agreement of the PROGRAM
Directors unless otherwise specified herein.
3.2 Subject to the provisions of Article 2, the Program Directors shall be
responsible for the following: a) Overall guidance of the PROGRAM; b)
Scheduling and conducting timely reviews of the PROGRAM; c) Reviewing,
updating and disseminating the SPECIFICATIONS and WORK PLAN in a timely
manner; and d) Controlling any form of communication between BTS and
MICROPOLIS regarding the PROGRAM.
3.3 Each PARTY agrees to make its employees and nonemployee consultants
reasonably available at their respective places of employment to consult
with the other PARTY during the PROGRAM on issues arising from work
performed under the PROGRAM.
3.4 Each PARTY agrees to make technical specialists reasonably available for a
specified period of time to assist in the development of the PRODUCT at
the other PARTY's facility. The costs for the respective travels will be
borne by each PARTY itself.
3.5 During the PROGRAM, both PARTIES shall have meetings for the purpose of
periodic status reviews of the PROGRAM. The costs for the respective
travels will be borne by each PARTY itself.
<PAGE>
Page 5 of 64
4 TERM AND TERMINATION OF THE PROGRAM
4.1 The PROGRAM shall commence on the effective date of this AGREEMENT and
continue until completion of the PROGRAM in accordance with Appendices C
(Timetable) and D (Responsibilities) unless earlier extended by agreement
of the PARTIES or terminated as a part of termination of this AGREEMENT as
provided in Article 11.0 The PROGRAM shall be completed when the PRODUCT
meets its respective SPECIFICATIONS in accordance with the procedure as
specified in article 5.
4.2 In the event that technical support is needed during the phase of the
introduction of the PRODUCT into the market, or if a customer requests a
PARTY for improvement of the PRODUCT which requires the assistance by the
other PARTY for the period of two (2) years after termination of this
AGREEMENT, both PARTIES will discuss in good faith how to cope with such
request.
4.3 MICROPOLIS agrees that if during the term of this AGREEMENT it develops
any new video disk recorders, BTS shall be given the opportunity to
purchase and/or distribute, with limited exclusivety, such products. In
such event MICROPOLIS shall give BTS written notice of the availability of
such a product and shall provide BTS with appropriate and necessary
product information to make a reasoned decision. On receipt of such
notice, BTS shall have three (3) months to accept the offer and/or to
commence contract negotiations with MICROPOLIS and BTS will inform
MICROPOLIS before expiration of said period of its decision. This time
period may be extended by the mutual agreement of the PARTIES.
Notwithstanding any time extensions, if MICROPOLIS and BTS do not agree
upon reasonable terms and conditions for incorporation of such product
into this AGREEMENT, MICROPOLIS shall be free to market such products in
any manner it seems fit, provided an exclusive distributorship is not
offered to anyone else on terms better than those offered to BTS.
<PAGE>
Page 6 of 64
5 ACCEPTANCE
5.1 The progress of the development PROGRAM, in terms of functionality and
deliverables is defined in Appendix D.
5.2 The acceptance of the first regular production PRODUCT will take place at
the site of BTS at the date specified in Appendix E. The acceptance to be
carried out jointly by MICROPOLIS' and BTS' inspection personnel will
cover the SPECIFICATION.
5.3 The results of the acceptance shall be laid down in an acceptance
certificate which is to be signed by both parties.
5.4 In case the PRODUCT does not meet SPECIFICATION, the responsible PARTY
shall correct such defects without delay. Upon completion of the
corrective measures the acceptance procedure to be applied shall be the
same as described above.
5.5 If no defects should be discovered during the acceptance, the PRODUCT
shall be deemed to be successfully accepted at the date of acceptance
inspection.
5.6 Once the PRODUCT is accepted by BTS as evident of article 5 above,
MICROPOLIS shall not make any changes or modifications in the PRODUCT
without prior written consent of BTS. This requirement, however, does not
preclude MICROPOLIS from using equivalent components and parts that do not
affect form, fit, function or interchangeability of SPARE PARTS. In the
event MICROPOLIS uses such equivalent components and/or parts, MICROPOLIS
shall immediately inform BTS thereof and provide BTS with an updated
version of the Documentation as soon as possible and at MICROPOLIS' costs.
Each successor model of the PRODUCT or any other model agreed upon between
the PARTIES to be incorporated herein shall be subject to the procedure
set forth in this Article 5.
<PAGE>
Page 7 of 64
6 TRANSFER OF TECHNOLOGY
6.1 During the term of this PROGRAM, both PARTIES will, if necessary for the
--
continuation of the PROGRAM, disclose and exchange INVENTIONS, PROGRAM
PATENTS and PROGRAM TECHNOLOGY.
6.2 During the term of the Purchase and Sale Agreement MICROPOLIS will
disclose all information, documentation and PROGRAM TECHNOLOGY sufficient
to enable BTS to independently develop enhancements of the PRODUCT.
Micropolis will, upon the request from BTS, support BTS in its
development of such enhancements, over and above, the SPECIFICATION and
disclosure according to article 6.1 and 6.2 above, to the PRODUCT.
Micropolis will then, at its sole discretion, charge BTS industry standard
rates for this support. Any disclosure of such information do not
constitute any guarantee that BTS developed enhancements will perform
according to BTS's expectations.
<PAGE>
Page 8 of 64
7 INVENTIONS AND PATENTS ON INVENTIONS
7.1 Although it is expected that the ownership of most, if not all, INVENTIONS
shall be governed by the following provisions of this Article, both
PARTIES agree to discuss in good faith the ownership of those INVENTIONS
which arise under unusual and unforeseen circumstances, such ownership to
be governed by applicable patent law.
7.2 INVENTIONS and any patents, copyrights, know-how and designs based on
INVENTIONS, shall be owned as follows:
a) if invented solely by MICROPOLIS, ownership shall vest in MICROPOLIS,
and, MICROPOLIS hereby grants BTS a paid-up, worldwide, unrestricted,
nonexclusive license (without sublicensing rights) to undertake
manufacturing as agreed in Appendix F, and to use and sell or otherwise
dispose of product incorporating such INVENTION and PROGRAM PATENTS
relating thereto.
b) if invented solely by BTS, on request and accepted, in writing by
MICROPOLIS, ownership shall vest in BTS, and BTS hereby grants MICROPOLIS
a paid-up, worldwide unrestricted, non-exclusive license (without
sublicensing rights) to undertake manufacturing, use and sell products
incorporating such INVENTION and PROGRAM PATENTS relating thereto, all in
accordance with Appendix F.
c) if invented jointly by both PARTIES of which the respective contributions
cannot be separately filed (hereinafter called JOINT INVENTIONS), any
patent applications and patents issued thereon shall be in the name of
both PARTIES and be jointly owned by both PARTIES. Each PARTY is free to
grant a license to any third party without obtaining a consent of the
other PARTY and without assuming any obligation to the other PARTY.
d) In each case of such a JOINT INVENTION, the PARTIES will promptly agree
which of them shall file the first patent application and further decide
in mutual consultation in which country or countries such applications are
to be made.
7.3 Patent and copyright procurement activity in regard to INVENTIONS shall be
pursued at the discretion and expense of the owner set forth in Article
7.2.
The costs and expenses for filing and prosecuting patent applications on
Joint INVENTIONS and for the issuance of the respective patents, except
for the internal cost of the patent department filing the first patent
application shall be borne equally by the PARTIES.
Each PARTY will notify the other upon the preparation of any written
report based on a JOINT INVENTION and upon the filing of any patent or
copyright application based on a JOINT INVENTION, furnish the filing PARTY
with all documents or other assistance that may be necessary for the
filing and prosecution of each application provide the other with a copy
of any such INVENTION report or patent or copyright application and any
issued patent or statutory copyright granted thereon and on request update
the other as to the status of any such patent or copyright application.
Each PARTY further agrees to sign documents to vest or maintain title to
patents and/or copyrights in the owner designated in Article 7.2 and
to provide reasonable assistance to the other with respect to preparation
and prosecution of such patents copyrights.
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7.4 In case a PARTY is not or no more interested in participating in a
patent or patent application on JOINT INVENTIONS or the maintenance
thereof, then this PARTY shall give written notice to the other PARTY. The
other PARTY shall be entitled to file or maintain said patent or patent
applications in its name and at its costs. The first PARTY shall have the
right to receive against reasonable royalties mutually to be agreed
between the PARTIES, a worldwide, unrestricted, non-exclusive license
(with sublicensing rights) under said applications and patents.
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8 PROPRIETARY RIGHTS OTHER THAN INVENTIONS
8.1 MICROPOLIS hereby grants to BTS a paid-up, worldwide, nonexclusive license
(without sublicensing rights) to undertake manufacturing as agreed in
Appendix F, and to use and sell or otherwise dispose of PRODUCT
incorporating (i) MICROPOLIS' rights to the extent that they do not relate
to INVENTIONS, and (ii) BACKGROUND TECHNOLOGY.
8.2 BTS hereby grants to MICROPOLIS a paid-up, worldwide, non-exclusive
license (without sublicensing rights) to undertake manufacturing and to
use and sell-all in accordance with Appendix F-the PRODUCTS incorporating
(i) BTS' proprietary rights, to the extent that they do not relate to
INVENTIONS, and (ii) BACKGROUND TECHNOLOGY.
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9 CONFIDENTIAL INFORMATION
9.1 The PARTIES recognize that the conduct of the PROGRAM may require the
transfer of confidential information between them. As used herein,
"confidential" or "proprietary" information shall include only
information, data or samples relating to the PROGRAM. Disclosures of
confidential or proprietary information hereunder by either PARTY will be
made in writing (or promptly confirmed in writing if made in another
form), and will be clearly marked confidential. Such confidential
information will be safeguarded by the recipient and will not be disclosed
to third parties. This mutual obligation of confidentiality will apply
until three (3) years after termination of this AGREEMENT, but will not
apply to any information to the extent that such information:
a) is or hereafter becomes generally available to the public other than by
reason of any default under this AGREEMENT; or
b) was already known to the recipient as evidenced by prior written
documents in its possession; or
c) is disclosed to the recipient by a third party who is not in default of
any confidentiality obligation to the disclosing PARTY hereunder; or
d) is developed by or on behalf of the receiving PARTY, without reliance on
confidential information received hereunder; or
e) is disclosed with the permission of the disclosure to any third party on
a non-confidential basis;
f) is submitted to governmental or non-governmental agencies to facilitate
the issuance of marketing or safety approvals for PRODUCT; or
g) is disclosed in patents filed under the terms of this AGREEMENT on
INVENTIONS related to PRODUCT or to the manufacture or use of such
PRODUCT; or
h) has been approved for publication by the PROGRAM Directors; or
i) is in furtherance of the licenses and rights granted herein for the
manufacture and marketing of PRODUCTS, provided that a) the other PARTY
prior to such disclosure will be informed hereof and b) declares its
consent in written form.
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10 GENERAL TERMS AND CONDITIONS
10.1 Notices
All notices required or permitted hereunder shall be in writing and shall
be deemed duly given when personally delivered or sent by registered or
certified mail return receipt requested, postage prepaid, or by cable
confirmed by letter as aforesaid, as follows:
Notice to MICROPOLIS:
for technical matters: Program Director
MICROPOLIS Corporation
21211 Nordhoff Street
Chatsworth, California 91311
USA
for other matters: General Manager of the System
Business Unit
MICROPOLIS Corporation
21211 Nordhoff Street
Chatsworth, California 91311
USA
Notice to BTS
for technical matters: Program Director
Business Unit Griesheim
Broadcast Television Systems GmbH
Im Leuschnerpark 1
64347 Griesheim
Germany
for other matters: General Manager of BTS-ICC
Weiterstadt
Business Unit Griesheim
Broadcast Television Systems GmbH
Im Leuschnerpark 1
64347 Griesheim
Germany
or to such other address as either PARTY may hereafter designate in
writing by like notice.
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10.2 Publicity
Neither PARTY will issue any press release or make any public statement in
regard to this AGREEMENT without the prior written approval of the other
PARTY.
Neither PARTY shall use in advertising, publicity or other promotional
activities any name, trade name, trademark, or other designation of the
other PARTY without the express written approval of the other PARTY, which
shall not be unreasonably withheld.
10.3 Export License
This AGREEMENT and any technical information provided under this AGREEMENT
may be subject to restrictions concerning the export of PRODUCT or SPARE
PARTS or technical information from the Federal Republic of Germany or USA
which may be imposed by the respective Government or any other competent
authority. Accordingly, the PARTIES agree that they shall not export or
re-export, directly or indirectly, any technical information acquired
under this AGREEMENT or any PRODUCT utilizing any such technical
information to any country for which the Government or other competent
authority at the time of export requires an export license or other
approval, without first obtaining the written consent to do so from the
competent authority when required by an applicable statute or regulation.
10.4 Force Majeure
Neither MICROPOLIS nor BTS shall be liable for delay or failure in the
performance of the obligations contained in this AGREEMENT arising solely
from any one or more of the following matters:
a) acts of God, or public enemy or war (declared or undeclared);
b) acts of governmental or quasi-governmental authorities or regulations or
restrictions imposed by law or by court action, except as they may result
from the unreasonable failure of MICROPOLIS or BTS to perform as required
hereunder;
c) acts of persons engaged in subversive activities or sabotage;
d) fires, floods, explosions or other catastrophes;
e) epidemics or quarantine restrictions;
f) strikes, lockouts or similar labour disruptions;
g) freight embargoes, or interruption of transportation;
h) unusually severe weather;
i) delays of a supplier of one PARTY due to any of the above causes or
events; or
j) any other extraordinary event beyond the control of the PARTY concerned;
and provided that due diligence is exercised to cure such cause and resume
performance, and the time for performance by such PARTY shall be extended
by a period of any such delay.
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10.5 Conflicts in Obligations
MICROPOLIS warrants to BTS that this AGREEMENT does not conflict with
MICROPOLIS' obligations under any other agreement to which MICROPOLIS is
or was a party, and that MICROPOLIS is free to fulfill all obligations
stated herein.
BTS warrants to MICROPOLIS that this AGREEMENT does not conflict with BTS'
obligations under any other agreement to which BTS is or was a party and
that BTS is free to fulfill all obligations stated herein.
10.6 Conflicts in Documentation
In case of any conflicts between this AGREEMENT and any prior agreements
on the same subject correspondence, and other documents during the term of
this AGREEMENT, this AGREEMENT shall govern and prevail, and the
conflicting terms and conditions of any such documents shall be deemed
deleted and shall not be binding upon either PARTY.
In the event the provisions of this AGREEMENT conflict with provisions of
the Appendices, this AGREEMENT shall prevail unless otherwise specifically
agreed upon.
10.7 Amendments
No addition to, deletion from or modification of any of the provisions of
this AGREEMENT shall be binding upon the PARTIES unless made in writing
and signed by a duly authorized representative of each PARTY. Any such
additions, deletions or modifications shall refer specifically to this
AGREEMENT.
10.8 Severability
If one or more of the provisions of this AGREEMENT is held invalid,
illegal or unenforceable by a competent court of law, the remaining
provisions shall not in any way be affected or impaired thereby. In the
event any provision is held invalid illegal or unenforceable, the PARTIES
shall use reasonable efforts to substitute a valid, legal and enforceable
provision which, insofar as is practical, implements purposes of the
article held invalid, illegal and unenforceable.
10.9 Assignment
The rights of either PARTY under this AGREEMENT shall not be assigned, in
whole or in part, by either PARTY (whether by operation of law or
otherwise) without the prior written consent of the other, except that
either PARTY may assign its rights hereunder to a successor, subsidiary or
affiliated corporation
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without releasing the assignor from liability hereunder. Any assignment
contrary to the terms hereof shall be null and void and of no force or
effect.
10.10 Applicable Law
This AGREEMENT shall be governed by and construed and enforced in
accordance with the laws of Germany.
10.11 Arbitration
All disputes, controversies or differences which may arise between the
PARTIES in relation to or in connection with this AGREEMENT may be settled
by amicable negotiation by both PARTIES if the PARTIES so agree. If both
PARTIES are unable to settle such disputes, then such disputes shall be
referred to and finally settled by arbitration under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce in
Paris. The Arbitration shall be conducted in the English Language and take
place in USA if it is initiated by BTS or in Germany if it is initiated by
MICROPOLIS. The award of arbitration shall bind both PARTIES.
10.12 Entire Agreement
This AGREEMENT constitutes the entire understanding of the PARTIES with
regard to the development of PRODUCT and supersedes all prior discussions,
representations and understandings.
10.13 Limitation of Liability
Neither PARTY shall be liable to the other for any indirect, special or
consequential damages whether grounded in tort, strict liability or
contract, and under no circumstances shall either PARTY's liability to the
other PARTY exceed the obligations described herein.
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11 TERM AND TERMINATION OF THE AGREEMENT
11.1 This AGREEMENT shall become effective at the date of the last signature
hereto or the date on which this AGREEMENT is approved by the USA or
German Government if such approval is required, whichever is later, and
shall continue in effect until the PROGRAM has been completed, unless
sooner terminated by a PARTY in accordance with this Article 10.
11.2 This AGREEMENT may be terminated by either PARTY in the event that the
other PARTY, despite its best efforts, provides cause for termination due
to material lack of performance in the PROGRAM, such termination to be
effective not less than sixty (60) days after written notice to the other
PARTY citing alleged deficiencies and failure of the other PARTY to
remedy, such termination shall be effective not less than sixty (60) days
after written notice to the other PARTY and failure of the PARTIES to
agree on any such revision.
11.3 This AGREEMENT may be terminated by either PARTY upon written notice to
the other (without prejudice to either PARTY'S rights to claim direct
damages or seek other equitable relief).
a) in the event of a material breach by the other PARTY of any terms or
conditions of this AGREEMENT and the failure to cure such breach within
sixty (60) days after written notice or
b) in the event that MICROPOLIS fails to meet any milestone event as per
Appendix E for more than eight weeks.
c) if, at any time during the term of this AGREEMENT, the other PARTY shall
become a voluntary debtor party to any bankruptcy, insolvency, or
reorganisation proceeding, or shall be declared bankrupt or reorganised by
a court of competent jurisdiction, or enter into any composition with its
creditors, or shall begin any proceeding for the liquidation or winding up
of its business or for termination of its corporate charter.
11.4 If MICROPOLIS stops production of PRODUCTS or terminates this Agreement
which is disputed by BTS or if MICROPOLIS is found in breach of this
Agreement, BTS is hereby granted by MICROPOLIS an unconditional, non-
exclusive, worldwide, unrestricted license under its know-how, patents,
etc. to develop and/or manufacture and/or sell and/or license and/or
dispose of products. These consequences shall also apply in case of
Article 11.3 a), b) and c) hereof.
11.5 Termination of this AGREEMENT shall not relieve BTS or MICROPOLIS of any
rights and obligations then accrued hereunder or which extend beyond the
date of termination or expiration by the terms of this AGREEMENT,
including but not limited to rights and obligations contained in Articles
4.4, 4.5, 6, 7, 8, and 11.
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12 APPENDICES
The following appendices. as referred to in this AGREEMENT. form an
integral part of the AGREEMENT:
Appendix A: Customer Specifications
Appendix B: Technical Specifications
Appendix C: Project Timetable
Appendix D: Responsibilities of the Parties
Appendix E: Milestones and development funding
Appendix F: Manufacturing Conditions
UNDERSTOOD AND AGREED: UNDERSTOOD AND AGREED:
BTS Broadcast Television MICROPOLIS Corporation
Systems GmbH
By: /s/ H. Hock /s/ H.D. Geise By: /s/ Per Sjofors
Title: CFO General Manager Title: Director Marketing VSD
Date: 9/15/95 Date: 15 Sept 1995
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APPENDIX E: MILESTONES AND DEVELOPMENT FUNDING
<TABLE>
<CAPTION>
Mini-Pool milestones When Funding
<C> <S> <C> <C>
1 Memorandum of Agreement (MoA) signed 31. Jul 95 100.000 $
2 Kick off Meeting 10. Aug 95
3 BTS supply serial digital interface (SDI) design 30. Aug 95
4 Joint Development Agreement signed with
appendices 30. Aug 95
5 Supply BTS with Luigi Board and files 07. Sep 95
6 Brand Name Reseller's Agreement signed 15. Sep 95 200.000 $
7 Design Review AV CODEC in Chatsworth 02. Okt 95
8 Spec finalized Poolnet VDCP UI functionality 13. Okt 95
9 Supply VMC and Devlib spec 15. Okt 95
10 VDRx40 and VDRx40F full design review and
sign-off 10. Nov 95 150.000 $
11 MC3000 Ctl Panel ready 01. Dez 95
12 VDR110 prototype sign off in Chatsworth 20. Dez 95 200.000 $
13 VDR110 prototype delivered to Weiterstadt 15. Jan 96
14 VDR110 beta units 05. Feb 96
15 VDRx40 lab model to Weiterstadt 15. Feb 96 150.000 $
16 VDR110 Acceptance test 15. Mar 96
17 NAB 01. Apr 96
18 VDRx40 prototype 01. Apr 96
19 VDR110 ships 01. Apr 96
20 VDRx40 BTS-W Release to manufacturing 15. Apr 96
21 VDRx40 betasite release 01. Mai 96
22 VDRx40 Acceptance test 15. Jun 96
23 VDRx40 deliveries to customer 28. Jun 96 200.000 $
24 Data link integration begins 01. Aug 96
TOTAL 1.000.000 $
</TABLE>
<PAGE>
Page 64 of 64
APPENDIX F: MANUFACTURING CONDITIONS
BTS has the option to buy on an exclusive basis from Micropolis complete
units, VDR110 and VDRX40, as specified in appendix A and B;
or,
at BTS' own discretion BTS may buy from Micropolis VDR sub-assemblies as
defined in Appendix B for BTS's own manufacturing, further development,
final testing, assembly and for re-sale.
MICROPOLIS is granted the BTS licenses for the purpose of manufacturing
and selling PRODUCTS and similar PRODUCTS to BTS and a low-cost MICROPOLIS
version of the VDR110 to Tyrell corporation
<PAGE>
PURCHASE AND SALES
AGREEMENT
<PAGE>
Page 1 of 22
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") having an effective date at
the date of the last signature is made by and between Micropolis
Corporation ("COMPANY"), a Delaware corporation, and BTS Broadcast
Television Systems GmbH ("BTS"), a German corporation.
WHEREAS, the Parties have entered into a product development agreement on
the basis of which the COMPANY intends to develop PRODUCT for Professional
Broadcast Industry for exclusive sale to BTS.
WHEREAS, BTS desires to have said PRODUCT, key components and other
PRODUCT sold to BTS on the terms and conditions set forth in this
Agreement:
NOW THEREFORE, the parties hereto agree as follows:
1 Certain Definitions
1.1 All terms defined in the Development Agreement shall have the same meaning
when used in this Agreement.
1.2 "PRODUCT Software" means any computer software that is a component or part
of a PRODUCT, regardless of whether such software is embedded in
semiconductors.
1.3 "Distributor" means a dealer, distributor, reseller, brand name reseller,
original equipment manufacturer, value added reseller, systems integrator,
independent sales representative or agent.
1.4 Similar PRODUCTs shall mean a PRODUCT which in view of the average
customer of PRODUCT would compete with the PRODUCT respectively, taking
only price and performance into account.
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Page 2 of 22
2 Exclusivity
2.1 Subject to the terms and conditions of this Agreement, COMPANY hereby
agrees to sell on an exclusive basis to BTS the PRODUCT worldwide, and
grants worldwide license to BTS to sublicense the PRODUCT Software in
connection with the sale of other BTS Products. The only exception to this
exclusivity shall be that COMPANY is allowed to conduct business for the
sale of a low cost COMPANY's version of the VDR110 to Tyrell Corporation,
50 Malborough Street, London, U.K.
2.2 COMPANY agrees that if during the term of this Agreement it develops any
video disk recorder, BTS shall be given the opportunity to exclusively
purchase and/or exclusively distribute such Products on the basis of the
same terms and conditions (same for pricing) as laid down in this
Agreement. In such event COMPANY shall give BTS written notice of the
availability of such a product and shall provide BTS with appropriate and
necessary product information to make a reasoned decision. On receipt of
such notice, BTS shall have three (3) months to accept the offer and/or to
commence price negotiations with COMPANY and BTS will inform COMPANY
before expiration of said period of its decision. This time period may be
extended by the mutual agreement of the parties. Notwithstanding any time
extensions, if COMPANY and BTS do not agree upon reasonable pricing for
incorporation of such product into this Agreement, COMPANY shall be free
to market such products in any manner it seems fit, provided an exclusive
Distributorship is not offered to anyone else on comparable terms better
than those offered to BTS.
2.3 Exclusive Appointments. The PRODUCT for the purpose of clause 2.1 includes
any upgrades, updates, documentation, accessories, spare parts and PRODUCT
Software.
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3 Terms of Sale and Payment.
3.1 Price. COMPANY shall supply PRODUCT to BTS at prices which, including
their period of validity, are specified in Exhibit A In the event of
unforeseen circumstances affecting COMPANY or BTS or both and/or in the
event the price/performance ratio of PRODUCT deteriorates as compared to
competitive products, the parties hereto will jointly review the situation
and attempt to find a solution reasonably acceptable to both parties.
3.2 Prices will be reviewed when deemed necessary by any PARTY, but at least
on a quarterly bases. The PARTIES will make best effort to review and
agree any changes in prices, depending on, but not limited to expected
order volume, changes in component prices etc. Price decreases will
become effective immediately upon the written mutual agreement, price
increases will only apply 60 days after the written mutual agreement.
Price increases or decreases will only apply to all orders placed after
such written agreement period.
In case after serious negotiations the parties remain unable to reach
agreement on new prices, taking the parameters of section 3.1 into
account, the following procedure shall apply: The prices will be set by a
committee of three (3) members. COMPANY and BTS each will appoint one
member ('Party-Arbitrator'), a senior manager from the respective
organizations, who jointly will appoint an independent third member
(hereinafter the 'Chairman'). The committee starts working not later than
3 months after the expiration of the quarterly period. The Party-
arbitrators will submit to the Chairman the proposed prices along with
their justifications. The Chairman will inform the parties of the
proposals so submitted, after which the Party-Arbitrators must submit
their final pricing proposal within seven (7) days. The Chairman must then
choose between the two proposals within fourteen (14) days. The prices
announced are binding for both parties. The prices announced will be
effective from the first day of the new month following on the day of the
announcement, even for orders in the pipeline. The prices valid for the
previous period will remain valid during the arbitration period. Costs of
arbitration will be shared by COMPANY and BTS.
3.3 Price increases are not applicable to PRODUCT for which a binding orders
are placed. COMPANY undertakes to grant BTS its best prices and discounts
for PRODUCT. In the event BTS looses exclusivity, as of article 4.1
hereof, COMPANY would not grant one or more of its other customers more
favorable prices, discounts, delivery terms, payment terms and/or
guarantees than those applicable to BTS for PRODUCT.
3.4 Payment conditions are forty-five (45) days after invoice date and receipt
of PRODUCT and invoice. Payment shall be made in U.S. Dollars. All prices
for shipments to BTS shall be FOB Chatsworth, California.
3.5 PRODUCT shall be supplied in suitable packing in a form to be approved by
BTS and as specified in the SPECIFICATION. Changes in approved packing
<PAGE>
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may be introduced only on BTS' written request or after BTS' prior written
approval.
Packing and PRODUCT shall be labeled by COMPANY in accordance with BTS'
instructions and as specified in the SPECIFICATION.
3.6 BTS is entitled to have any of the BTS MSS and/or ICC Companies and
Graner COMPANY, Port Chester, N.Y. execute logistic procedures, such as,
without limitation, placing Purchase Orders, payment of invoices,
transport arrangements, shipping instructions and handling of return
shipments for repair or replacement on behalf of BTS.
3.7 PRODUCT Software. PRODUCT Software is licensed for distribution only and
not sold. Each sale of the PRODUCT to BTS shall be deemed also to include
the granting of an exclusive license to use the PRODUCT Software in the
PRODUCT so purchased and to sublicense the same with the resell of
PRODUCT.
3.8 PRODUCT hardware and software that forms an integrated part of the
PRODUCT, and is originated by BTS, shall be subject to a royalty fee, to
be paid by Micropolis to BTS for PRODUCT, including the version of the
PRODUCT sold to Tyrell Corporation and sold to other 3d parties, as
described in Exhibit B herein.
3.9 Spare Inventory. During the duration of this Agreement and six (6) years
thereafter COMPANY shall supply BTS with such Spare Parts and at prices as
specified in Exhibit A. During the 6th year, BTS will issue to COMPANY a
Spare Part order to meet customer demands for access to spares in excess
of 6 years, and COMPANY will accept such order and delivery same during
the 6th year.
3.10 It is agreed that if during the duration of this Agreement, but not sooner
then 3 years from effective date, COMPANY wishes to stop production of
PRODUCT, COMPANY shall inform BTS thereof no later than 12 month prior to
the date of envisage production stop.
3.11 If a vendor or subcompany stops production of one or more components that
might affect availability of PRODUCT, COMPANY shall immediately inform BTS
thereof in writing. Such information shall preferable be passed to BTS
within six (6) month of any expected availability disruption.
3.12 Pursuant to Article 3,8,3,9 and/or 3.10 hereof, BTS shall have an
opportunity to place a Purchase Order for PRODUCT and/or Spare Parts in
such quantity as BTS may reasonably require and COMPANY shall accept such
Purchase Order at the then prevailing price.
3.13 Prices for Spare Parts shall not be considerably higher than the prices
for the equivalent modules in PRODUCT. In no event may the sum of the
individual
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Page 5 of 22
Spare Parts making one (1) PRODUCT exceed one hundred and ten percent
(110%) of the PRODUCT price for said PRODUCT as charged to BTS.
3.14 Training. COMPANY shall provide appropriate PRODUCT training and service
training courses for up to ten (10) BTS personnel with respect to PRODUCT
purchased by BTS for up to five (5) days, and at locations to be mutually
agreed upon by BTS and COMPANY. BTS shall bear transportation, food and
lodging expenses, if any, of its participants, and/or the companies
participants and COMPANY shall bear all other costs of such training. BTS
may purchase additional training at a rate of $800.00 per day, per
instructor, plus pre-approved expenses.
3.15 Engineering control:
During the term of this Agreement and the continuing Spare Parts supply
period the PRODUCT shall be under COMPANY's engineering control and
COMPANY undertakes to sustain PRODUCT as such, as well as Software parts
thereof.
3.16 Engineering Changes.
COMPANY will inform BTS in writing by means of the Standard Engineering
Change Notice of any and all engineering changes to both hardware,
firmware and software if applicable, that result from its continuing
engineering activities as they occur.
Any changes proposed by COMPANY which affect form, fit, function,
SPECIFICATION and/or use, including interfacing, of PRODUCTs and/or Spare
Parts will be subject to the prior written consent of BTS. BTS will within
thirty (30) days after receipt of notification inform COMPANY by means of
the Standard Form for Decision of Change Request or otherwise of the
proposed change. Failure to react within said 30 days period will
constitute acceptance by BTS and COMPANY will proceed with the change.
3.17 In the event BTS requests an engineering change e.g. in order to meet
SPECIFICATION, in any of the PRODUCT or parts thereof, such as, without
limitation, in the Software, the provision of article 3.15 hereof shall
apply mutatis mutandis.
3.18 In case of changes proposed by BTS and implemented by COMPANY, in the
PRODUCTs and/or the production process which affect the manufacturing
costs of the PRODUCTs and which result in a decrease of said manufacturing
and PRODUCT's costs, COMPANY shall share the profit of said decrease by
offering to BTS a price reduction equal to half the actual cost reduction
the change will make. Similarly, any change proposed by COMPANY and
implemented by BTS which result in a reduction of BTS's manufacturing cost
will render COMPANY a more favorable position in price negotiations.
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4 BTS and COMPANY Obligations
4.1 At the COMPANY's option and subject to the terms hereof, Section 2.1 shall
cease to be of force and effect in the event that BTS fails to purchase an
aggregate dollar amount of PRODUCT as specified in Exhibit C ("Minimum
Orders"), as amended. During the term of the agreement, BTS and
Micropolis shall, during the fourth quarter 1997, in good faith negotiate
minimum purchase requirements for the 12 month period starting 24 months
after the first delivery of PRODUCT, however, such minimum purchase
requirement will not be lower then the amount as specified in Exhibit C.
The loss of BTS' rights under Section 2.1 shall be the sole and exclusive
remedy and result for any failure by BTS to make the minimum dollar amount
negotiated. In the event that BTS is unable to obtain or is delayed in
obtaining export authorizations or licenses to export the PRODUCT, the
parties agree to review in good faith the amount agreed to as specified in
Exhibit C, as amended, to determine what reductions, if any, should be
made in light of such inability or delay in obtaining such authorizations
or licenses.
4.2 Purchase Orders shall be submitted on separate Purchase Order forms and
each Purchase Order shall specify the quantity, items, and agreed upon
delivery dates Purchase Orders may include additional terms relating to
the purchase, shipment and other conditions if previously agreed upon
between BTS and COMPANY.
4.3 As soon as feasible, but no later than delivery of the first PRODUCT, BTS
shall provide COMPANY with twelve (12) months rolling forecast of its
needs for PRODUCT to be renewed every month and issued to COMPANY at the
beginning of each month according to the following schedule:
a) a firm commitment for the first 2 full calendar months;
b) a non-binding orientation for the 3 up to and including the
twelfth calendar month.
4.4 BTS agrees to confirm before the 5th working day of each month the above
mentioned firm commitment by means of a Purchase Order to cover the second
month (e.g. the 5th December ultimately a Purchase Order will be issued
for deliveries equally divided over the month of February). Delivery lead
time is normally sixty (60) calendar days after receipt of order. From
time to time, on BTS request, COMPANY agrees to make every effort to meet
shorter delivery times and to meet BTS request.
Purchase Orders so placed by BTS shall be acknowledged by COMPANY within
one (1) week after receipt by issuing a Purchase Order confirmation and
such Purchase Orders may be canceled by BTS only if COMPANY defaults its
execution.
4.5 If for any reason not attributable to BTS, COMPANY does not deliver the
ordered PRODUCT 10 working days later than confirmed delivery date in
accordance with the agreed upon delivery dates set forth in the applicable
Purchase Order(s), and order confirmation, COMPANY shall reduce it's price
to BTS one percent (1%) of the purchase price of the applicable delayed
PRODUCTs per week of delay or part thereof. BTS has the right to claim
<PAGE>
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indemnification of damages only if delivery of PRODUCT is more than 8
weeks delayed from the confirmed delivery thereof.
4.6 BTS may require for additional deliveries outside the tolerance ranges as
specified in Exhibit C and COMPANY shall use its best efforts to supply
such additional quantities.
4.7 In the event of a change in laws or a case of force majeure, BTS is unable
to obtain permission to export or import PRODUCTs into any country of the
world where previously they have been selling such, upon BTS' request the
Purchase Orders then placed with COMPANY shall be reduced proportionally
by the percentage which the expected sales in such countries bear to the
total of such Purchase Orders.
4.8 In the event COMPANY wishes to stop production of the PRODUCT, COMPANY
shall inform BTS thereof as early as possible in writing, but at least
twelve (12) month prior to the date of envisaged Production stop and BTS
shall then have an opportunity to place a Purchase Order for PRODUCTs in
such quantity as BTS may require and COMPANY shall accept such Purchase
Order at the then prevailing price. Notwithstanding the foregoing COMPANY
guarantees to produce and supply to BTS PRODUCTs during a period of at
least three (3) years starting as from the signing date of this Agreement.
4.9 In the event COMPANY is no longer able to or envisages that it shall not
(at short notice) be able to supply PRODUCTs to BTS due to shortage or
lack of components and/or Spare Parts, COMPANY shall immediately inform
BTS thereof and COMPANY shall then be fully responsible for a proper re-
design of the PRODUCT without affecting form, fit or function thereof, all
at COMPANY's costs. The re-designed PRODUCT shall be subject to the
procedure set forth in Article 4 of the Development Agreement and be
subject to the terms and conditions of this Agreement.
4.10 BTS shall endeavor to successfully market and support (including
installation, and other support) PRODUCTs on a continuing basis and to
comply with good business practices and all laws and regulations relevant
to this Agreement or the subject matter hereof. COMPANY shall provide BTS
with the documentation and the necessary technical service.
4.11 BTS will do all field service of PRODUCT. Such service can be defined as
replacement of SPARE PARTS and updating PRODUCT software. BTS will send
said faulty SPARE PARTS to MICROPOLIS for its repair, and MICROPOLIS
shall supply to BTS repaired SPARE PARTS and new released and updated
software.
4.12 All PRODUCTs to be supplied by COMPANY to BTS pursuant to this Agreement
shall be checked and tested by COMPANY in accordance with the
SPECIFICATION and COMPANY shall deliver such written test result with
PRODUCT. COMPANY shall only supply PRODUCTs which comply with the agreed
Specifications and other agreed requirements and which have
<PAGE>
Page 8 of 22
successfully passed the agreed tests. BTS is entitled to have its
representatives present at these tests.
It is explicitly understood by COMPANY that BTS is not obligated to
execute any incoming inspection or other inspection concerning non-
compliance with the Specification of PRODUCTs delivered hereunder by
COMPANY and COMPANY shall be fully responsible for and hold BTS and the
BTS Associated Companies harmless from any claims for whatever damages
resulting from any such non-compliance.
4.13 BTS shall inform the COMPANY as to any material problems encountered by
its customers with PRODUCT and to communicate to COMPANY any and all
material modifications, design changes or improvements of PRODUCT
suggested by any customer. BTS will also promptly notify COMPANY of any
claims of infringement of any trademarks or other proprietary rights
relating to PRODUCT that are brought to the attention to an officer of
BTS.
4.14 BTS shall comply to the extent applicable with all export laws and
restrictions and regulations of the Department of Commerce or other United
States or foreign agency or authority, and agrees not to export, or allow
the export or re-export of any PRODUCT in violation of any such
restrictions, laws or regulations. BTS shall obtain any necessary licenses
and/or exemptions with respect to the export from the U.S. of any PRODUCTs
by BTS and upon request by the COMPANY shall demonstrate to COMPANY
compliance with all applicable laws and regulations. COMPANY shall certify
that no export licenses are required; however, if such export licenses are
required, COMPANY shall assist BTS to acquire such licenses
4.15 As additional consideration for Micropolis' contribution to the joint
development of the PRODUCT, upon certification by the BTS International
Competence Center (ICC) in Salt Lake City, Utah, of Micropolis' disk
drives, BTS intends to utilize Micropolis as its primary COMPANY of disk
drives for the BTS "Media Pool Video Server." This primary COMPANY status
shall only remain in effect as long as Micropolis supplies a PRODUCT equal
in performance and price to units available from other Companies.
A nonbinding forecast for these drives are included as Exhibit D.
<PAGE>
Page 9 of 22
5 Private Label.
5.1 Brand name. BTS shall market the PRODUCT under a BTS brand name ("Brand
Name") selected by BTS. The COMPANY shall label (without additional
charge) all PRODUCT sold to BTS with the BTS name, the Brand Name and/or
any logos specified by BTS. Such labeling shall comply with specifications
provided by BTS in writing and approved by the COMPANY, the approval of
which shall not be unreasonably withheld. The PRODUCT sold to BTS shall
include (without charge to BTS) an electronic version of the Technical
Reference and Maintenance Manual, including but not be limited to
electrical schematics, mechanical drawings and maintenance procedures. BTS
at its cost, with the assistance of the COMPANY, shall develop its own
operator and installation manual and any other marketing and sales
materials. BTS shall own all right, title and interest in the Brand Name
and any tradenames, trademarks or copyrights relating thereto. The COMPANY
shall not use the Brand Name without BTS' consent.
<PAGE>
Page 10 of 22
6 Warranty; Disclaimer; Indemnity.
6.1 Warranty. COMPANY guarantees the good quality and the good performance in
accordance with the SPECIFICATION of each PRODUCT supplied pursuant to
this Agreement during a period of eighteen (18) months from date of
delivery by COMPANY to BTS or twelve (12) months from delivery by BTS or
any of the BTS Associated Companies to its/their ultimate customers,
whichever is sooner. Under this guarantee COMPANY shall provide BTS free
of charge with replacement parts or PRODUCTs, or shall repair PRODUCTs at
COMPANIES option. It is explicitly understood that BTS bear all
transportation and labour costs in connection with returning said parts or
PRODUCTs to COMPANY's site, and that COMPANY bear all transportation and
labour costs in connection with repairing and returning said parts or
PRODUCTs to BTS or to the pertaining BTS Associated Company(ies). The
above warranty does not extend to any PRODUCT that is modified or altered
or operated in a manner other than that specified by COMPANY, has its
serial number removed or altered or is treated with abuse, negligence or
other improper treatment by BTS, any of BTS Associated Companies or
its/their customer.
COMPANY MAKES NO OTHER WARRANTIES WITH RESPECT TO THE PRODUCT OR ANY OTHER
SERVICES AND DISCLAIMS ANY OTHER WARRANTIES, INCLUDING WARRANTIES FOR
FITNESS FOR A PARTICULAR PURPOSE.
6.2 In the event of epidemic faults (faults which appear in more than 10%
out of sequentially delivered PRODUCT during a 12 month period, and which
faults are either the same or similar or have the same or similar cause)
BTS will inform COMPANY as soon as possible about the event. COMPANY and
BTS shall after consultation in order to find the cheapest solution decide
in joint consultation, it being understood that all costs connected with
the transportation of such replacements and the building in thereof and
the building out of the defective part(s) shall be for the account of
COMPANY:
a) which corrections and repairs can be made by BTS against the
reimbursement by COMPANY for labour another expenses incurred by BTS
in correcting and repairing PRODUCTs;
b) which parts and/or PRODUCTs shall be replaced free of charge by
COMPANY and within which period of time such replacement shall be
effected.
The warranty with respect to epidemic faults shall terminate eighteen (18)
months after delivery by COMPANY of the last PRODUCTs delivered to BTS
hereunder.
6.3 Notwithstanding any references in this Agreement to the purchase of
PRODUCTs by BTS hereunder, the parties agree that the Software is not
being sold by COMPANY or purchased by BTS.
<PAGE>
Page 11 of 22
6.4 In the event of any non-compliance with the Specifications of the
Software, notified by BTS to COMPANY in writing, COMPANY shall respond as
follows:
a) In the event of a Major Defect, as defined by BTS, COMPANY
shall within 24 hours acknowledge receipt of such notification from
BTS, and make best effort to provide a permanent solution for such
defect or at least a workaround within 5 days, or, if a permanent
solution or workaround can not be found, in good faith together with
BTS negotiate with the ultimate customer how to solve such defect
COMPANY shall provide BTS and the applicable BTS Associated Companies
with a corrected version of the Software as soon as possible
thereafter, free of charge.
b) In the event of a Minor Defect, a defect that, in the opinion of BTS
is a defect that is not likely to reduce materially the usability of
the applicable PRODUCT for its intended purpose, or is a departure
from established standards having little bearing on the effective use
or operation of the PRODUCT, COMPANY shall correct same and implement
said correction in the following new release of the Software. Said new
releases shall be provided by COMPANY at most twice per calendar year.
However, if required and notwithstanding the foregoing, COMPANY shall
provide BTS and the applicable BTS Associated Companies with a work-
around within ultimately ten (10) days after receipt of notification
of such request.
6.5 Indemnification. COMPANY shall indemnify and hold BTS and its officers,
directors, shareholders, agents and employees harmless from and against
liability resulting from infringement by a PRODUCT of any United States or
other patent, any United States or other copyright or any trademark,
tradename or other intellectual property right provided COMPANY is
promptly notified of any and all threats, claims and proceedings related
thereto and given reasonable assistance and the opportunity to assume
control over the defense and negotiations for a settlement or compromise
(if the COMPANY assumes control, the COMPANY shall however permit BTS to
participate in such defense and negotiations, at BTS' expense if BTS so
requests); COMPANY will not be responsible for any settlement it does not
approve in writing. The foregoing obligation of COMPANY does not apply
with respect to a PRODUCT or portions or components thereof (i) not
supplied by COMPANY, (ii) labeling made in whole or in part in accordance
to specifications provided by BTS, or (iii) which are modified by BTS, any
of BTS Associated Companies or its/their customer after shipment by
COMPANY, if the alleged infringement relates to such modification.
6.6 In case a PRODUCT is held to constitute infringement, as defined in
Article 6.6 hereof, and the use thereof is enjoined, COMPANY shall, at its
option and expense, either procure for BTS, the BTS Associated COMPANY and
its/their customer(s) the right to continue using said PRODUCT, or replace
same, or a part thereof with a non-infringing modification in a manner
such that performance of the PRODUCT is not degraded.
6.7 COMPANY shall be responsible for and it shall defend, indemnify and hold
harmless BTS, all of the BTS Associated Companies and their respective
customers from and against any losses, expenses and liability to third
parties resulting from injuries and/or damages arising out of the use of
PRODUCTs, if such injuries and/or damages are attributable to any part of
the PRODUCT(s), not meeting SPECIFICATION, and being
<PAGE>
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delivered by COMPANY. In connection with this obligation, it shall be BTS'
responsibility that COMPANY is promptly notified of any and all claims
made against it, the BTS Associated Companies or any of their customers
for any such personal injuries and/or damages alleged to be the result of
defective parts of PRODUCT manufactured by or for COMPANY hereunder.
7 Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
OTHERWISE, NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT
MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY
OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES, LOST PROFITS OR LOST DATA OR (II) COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. NEITHER PARTY SHALL BE LIABLE
FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL.
<PAGE>
Page 13 of 22
8 Proprietary Rights
8.1 Without limiting COMPANY's liability to BTS hereunder in any way
whatsoever, it has been agreed that in case COMPANY:
a) intends to enter or actually enters liquidation procedures (either
voluntarily or forced); or
b) has entered bankruptcy procedures (either voluntarily or forced); or
c) notifies BTS in writing that it desires to stop production of the
PRODUCTs, after the agreed upon period; or
d) within sixty (60) days of notification by BTS has not remedied any
material breach of this Agreement,
e) in the event of a change of control of COMPANY.
BTS itself, any of the BTS Associated Companies or a third party to be
agreed upon between the parties hereto, shall have immediate access to all
manufacturing know-how and documentation related to the PRODUCT and the
Spare Parts and as soon as possible thereafter shall acquire all relating
know-how and inventory of Spare Parts needed for the production of
PRODUCTs, if and to the extent required by BTS, against compensation for
COMPANY's purchase price therefor.
8.2 Know-how according to this Article 8 shall mean all the information
relating to the design, development, production, testing, and servicing of
PRODUCTs as manufactured by or for COMPANY, which is in its possession or
under its control and as will be sufficient to enable BTS, a BTS
Associated COMPANY or said third party to manufacture and service
PRODUCTs. All such know-how shall be in a legible and reproducible form.
8.3 Accordingly, COMPANY hereby grants to BTS the option upon occurrence of
any of the cases referred to under a, b, c, d and/or e of Article 8.1
above to receive against a royalty of 2% of BTS sales price of PRODUCT, a
perpetual worldwide irrevocable license with the right to sublicense under
any and all patent and other proprietary rights relating to the PRODUCTs,
and know-how (as specified above) to make, have made, use, lease, sell or
otherwise dispose of PRODUCTs or other video disk recorders or parts
thereof by making use of COMPANY's proprietary rights and know-how as
specified above.
8.4 In order to secure BTS' rights set forth above the parties agree to the
following: COMPANY undertakes to deposit not later than 4 (four) weeks
from date of signature of this Agreement a copy of all drawings and other
technical information needed for the production and servicing of PRODUCT
with the firm of Nauta Dutilh, notary public, Eindhoven, the Netherlands,
("the Escrow Agent") and COMPANY undertakes to, during the term of this
agreement, supply Escrow Agent with quarterly updates of such PRODUCT
information, and that all present and future drawings of PRODUCT and other
information of PRODUCT will remain with the Escrow Agent during the term
of this Agreement and ten (10) years thereafter. COMPANY represents that
it has instructed the Escrow Agent to make available to BTS copies of the
drawings and other technical information without any charges, provided BTS
informs
<PAGE>
Page 14 of 22
the Escrow Agent that COMPANY has entered liquidation procedures (either
voluntary or forced) or, has entered bankruptcy procedures (either
voluntary or forced) or that COMPANY is in breach of a contractual
obligation hereunder towards BTS, or that COMPANY has stopped production
of the PRODUCTs a in case of a change of control of COMPANY.
9 Assignment. This Agreement and the rights hereunder are not transferable
or assignable without the prior written consent of the parties hereto,
except for rights to payment and except to a person or entity who acquires
all or substantially all of the assets or business of a party, whether by
sale, merger or otherwise.
<PAGE>
Page 15 of 22
10 Term and Termination.
10.1 Term. Unless terminated earlier as provided herein, this Agreement shall
have a term of thirty-six (36) months, extending from the date of this
Agreement. The term of this Agreement shall automatically be renewed for
consecutive twelve (12) month periods unless a party gives written notice
of termination to the other not less than 120 days prior to the expiration
of the term of the Agreement. In such case, article 4.8 applies. If the
parties continue to do business with each other after such termination
without full documentation, the relevant terms hereof will continue to
govern the relationship unless otherwise expressly agreed in writing.
10.2 Termination. This Agreement may be terminated by a party for cause
immediately by written notice upon the occurrence of any of the following
events:
a) If the other materially breaches any material provision of this
Agreement and fails to fully cure such breach within 30 days of
written notice describing the breach; or
b) If the other becomes insolvent or enters into bankruptcy
procedures. This Agreement may be terminated at any time with the
mutual consent of the parties hereto.
10.3 Effect of Termination. Each party understands that the rights of
termination hereunder are absolute. Neither party shall incur any
liability whatsoever for any damage (including, but not limited to,
incidental or consequential damage), loss or expenses of any kind suffered
or incurred by the other (or for any compensation to the other) arising
from or incident to any termination of this Agreement by such party which
complies with the terms of the Agreement whether or not such party is
aware of any such damage, loss or expenses. Termination is not the sole
remedy under this Agreement and, whether or not termination is effected,
all other remedies will remain available. The provisions of Sections 6,
7, 8, 10.2 and 10.3 shall survive any termination of this Agreement.
<PAGE>
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11 General
11.1 General Conditions
Neither BTS' general conditions of purchase nor COMPANY's general
conditions of sales are applicable to this Agreement or to any Purchase
Orders and Purchase Order confirmations.
11.2 Relationship of Parties. The parties hereto are independent contractors
with respect to each other. Nothing in this Agreement shall be construed
as constituting BTS as a joint venture, partner or agent of the COMPANY
and BTS shall have no authority to bind the COMPANY (except pursuant to
Section 6 relating to the COMPANY's warranties). The COMPANY shall have no
right to exercise any control whatsoever over the activities or operations
of BTS, other then defined in the Memo of Agreement, attached hereto,
including the prices at which BTS may resell PRODUCTs.
11.3 Amendment and Waiver. Except as otherwise expressly provided herein, any
provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or any
particular instance and either retroactively or prospectively) only with
the written consent of the parties. However, it is the intention of the
parties that this Agreement be controlling over additional or different
terms of any order, confirmation, invoice or similar document, even if
accepted in writing by both parties, and that waivers and amendments shall
be effective only if made by non-pre-printed agreements clearly understood
by both parties to be an amendment or waiver.
11.4 Governing Law and Legal Actions. This Agreement shall be governed by and
construed and enforced in accordance with the laws of Germany. All
disputes, controversies or differences which may arise between the Parties
in relation to or in connection with this Agreement may be settled by
amicable negotiation by both Parties if the Parties so agree. If both
Parties are unable to settle such disputes, then such disputes shall be
referred to and finally settled by arbitration under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce in
Paris. The Arbitration shall be conducted in the English Language and take
place in USA if it is initiated by BTS or in Germany if it is initiated by
COMPANY. The award of arbitration shall bind both Parties. No waiver by a
party of a right or remedy under this Agreement shall constitute a waiver
of any other right or remedy under this Agreement. No waiver of a right or
remedy shall be effective unless made in writing.
11.5 Headings. Headings and captions are for convenience only and are not to be
used in the interpretation of this Agreement.
11.6 Notices. Notices under this Agreement shall be sufficient only if
personally delivered, delivered by a major commercial rapid delivery
courier service or mailed by certified or registered mail, return receipt
requested to a party at its addresses set forth below or as amended by
notice pursuant to this
<PAGE>
Page 17 of 22
subsection. If not received sooner, notice by mail shall be deemed
received five (5) days after deposit in the U.S. mails.
If to BTS:
Brunnenweg 9
64331 Weiterstadt
Germany
Attn.: General Manager
If to COMPANY:
21211 Nordhoff Street
Chatsworth, CA 91311
USA
Attn.: VP and General Manager
Systems Business Unit
11.7 Entire Agreement. This Agreement supersedes all proposals, oral or
written, all negotiations, conversations, or discussions between or among
parties relating to the subject matter of this Agreement and all past
dealing or industry custom.
11.8 Confidentiality. Neither party shall disclose the terms of this
Agreement or any attachment to any third party without the prior written
consent of the other party. Article 9 of the Development Agreement
continues to govern any possible exchange of confidential information.
11.9 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary
so that this Agreement shall otherwise remain in full force and effect and
enforceable.
11.10 Force Majeure: Neither MICROPOLIS nor BTS shall be liable for delay or
failure in the performance of the obligations contained in this AGREEMENT
arising solely from any one or more of the following matters:
a) acts of God, or public enemy or war (declared or undeclared);
b) acts of governmental or quasi-governmental authorities or
regulations or restrictions imposed by law or by court action,
except as they may result from the unreasonable failure of
MICROPOLIS or BTS to perform as required hereunder;
c) acts of persons engaged in subversive activities or sabotage;
d) fires, floods, explosions or other catastrophes;
e) epidemics or quarantine restrictions;
f) strikes, lockouts or similar labour disruptions;
g) freight embargoes, or interruption of transportation;
h) unusually severe weather;
i) delays of a supplier of one PARTY due to any of the above causes or
events; or
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j) any other extraordinary event beyond the control of the PARTY
concerned; and provided that due diligence is exercised to cure such
cause and resume performance, and the time for performance by such
PARTY shall be extended by a period of any such delay.
11.11 Advertisements: COMPANY shall not without BTS' prior written consent use
BTS' name or trademark as such and/or use same in connection with any
advertisement or sales literature nor advertise that it is a COMPANY of
BTS and/or that this Agreement between COMPANY and BTS has been concluded.
Exhibit. The following Exhibit, as referred to in this Agreement, form an
integral part of the Agreement:
Exhibit A: Prices of PRODUCT/Modules
Exhibit B: BTS software license fee
Exhibit C: Minimum order quantity and order forecast
Exhibit D: Purchasing forcast of Micropolis drives to be used in the
Media Pool Video server.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
Micropolis Corporation
By: /s/ Per Sjofors
Name: Per Sjofors
Title: Director Marketing VSD
BTS BROADCAST TELEVISION SYSTEMS GmbH
By: /s/ H. Hock /s/ H.D. Geise
Name: H. HOCK H.D. GEISE
Title: CFO Gen. Manager
15. Sept. 1995
<PAGE>
MEMORANDUM OF AGREEMENT
This memorandum of agreement (MoA) is made between Micropolis Corporation
(Micropolis) of
21211 Nordhoff Street
Chatsworth, CA 91311
USA
and BTS Broadcast Television Systems GmbH (BTS) of
Im Leuschnerpark 1
D-64347 Griesheim
Germany
Whereby Micropolis and BTS (hereafter the "Parties") agree to collaborate in
accordance with the following terms and conditions.
SCOPE
The Parties shall together define and Micropolis and BTS (Weiderstadt) shall
jointly develop a family of video disk recorders for sale worldwide by BTS.
For purpose of this agreement these products shall be called "Mini-Pools".
The parties agree that they participate in this collaboration on a
non-exclusive basis in accordance with the conditions described below.
PRINCIPLES
The Mini-Pools shall be branded with the BTS logo and product name.
The Mini-Pool family shall consist of a family of products as outlined on the
attached preliminary specifications identified as exhibit "A".
The Parties agree to make a best effort for completion of the Mini-Pools as
follows:
VDR110 Prototypes completed by Dec. 31, 1995
Beta site deliveries to BTS customers by Feb. 1, 1996
Production deliveries to BTS customers starting April 1, 1996
VDRx40 Prototypes completed by March 31, 1996
Beta site deliveries to BTS customers by May 1, 1996
Production deliveries to BTS customers starting July 1, 1996
A development plan called the "Joint Development Agreement" detailing the
tasks and identifying the resources will be developed within 30 days of signing
this MoA.
A business agreement called the "Brand Name Reseller's Agreement" detailing the
pricing and sales volumes will be developed by Oct. 15, 1995.
BTS International Competence Center (Wiederstadt) and Micropolis will jointly
develop the Mini-Pool according to the "Joint Development Agreement".
The Parties agree that the total development cost of Mini-Pool will not exceed
$2M.
BTS agrees to cover a percentage of Micropolis's development cost in cash and
through contribution of engineering resources.
Micropolis shall deliver to BTS various VDR related sub-assemblies for BTS to
configure and make final test.
<PAGE>
Payment to Micropolis is of the BTS contribution to development shall be as
follows:
<TABLE>
<CAPTION>
LATEST DATE AMOUNT PURPOSE
<C> <C> <S>
AUG 7, 1995 $100,000 This amount is intended to allow development
10 working days to continue while the terms of the "Joint
after execution of Development Agreement" are being completed. If
this MoA. for any reason, the parties are unable to
reach agreement within 30 days of the
execution of the MoA, the parties must
mutually agree to continue negotiations or
they shall cease and Micropolis may keep this
payment.
SEPT 25, 1995 $200,000 This amount is part payment of the total
10 working days payment by BTS to Micropolis, as further
after execution of detailed in the "Brand Name Reseller's
the "Brand Name Agreement". If for any reason, the parties
Reseller's are unable to reach agreement by September 15,
Agreement" 1995, the parties must mutually agree to
continue negotiations and payment is then due
on execution of the "Brand Name Resellers
Agreement".
</TABLE>
The schedule of the balance of the BTS contribution to Micropolis of $700,000
cash and engineering resources shall be as defined in the "Joint Development
Agreement".
The Parties shall exchange monthly reports, in a form to be mutually agreed,
detailing the technical progress achieved. Further to this reporting process,
each party shall allow the other party's Project Manager to inspect
development work at intervals longer than 15 days apart.
The Parties shall share the intellectual property acquired in the development
of the "MiniPools", exclusive of property previously developed by either
party, which shall remain the property of the initial developing company. The
"Joint Development Agreement" shall outline the extent of the previously
developed intellectual property of each party.
Subject to the terms and conditions of the Brand Name Reseller's Agreement,
Micropolis shall appoint BTS as the worldwide exclusive reseller of the
"Mini-Pools". Micropolis grants BTS the right to sub-license the Mini-Pool
system software. The only exception to this exclusivity shall be that BTS shall
allow Micropolis to conduct business for the sale of a Micropolis version of the
VDR110 to the following company:
Tyrell Corporation
Although there may be other differentiating features, this version will
utilize analog I/O for video and will incorporate a 'flat' file system. This
version could also be sold by BTS.
It is to be understood that if the version of the VDR110 sold to the above
company incorporates any BTS developed technology, Micropolis agrees to pay BTS
a royalty based upon standard industry practices.
If additional sales opportunities are identified by Micropolis, BTS agrees to
sell the "Mini-Pools" to other companies for their resale, provided they operate
outside the professional television industry or such companies are acceptable
to BTS. In these cases, BTS must make a minimum of 15% gross margin on the
sale.
As additional consideration for Micropolis contribution to the joint
development of the "Mini-Pools", upon certification by the BTS International
Competence Center (ICC) in Salt Lake City of Micropolis disk drives, BTS intend
to utilize Micropolis as their primary supplier of disk drives for the BTS
Media Pool Video Server. This primary supplier status shall only remain in
effect as long as Micropolis supplies a product equal in performance and price
to units available from other suppliers. The reseller's agreement shall include
projected quantities for Micropolis manufacturing forecast purposes and will not
constitute any firm order commitments.
<PAGE>
This MoA shall come into force at the date of signatures of both Parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
indicated below.
MICROPOLIS CORPORATION BTS BROADCAST TELEVISION SYSTEMS
By: /s/ Larry Smart By: /s/ Ruttger Keienburg
Name: Larry Smart Name: Ruttger Keienburg
Title: President and CEO Title: CEO and President
Date: July 25, 1995 Date: July 31, 1995
<PAGE>
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Exhibit B: BTS license fee
Hardware and Software that is independently developed by BTS, and where
the development is not paid by Micropolis, and that forms an integral part
of PRODUCT shall, in the event that PRODUCT is sold by Micropolis to other
3d parties, be subject to a license fee.
This license fee shall be subject to good faith negotiations.
In case after serious negotiations the parties remain unable to reach
agreement on the license fee, the following procedure shall apply: The
license fee will be set by a committee of three (3) members. COMPANY and
BTS each will appoint one member ('Party-Arbitrator'), a senior manager
from the respective organizations, who jointly will appoint an independent
third member (hereinafter the 'Chairman'). The committee starts working
not later than 1 month before Micropolis sells PRODUCT to 3d parties. The
Party-arbitrators will submit to the Chairman the proposed license fee
along with their justifications. The Chairman will inform the parties of
the proposals so submitted, after which the Party-Arbitrators must submit
their final license fee proposal within seven (7) days. The Chairman must
then choose between the two proposals within fourteen (14) days. The
license fee announced are binding for both parties. Cost of arbitration
will be shared by MICROPOLIS and BTS.
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Exhibit C: Minimum order quantity and order forecast
In order to enjoy it's limited exclusivity, as defined in Article 2.1
herein, BTS agrees to order a minimum volume of PRODUCT from MICROPOLIS.
The order volume is based on the prices as agreed in Exhibit A, as
amended, hereto.
<TABLE>
<CAPTION>
Period, number of month from first Minimum purchase agreement,
production shipment of VDR110 in US dollars
<S> <C>
0 - 12 month $4m
12 - 24 month $12m
24 - 36 month $14m
</TABLE>
Notes:
1) The above Minimum purchase agreement, in US dollars, is based on the
assumption that the VDR110 product will have an actual performance that is
in excess of the SPECIFICATION in one respect that the minimum compression
ratio is 4:1 rather than the 8:1 as per the SPECIFICATION.
2) The minimum order volume per period and for the duration of the
AGREEMENT is accumulative; if BTS orders in excess of it's minimum order
quantity in any period, the excess amount will be counted into the next
period.
BTS will provide COMPANY with a 12 month rolling forecast. In any given 12
month period the forecast can not be changed more than
<TABLE>
<CAPTION>
Month May Change
<S> <C>
1,2 No change as Purchase Orders are issued
3-6 No more than plus or minus 20%
7-12 No more than plus or minus 30%
</TABLE>
<PAGE>
Page 22 of 22
Exhibit D: Purchasing forecast of Micropolis drives to be used in the
Media Pool Video server.
The purchasing forecast of Micropolis drives to be used in the Media Pool
Video server will be supplied by BTS to MICROPOLIS and attached to this
agreement no later then 30 days after execution.
<PAGE>
EXHIBIT 10.55
DATED FEBRUARY 16, 1996
MICROPOLIS CORPORATION
as Borrower
-and-
ST CHATSWORTH PTE LTD
as Lender
------------------------
US$10,000,000
FACILITY AGREEMENT
------------------------
<PAGE>
C O N T E N T S
---------------
CLAUSE HEADING PAGE
- ------ ------- ----
1. INTERPRETATION 1
2. THE FACILITY 2
3. CONDITIONS PRECEDENT 2
4. DRAWDOWN 2
5. REPAYMENT 3
6. INTEREST 3
7. TAXES 4
8. REPRESENTATION AND WARRANTIES 5
9. UNDERTAKINGS 6
10. EVENTS OF DEFAULT 6
11. DEFAULT INTEREST 8
12. INDEMNITIES 9
13. SET-OFF 9
14. EXPENSES AND STAMP DUTY 10
15. ASSIGNMENT 10
16. REMEDIES, WAIVERS, AMENDMENTS AND CONSENTS 11
17. COMMUNICATIONS 11
18. PARTIAL INVALIDITY 11
19. GOVERNING LAW AND JURISDICTION 11
20. EXECUTION 12
SCHEDULE 1--CONDITIONS PRECEDENT 13
SCHEDULE 2--FORM OF REQUEST FOR ADVANCE 14
<PAGE>
THIS AGREEMENT is made on February 16, 1996 BETWEEN:
-------
(1) MICROPOLIS CORPORATION (the "Borrower"); and
----------------------
(2) ST CHATSWORTH PTE LTD (the "Lender").
--------------------
WHEREAS:-
-------
(A) The Borrower and the Lender have pursuant to an Asset Purchase Agreement, as
defined below agreed to sell and purchase the Disk Drive Business as defined in
the Asset Purchase Agreement.
(B) At the request of the Borrower, the Lender is prepared to make certain
advances to the Borrower to assist the Borrower in carrying on the Disk Drive
Business prior to the Closing Date as defined in the Asset Purchase Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
--------------
Definitions: In this Agreement, except to the extent that the context
-----------
requires otherwise:-
"Advance" means, depending on the context, an advance made or to be made
---------
by the Lender to the Borrower pursuant to this Agreement;
"Asset Purchase Agreement" means the Asset Purchase Agreement dated 24th
-------------------------
January, 1996 made between (1) Micropolis Corporation and (2) ST
Chatsworth Pte Ltd;
"Available Amount" means the Facility Amount less (i) that part of it
------------------
(if any) which has been cancelled in accordance with this Agreement and
(ii) the Advances made by the Lender to the Borrower under this Agreement;
"Business Day" means a day (other than Saturday or Sunday) on which
--------------
commercial banks and the foreign exchange market are open for business
in Singapore and, if on that day a payment or transfer of funds is to be
made under or pursuant to this Agreement, New York City also;
"Event of Default" means one of the events mentioned in Clause 10(A);
------------------
"Facility" means the facility granted under this Agreement;
---------
"Facility Amount" means US$10,000,000;
-----------------
<PAGE>
-2-
"Margin" means 1 per cent.;
--------
"Potential Event of Default" means any event or circumstance which, if it
----------------------------
continued after the giving of any notice, the expiry of any grace period
and/or (as the case may be) the making of any determination by the Lender,
provided for in Clause 10(A), would become an Event of Default;
"Repayment Date" means 29th March, 1996; and
----------------
"US Dollar(s)" and "US$" mean the lawful currency of the United States of
-------------- -----
America.
2. THE FACILITY
------------
(A) Amount: Subject to the Lender's right of review as stated in sub-Clause (C)
-------
below, the Lender agrees to make to the Borrower Advances, in an aggregate
principal amount not exceeding US$10,000,000 upon the terms and subject to the
conditions of this Agreement.
(B) Purpose: The Borrower shall use the proceeds of each Advance to repay the
--------
suppliers approved by the Lender.
(C) Review of Facility: Notwithstanding anything herein to the contrary,
------------------
expressed or implied, the Facility hereby agreed to be made available and
granted from time to time to the Borrower shall, at the absolute discretion of
the Lender, be reviewed from time to time and at any time and may be subject to
cancellation by the Lender as the Lender deems fit, and except where the Lender
has given the notice to the Borrower pursuant to Clause 4(B) that it is prepared
to make an Advance requested, nothing in this Agreement shall be deemed to
impose on the Lender any obligation either at law or in equity to make or
continue to make the Facility available to the Borrower or to make any Advance
to the Borrower.
3. CONDITIONS PRECEDENT
--------------------
The Borrower may not make its request for an Advance until the Lender has
confirmed to it that the Lender has received each of the documents listed in
Schedule 1 and has found them satisfactory.
4. DRAWDOWN
--------
(A) Drawdown Notice: Subject to the provisions of this Agreement, Advances may
----------------
be made by the Lender to the Borrower at its request if the following additional
conditions are fulfilled:-
(i) not later than 10 a.m. on the third Business Day before the proposed
date of the relevant Advance (or such other Business Day before the
proposed date of the relevant Advance as the Lender may agree), the
Lender has received from the Borrower a notice substantially in the
form set out in Schedule 2 specifying:-
<PAGE>
-3-
(a) the proposed advance date (which must be a Business Day)
(b) the amount of the Advance (which must be equal to or less than
the Available Amount); and
(c) a list of the suppliers and the amount owing to them by the
Borrower, which is to be discharged by the proceeds of the
Advance.
(ii) all representations and warranties in Clause 8 (except to any extent
waived in accordance with Clause 16(B)) have been complied with and
would be correct in all respects if repeated on the proposed date of
the Advance by reference to the circumstances then existing;
(iii) no Event of Default or Potential Event of Default has occurred on or
before the proposed date of the Advance or will occur as a result of
the making of the Advance (unless otherwise waived in accordance
with Clause 16(B)); and
(iv) not later than 10 a.m. on the proposed date of the Advance, the Lender
has received and found satisfactory such additional information,
legal opinions and/or other documents relevant in the context of or
relating to this Agreement as it may request.
(B) Acceptance by Lender: (i) On receipt of the notice of drawdown pursuant to
--------------------
sub-Clause (A), the Lender shall not later than 2 Business Days thereafter
inform the Borrower as to whether it is prepared to make the Advance and the
amount of the Advance it is prepared to make.
(ii) In the event the Lender notifies the Borrower that it is prepared to
make the Advance, it shall make available the amount of the Advance it is
prepared to make in accordance with the terms of the notice of drawdown.
5. REPAYMENT
---------
Subject as otherwise provided in this Agreement, the Advances outstanding
shall be repaid in full by the Borrower on the Repayment Date.
6. INTEREST
--------
(A) Interest Periods: Interest shall be calculated on each Advance by reference
----------------
to the term of the Advance and shall begin on the proposed date of that Advance
and shall accrue from day to day based on a year of 360 days.
<PAGE>
-4-
(B) Normal Interest Rate: The rate of interest applicable to each Advance shall
---------------------
be the rate per annum (as determined by the Lender) equal to the sum of the
Margin and the US Dollar prime lending rate of Citibank N.A. Singapore branch
prevailing from time to time.
(C) Payment of Interest: Subject as otherwise provided in this Agreement, the
--------------------
Borrower shall pay the interest accrued on each Advance at the rate applicable
on the Repayment Date.
7. TAXES
-----
(A) Payments to be Free and Clear: All sums payable by the Borrower under this
------------------------------
Agreement shall be paid (i) free of any restriction or condition, (ii) free and
clear of and (except to the extent required by law) without any deduction or
withholding for or on account of any tax and (iii) without deduction or
withholding (except to the extent required by law) on account of any other
amount, whether by way of set-off or otherwise.
(B) Grossing-up of Payments: (i) If the Borrower or any other person (whether or
------------------------
not a party to, or on behalf of a party to, this Agreement) must at any time
deduct or withhold any tax or other amount from any sum paid or payable by, or
received or receivable from, the Borrower under this Agreement, the Borrower
shall pay such additional amount as is necessary to ensure that the Lender
receives on the due date and retains (free from any liability other than tax on
its own overall net income) a net sum equal to what it would have received and
so retained had no such deduction or withholding been required or made.
(ii) If the Borrower or any other person (whether or not a party to, or on
behalf of a party to, this Agreement) must at any time pay any tax or other
amount on, or calculated by reference to, any sum received or receivable by the
Lender under this Agreement (except for a payment by the Lender of tax on its
own overall net income), the Borrower shall pay or procure the payment of that
tax or other amount before any interest or penalty becomes payable or, if that
tax or other amount is payable and paid by the Lender, shall reimburse it on
demand for the amount paid by it.
(iii) The Borrower shall:-
(a) within 30 days after paying any sum from which it is required by
law to make any deduction or withholding, and within 30 days
after the due date of payment of any tax or other amount which it
is required by paragraph (ii) to pay, deliver to the Lender
evidence satisfactory to the Lender of that deduction,
withholding or payment and (where remittance is required) of the
remittance thereof to the relevant taxing or other authority; and
(b) promptly after receipt from the relevant taxing or other
authority of its acknowledgement of receipt for any payment made
pursuant to paragraph (ii) above, deliver an original or
certified copy thereof to the Lender.
(iv) as soon as the Borrower is aware that any such deduction, withholding
or
<PAGE>
-5-
payment is required (or of any change in any such requirement), it shall notify
the Lender.
8. REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to and for the benefit of the Lender
that:-
(1) Powers: (a) it has the power to enter into, exercise its rights and
------
perform and comply with its obligations under this Agreement;
(ii) Authorisation and Consents: all action, conditions and things
--------------------------
required to be taken, fulfilled and done (including the obtaining of
any necessary consents) in order (a) to enable it lawfully to enter
into, exercise its rights and perform and comply with its
obligations under this Agreement, (b) to ensure that those
obligations are valid, legally binding and enforceable, (c) to
ensure that those obligations rank and will at all times rank in
accordance with Clause 9(i) and (d) to make this Agreement
admissible in evidence in the courts of Singapore have been taken,
fulfilled and done;
(iii) Non-Violation of Laws by Borrower: its entry into, exercise of its
---------------------------------
rights and/or performance of or compliance with its obligations
under this Agreement do not and will not violate, or exceed any
borrowing or other power or restriction granted or imposed by,
(a) any law to which it is subject, (b) any provision of its
constitutive documents or (c) any agreement to which it is a
party or which is binding on it or its assets and do not and
will not result in the creation of, or oblige it to create, any
security over those assets;
(iv) Obligations Binding: its obligations under this Agreement are
-------------------
valid, binding and enforceable;
(v) Litigation: no litigation, arbitration or administrative proceeding
-----------
is current or pending or, so far as it is aware, threatened to
restrain the entry into, exercise of its rights under and/or
performance or enforcement of or compliance with its obligations
under this Agreement;
(vi) Winding-up of Borrower: no meeting has been convened for its
----------------------
winding-up or for the appointment of a receiver, trustee,
judicial manager or similar officer of it, its assets or any
of them, no such step is intended by it and, so far as it is
aware, no petition, application or the like is outstanding for its
winding-up or for the appointment of a receiver, trustee, judicial
manager or similar officer of it, its assets or any of them; and
(vii) Repetition: each of the above representations and warranties will
-----------
be correct and complied with in all respects so long as any sum
remains
<PAGE>
-6-
to be lent or remains payable under this Agreement as if repeated
then by reference to the then existing circumstances.
9. UNDERTAKINGS
------------
The Borrower undertakes that, so long as any sum remains to be lent or
remains payable under this Agreement:-
(i) Ranking of Obligations: its payment obligations under this Agreement
-----------------------
rank and will at all times rank at least equally and rateably in all
respects with all its other unsecured and/or unsubordinated
indebtedness except for such indebtedness as would, by virtue only of
the law in force in the United States of America, be preferred in the
event of its winding-up;
(ii) Negative Pledge: except for security existing at the date hereof
----------------
notice of which has been given to the Lender, it will not create or
have outstanding any security on or over any of its assets;
(iii) Use of Advance: it will use the proceeds of each Advance to repay the
---------------
suppliers approved by the Lender and as directed by the Lender; and
(iv) Further Assurance: it will from time to time on request by the Lender
------------------
do or procure the doing of all such acts and will execute or procure
the execution of all such documents as the Lender may consider
necessary or desirable for giving full effect to this Agreement or
securing to the Lender the full benefits of all rights, powers and
remedies conferred upon the Lender in this Agreement.
10. EVENTS OF DEFAULT
-----------------
(A) Events of Default: The following are Events of Default:-
------------------
(i) Non-Payment: the Borrower does not pay in the manner provided in this
------------
Agreement any sum payable under it when due;
(ii) Breach of Other Obligations: the Borrower does not perform or comply
----------------------------
with any one or more of its obligations (other than the payment
obligation of the Borrower referred to in paragraph (i)) under this
Agreement and, if in the opinion of the Lender that default is capable
of remedy, it is not in the opinion of the Lender remedied within 14
days of its occurrence;
(iii) Breach of Warranty: any representation, warranty, certification or
-------------------
statement by the Borrower in this Agreement or in any other document
delivered under this Agreement is not complied with or is or proves to
have been incorrect in any respect when made or, if it had been made
on any later date by reference to the circumstances then existing,
<PAGE>
-7-
would have been incorrect in any respect on that later date, or is
not complied with or is or proves to have been incorrect when made or
deemed repeated;
(iv) Cross Default: any other indebtedness of the Borrower or any of its
--------------
subsidiaries in respect of borrowed money is or is declared to be or
is capable of being rendered due and payable before its normal
maturity by reason of any actual or potential default, event of
default or the like (however described) or is not paid when due nor
within any applicable grace period in any agreement relating to that
indebtedness or, as a result of any actual or potential default,
event of default or the like (however described) any facility
relating to any such indebtedness is or is declared to be or is
capable of being cancelled or terminated before its normal expiry
date or any person otherwise entitled to use any such facility is not
so entitled; the foregoing shall not apply to default under the CIT
Financing Agreement.
(v) Insolvency: the Borrower or any of its subsidiaries is (or is, or
-----------
could be, deemed by law or a court to be) insolvent or unable to pay
its debts, stops, suspends or threatens to stop or suspend payment of
all or a material part of (or of a particular type of) its
indebtedness;
(vi) Enforcement Proceedings: a distress, attachment, execution or other
------------------------
legal process is levied, enforced or sued out on or against the
assets of the Borrower or any of its subsidiaries and is not
discharged or stayed within 14 days;
(vii) Security Enforceable: any security on or over the assets of the
---------------------
Borrower or any of its subsidiaries becomes enforceable;
(viii) Winding-up: any step is taken by any person with a view to the
-----------
winding-up of the Borrower or any of its subsidiaries or for the
appointment of a liquidator (including a provisional liquidator),
receiver, judicial manager, trustee, administrator, agent or similar
officer of the Borrower or any of its subsidiaries or over any part
of the assets of the Borrower or any of its subsidiaries;
(ix) Cessation of Business: the Borrower or any of its subsidiaries ceases
----------------------
or threatens to cease to carry on all or a substantial part of its
business;
(x) Authorisations and Consents: any action, condition or thing
----------------------------
(including the obtaining of any necessary consent, approvals or
licences) at any time required to be taken, fulfilled or done for any
of the purposes stated in Clause 8(ii) is not taken, fulfilled or
done, or any such consent, approval or licence is revoked, withdrawn,
cancelled or otherwise ceases to be in full force and effect without
modification or any condition in or relating to any such consent is
not complied with (unless that consent or condition is no longer
required or applicable);
<PAGE>
-8-
(xi) Illegality: it is or will become unlawful for the Borrower to
-----------
perform or comply with any one or more of its obligations under
this Agreement;
(xii) Cessation: this Agreement ceases for any reason (or is claimed by
----------
the Borrower) not to be the legal and valid obligations of the
Borrower binding upon it in accordance with its terms;
(xiii) Litigation: any litigation, arbitration or administrative proceeding
-----------
is current or pending to (a) restrain the exercise of any of the
rights and/or the performance or enforcement of or compliance with
any of the obligations of the Borrower under this Agreement or (b)
which has or could have a material adverse effect on the Borrower or
on the Borrower and its subsidiaries taken as a whole;
(xiv) Analogous Event: any event occurs which, under the law of any
---------------
relevant jurisdiction, has an analogous or equivalent effect to any
of the events mentioned in paragraphs (v), (vi), (viii) or (ix); and
(xv) Material Adverse Change: any event occurs or circumstances arise
-----------------------
which the Lender reasonably determines give(s) reasonable grounds
for believing that the Borrower may not (or may be unable to)
perform or comply with any one or more of its obligations under this
Agreement.
(B) Cancellation/Acceleration: If at any time and for any reason (and whether
--------------------------
within or beyond the control of either party to this Agreement) any Event of
Default has occurred then at any time thereafter, whether or not any Event of
Default is continuing, the Lender may by notice to the Borrower declare:-
(i) the Facility to be cancelled, whereupon it shall be cancelled;
and/or
(ii) all Advances, all unpaid accrued interest and any other sum then
payable under this Agreement to be immediately due and payable,
whereupon they shall become so due and payable.
11. DEFAULT INTEREST
----------------
(A) Interest on Overdue Sums: If the Borrower does not pay any sum payable
-------------------------
under this Agreement (including, without limitation, any sum payable under this
Clause) when due, it shall pay interest on the amount from time to time
outstanding in respect of that overdue sum for the period beginning on its due
date and ending on the date of its receipt by the Lender (both before and after
judgment) in accordance with this clause.
(B) Default Interest Periods and Rates: Interest under this Clause shall be
-----------------------------------
calculated by reference to successive interest periods, each of which (other
than the first, which shall begin on the due date) shall begin on the last day
of the previous one. Each such interest period shall be of one month or such
shorter period as the Lender may from time to time select and the rate of
interest applicable for all or any part of a particular interest period
<PAGE>
-9-
shall be the rate per annum equal to the sum of five per cent. and the US Dollar
prime lending rate of Citibank N.A. Singapore branch prevailing from time to
time (as certified by it and expressed as a rate per annum).
(C) Payment and Compounding of Default Interest: (i) On the last day of each
--------------------------------------------
interest period, the Borrower shall pay the unpaid interest accrued during that
interest period on the overdue sum to which it relates at the rate applicable
for that interest period.
(ii) Interest accrued under this Clause on an overdue sum shall be due on
demand by the Lender but, if not previously demanded, shall be paid when due in
accordance with paragraph (i). If not paid when due, the interest shall be added
to that overdue sum and itself bear interest accordingly.
12. INDEMNITIES
-----------
(A) Miscellaneous Indemnities: The Borrower shall on demand indemnify the
--------------------------
Lender against any funding or other cost, loss, expense or liability sustained
or incurred by it as a result of:-
(i) the occurrence or continuance of any Event of Default or
Potential Event of Default; or
(ii) the receipt or recovery by the Lender of all or any part of any
Advance otherwise than on the Repayment Date.
(B) Currency Indemnity: (i) US Dollars is the sole currency of account and
-------------------
payment for all sums payable by the Borrower under or in connection with this
Agreement, including damages.
(ii) Any amount received or recovered in a currency other than US Dollars
(whether as a result of, or of the enforcement of, a judgment or order of a
court of any jurisdiction, in the winding-up of the Borrower or otherwise) by
the Lender in respect of any sum expressed to be due to it from the Borrower
under this Agreement shall only constitute a discharge to the Borrower to the
extent of the amount in US Dollars which it is able, in accordance with its
usual practice, to purchase with the amount so received or recovered in such
other currency on the date of that receipt or recovery (or, if it is not
practicable to make that purchase on that date, on the first date on which it is
practicable to do so).
(iii) If that amount in US Dollars is less than the amount in US Dollars
expressed to be due to the Lender under this Agreement, the Borrower shall
indemnify it against any loss sustained by it as a result. In any event, the
Borrower shall indemnify the Lender against the cost of making any such
purchase. For the purpose of this sub-Clause (B), it will be sufficient for the
Lender to demonstrate that it would have suffered a loss had an actual exchange
or purchase been made.
13. SET-OFF
-------
The Borrower authorises the Lender to apply (without prior notice) any
credit
<PAGE>
-10-
balance (whether or not then due) to which it is at any time beneficially
entitled on any account at, any sum held to its order by and/or any liability of
the Lender including the liability of the Lender to make the payments under the
Asset Purchase Agreement in or towards satisfaction of any sum then due from it
to the Lender under this Agreement and unpaid and, for that purpose, to convert
one currency into another (but so that nothing in this Clause shall be effective
to create a charge). The Lender shall not be obliged to exercise any of its
rights under this Clause, which shall be without prejudice and in addition to
any right of set-off, combination of accounts, lien or other right to which it
is at any time otherwise entitled (whether by operation of law, contract or
otherwise).
14. EXPENSES AND STAMP DUTY
-----------------------
Whether or not any Advance is made under this Agreement, the Borrower shall
pay:-
(i) on demand, all costs and expenses (including legal fees) incurred by
the Lender in connection with the preparation, negotiation or entry
into of this Agreement and/or any amendment of, supplement to or
waiver in respect of this Agreement;
(ii) on demand, all costs and expenses (including legal fees) incurred by
the Lender in protecting or enforcing any rights under this Agreement
and/or any such amendment, supplement or waiver; and
(iii) promptly, and in any event before any interest or penalty becomes
payable, any stamp, documentary, registration or similar duty or tax
payable in connection with the entry into, performance, enforcement
or admissibility in evidence of this Agreement and/or any such
amendment, supplement or waiver, and shall indemnify the Lender
against any liability with respect to or resulting from any delay in
paying or omission to pay any such duty or tax.
15. ASSIGNMENT
----------
(A) Benefit and Burden of Agreement: This Agreement shall benefit and be
--------------------------------
binding on the parties, their permitted assignees and their respective
successors. Any reference in this Agreement to either party shall be construed
accordingly.
(B) Borrower: The Borrower may not assign or transfer all or part of its rights
---------
or obligations under this Agreement.
(C) Lender: the Lender may assign all or part of its rights or transfer all or
-------
part of its obligations (if any) under this Agreement without the consent of the
Borrower. Any such assignee or transferee shall be and be treated as a party for
all purposes of this Agreement and shall be entitled to the full benefit of this
Agreement to the same extent as if it were an original party in respect of the
rights or obligations assigned or transferred to it.
<PAGE>
-11-
16. REMEDIES, WAIVERS, AMENDMENTS AND CONSENTS
------------------------------------------
(A) No Implied Waivers: No failure on the part of the Lender to exercise, and
-------------------
no delay on its part in exercising, any right or remedy under this Agreement
will operate as a waiver thereof, nor will any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy. The rights and remedies provided in this Agreement
are cumulative and not exclusive of any other rights or remedies (whether
provided by law or otherwise).
(B) Amendments, Waivers and Consents: Any provision of this Agreement may be
---------------------------------
amended or supplemented only if the Borrower and the Lender so agree in writing
and any Event of Default, Potential Event of Default, provision or breach of any
provision of this Agreement may be waived before or after it occurs only if the
Lender so agrees in writing. Any consent by the Lender under any provision of
this Agreement must also be in writing. Any such waiver or consent may be given
subject to any conditions thought fit by the Lender and shall be effective only
in the instance and for the purpose for which it is given.
17. COMMUNICATIONS
--------------
Each communication under this Agreement shall be made by fax or otherwise
in writing. Each communication or document to be delivered to any party under
this Agreement shall be sent to that party at the fax number or address, and
marked for the attention of the person (if any), from time to time designated by
that party for the purpose of this Agreement. The initial fax number, address
and person (if any) so designated by each party are set out under its name at
the end of this Agreement.
18. PARTIAL INVALIDITY
------------------
The illegality, invalidity or unenforceability of any provision of this
Agreement under the law of any jurisdiction shall not affect its legality,
validity or enforceability under the law of any other jurisdiction nor the
legality, validity or enforceability of any other provision.
19. GOVERNING LAW AND JURISDICTION
------------------------------
(A) Governing Law: This Agreement shall be governed by, and construed in
--------------
accordance with, the laws of Singapore.
(B) Singapore Courts: For the benefit of the Lender, the parties irrevocably
-----------------
agree that the courts of Singapore are to have jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and that,
accordingly, any legal action or proceedings arising out of or in connection
with this Agreement ("Proceedings") may be brought in those courts and the
-------------
Borrower irrevocably submits to the jurisdiction of those courts.
(C) Other Competent Jurisdiction: Nothing in this Clause shall limit the right
-----------------------------
of the Lender to take Proceedings against the Borrower in any other court of
competent jurisdiction nor shall the taking of Proceedings in one or more
jurisdictions preclude the
<PAGE>
-12-
Lender from taking Proceedings in any other jurisdiction, whether concurrently
or not.
(D) Venue: The Borrower irrevocably waives any objection which it may at any
------
time have to the laying of the venue of any Proceedings in any court referred to
in this Clause and any claim that any such Proceedings have been brought in an
inconvenient forum.
(E) Service of Process: (i) The Borrower irrevocably consents to any process in
-------------------
any Proceedings anywhere being serviced by mailing a copy by registered prepaid
airmail post to it in accordance with Clause 17. Such service shall become
effective 14 days after mailing.
(ii) Nothing shall affect the right to serve process in any other manner
permitted by law.
(F) Consent to Enforcement, etc: The Borrower irrevocably and generally
----------------------------
consents in respect of any Proceedings anywhere to the giving of any relief or
the issue of any process in connection with those Proceedings including, without
limitation, the making, enforcement or execution against any assets whatsoever
(irrespective of their use or intended use) of any order or judgment which may
be made or given in those Proceedings.
20. EXECUTION
---------
This Agreement may be executed in counterparts and by each party hereto on
a separate counterpart, all of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier or facsimile transmission shall be effective as delivery
of a manually executed counterpart of this Agreement.
<PAGE>
-13-
S C H E D U L E 1
------------------
CONDITIONS PRECEDENT
--------------------
1. A copy certified by a director or the Borrower of the Charter and By-Laws
of the Borrower.
2. A copy certified by a director of the Borrower of the resolutions of the
Borrower's Board of Directors approving this Agreement and authorising the
persons specified therein to sign this Agreement, give any certificate or
communications and take any other action required under or in connection with
this Agreement on its behalf.
3. Legal opinions dated on or after the date of this Agreement from Latham &
Watkins, legal advisers in the United States of America to the Borrower, as to
such matters of the laws of the United States of America relevant to this
Agreement as the Lender may request.
<PAGE>
-14-
S C H E D U L E 2
------------------
FORM OF REQUEST FOR ADVANCE
---------------------------
To: ST Chatsworth Pte Ltd
83 Science Park Drive
#01-01/02 The Curie
Singapore Science Park
Singapore 118288.
For the attention of: [Name and Title of relevant person]
Dear Sirs,
Micropolis Corporation
US$10,000,000 Facility Agreement
dated [ ] 1996
--------------------------------
We refer to the above Agreement between (i) ourselves, as Borrower, and
(ii) yourselves, as Lender. Terms defined in the Agreement have the same meaning
in this notice.
We give you notice that we request an Advance of US$[ ] to be made
to us under the Agreement on [date] (or, if that is not a Business Day, the next
succeeding Business Day).
We confirm that no Event of Default or Potential Event of Default has
occurred or will occur as a result of the making of the Advance, we represent
and warrant that the representations and warranties contained in Clause 8 of the
Agreement have been complied with and would be correct in all respects if
repeated today by reference to the circumstances now existing and we confirm
that all the undertakings on our part contained in Clause 9 of the Agreement
have been fully performed and observed by us.
We annex herewith a list of the suppliers and the amount owing to them
which is to be discharged by the proceeds of the Advance.
<PAGE>
-15-
You are requested to make the proceeds of the Advance to us by credit to our
account as provided from time to time.
Dated February 16, 1996.
Yours faithfully,
For and on behalf of
MICROPOLIS CORPORATION
By: /s/ B. V. Scherer
---------------------------------
Name: B. V. Scherer
-------------------------------
Title: V.P. Finance, CFO & Treasurer
------------------------------
<PAGE>
-16-
IN WITNESS WEREOF this Agreement has been entered into on the date stated
-----------------
at the beginning.
The Borrower
- ------------
MICROPOLIS CORPORATION
21211 Nordhoff St.
Chatsworth, CA 91311
United States of America
Fax Number: 1818709 3302
Attention: Ms Barbara Scherer
By: /s/ B. V. Scherer Witness: /s/ Vivien Avella
-------------------------------- -----------------------------
Name: B. V. SCHERER Name: VIVIEN AVELLA
------------------------------ -------------------------------
Title: V.P. Finance, CFO & Treasurer Address: 21211 Nordhoff Street
----------------------------- -----------------------------
Chatsworth, CA 91311
-----------------------------
The Lender
- ----------
ST CHATSWORTH PTE LTD
83 Science Park Drive
#01-01/02 The Curie
Singapore Science Park
Singapore 118288.
Fax Number: 65-775-3233
Attention: Mr Joe Chen
By: /s/ Joe Chen
--------------------------------
Name: JOE CHEN
------------------------------
Title: President, ST Chatsworth
<PAGE>
EXHIBIT 10.56
STREAMLOGIC OEM SUPPLY AGREEMENT
PARTIES TO THE AGREEMENT:
ST Chatsworth Pte Ltd (to be renamed Micropolis Pte Ltd) (hereinafter called
"Micropolis Pte Ltd") and Micropolis Corporation (to be renamed StreamLogic
Corporation) (hereinafter called "StreamLogic").
ITEMS SUBJECT TO THE AGREEMENT:
All disk drives ("Drives") manufactured or sold by Micropolis Pte Ltd for the
term of this agreement.
TERM:
Subject to the last paragraph of this Agreement, this agreement shall be in full
force and effect on the Closing Day of the Asset Purchase Agreement and run
until April 2, 1998 unless earlier terminated by either party as a result of the
material default of the other party. It shall be renewable annually thereafter
with the mutual consent of both parties.
OEM AGREEMENT:
This is an OEM agreement. Under no conditions is StreamLogic to resell Drives
into the distribution, or other market under the Micropolis name, or any other
name. All Drives sold to StreamLogic are to be incorporated in its systems or
products, and sold under StreamLogic's brand names.
RIGHT OF FIRST REFUSAL:
StreamLogic must offer all its Drive business and requirements to Micropolis Pte
Ltd on a right-of-first refusal basis. If Micropolis Pte Ltd is unable to
provide at least 50% of StreamLogic's quarterly volume and delivery requirements
and meet the other competitive terms, conditions and availability of other disk
drive providers, StreamLogic may purchase its disk drive requirements from the
other providers. However, StreamLogic will offer its business to Micropolis Pte
Ltd at least quarterly.
BUSINESS COOPERATION AND PRACTICES:
Micropolis Pte Ltd and StreamLogic will work to provide one another with all
information reasonably required by each to make their respective business
decisions. StreamLogic will provide to Micropolis Pte Ltd a six month rolling
forecast of its drive requirements. Micropolis Pte Ltd will share its
technology road maps with StreamLogic, and will provide price projections to
StreamLogic for its use in product planning. Neither party will be bound by the
forecasts and/or projections made to the other.
LEAD-TIME:
Micropolis Pte Ltd will work aggressively to reduce lead times, and will
publish its lead times (defined as time from receipt of order to delivery in
Chatsworth) on a regular basis to StreamLogic. In no event will lead time
exceed 30 days.
PURCHASE ORDERS:
StreamLogic will order Drives on the basis of purchase orders which it shall
issue monthly; such orders will be binding only upon Micropolis Pte Ltd's
acceptance of the order. The terms and other conditions of the sale and
purchase of drives not covered in this Agreement shall be governed by
StreamLogic's purchase order terms, as may be modified by Micropolis Pte Ltd and
mutually agreed by both parties. Prices and other detailed matters will be
governed by the purchase order. Purchase orders will cover lead time. Such
orders may be canceled or rescheduled unless the delivery date is within 15 days
from the proposed cancellation date.
<PAGE>
Page 2
OEM Supply Agreement
READYSTOCK:
Micropolis Pte Ltd will make its ReadyStock program available to StreamLogic on
the following key terms. StreamLogic will issue a purchase order for each
calendar quarter, subject to acceptance by Micropolis Pte Ltd in accordance
with the prior paragraph. Micropolis Pte Ltd will maintain ReadyStock in
Chatsworth based on a rolling three-month forecast from StreamLogic. Up to 10%
of any purchase order may be canceled by StreamLogic. On the last day of every
fiscal quarter, product remaining in the ReadyStock, less the amount which can
be canceled, will be shipped to StreamLogic. No change in the payment terms
will result if StreamLogic adopts the ReadyStock program.
PRICE:
The prices to be paid for the Drives by StreamLogic will be US dollar prices and
shall be either the lower of 1) most favored OEM, or 2) a 15% markup over the
standard factory cost of Micropolis Pte Ltd. Standard factory cost is defined
as actual material cost, labor and factory burden as set on a quarterly basis by
Micropolis Pte Ltd using its accounting practices. Prices will be set
quarterly, and StreamLogic will have the right to select, at the commencement
of each calendar quarter, the price basis (cost plus or most favored OEM) on a
product by product basis. Prices will be verified to be in accordance with this
agreement by a mutually agreed upon third-party audit firm which shall be
appointed on an annual basis. The cost of the third-party audit, which shall be
conducted quarterly, will be shared equally by the parties to this agreement.
The third-party audit firm shall be required only to verify whether the prices
paid by StreamLogic are in accordance with their selection (cost plus or most
favored OEM) and it shall not reveal any other information, in particular prices
paid by Micropolis Pte Ltd's other customers.
PAYMENT TERMS:
Payments will be due 60 days from invoice date, in US dollars, to the remittance
address provided by Micropolis Pte Ltd.
ACCOUNT MANAGER:
Micropolis Pte Ltd will appoint an account manager to be the point of contact
for StreamLogic staff on all Drive issues. The account manager will have the
authority and ability to interact with all levels of the Micropolis Pte Ltd
organization in order to meet the requirements of StreamLogic.
WARRANTY:
Drives shall come with the standard Micropolis Pte Ltd's warranty, as shall be
published from time to time by Micropolis Pte. Ltd.
WARRANTY REPAIR:
Upon verbal request (which shall be followed up in writing), Micropolis Pte Ltd
will issue a Returned Goods Authorization (RGA) to StreamLogic to return failed
drives for warranty repair. Such RGA shall be issued within 24 hours of a
request for same. Replacement Drives will be shipped to StreamLogic within 7
days after the receipt by Micropolis Pte Ltd of the failed units. StreamLogic
must properly label all such returns, clearly showing the RGA number and other
required, customary documentation in order to facilitate the processing of the
return by Micropolis Pte Ltd.
<PAGE>
Page 3
OEM Supply Agreement
Micropolis Pte Ltd reserves the unconditional right to inspect all such returns
and determine the cause of failure. If the cause of failure is found to be
"customer damage", i.e. damage as a result of handling or other procedures,
Micropolis Pte Ltd will notify StreamLogic of its findings and offer a price to
repair the drive. StreamLogic may accept or decline such offer.
DEAD ON ARRIVAL:
Drives which fail out-of-the-box , which shall be defined as no more than 90
days after receipts by StreamLogic, shall be deemed "dead on arrival". Such
drives will be replaced within 48 hours by Micropolis Pte Ltd; if replacement
Drives are not so furnished, StreamLogic may return the Drives for a full credit
of the purchase price which had been charged StreamLogic.
ASSIGNMENT:
This Agreement shall not be assigned by either party without the prior written
consent of the other party.
GOVERNING LAW:
This agreement shall be construed in accordance with, and all disputes arising
hereunder shall be governed by, the laws of the State of California. The
parties hereto subject themselves to the jurisdiction of the state and federal
courts to the State of California with respect to any dispute, disagreement or
claim arising hereunder, and agree that any such dispute, disagreement or claim
shall be resolved by such California state and federal courts.
SUBJECT TO CLOSING OF ASSET PURCHASE AGREEMENT:
The rights and obligations of the parties to this agreement are conditional upon
the closing of the sale of the disk drive assets by StreamLogic to Micropolis
Pte Ltd as set forth in the Asset Purchase Agreement dated January 24, 1996,
made between the parties hereto.
Agreed to this 4th of March 1996.
---
/s/ Joe Chen
- -----------------------------------
Dr. Joe Chen
President, ST Chatsworth Pte. Ltd. (to be renamed Micropolis Pte Ltd)
/s/ J. Larry Smart
- -----------------------------------
Mr. J. Larry Smart
Chairman of the Board, CEO and President
Micropolis Corporation (to be renamed StreamLogic Corporation)
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
MICROPOLIS, INC.
c/o Professional Corporate Service Group, Inc.
Post Office Box 3627
Christiansted
St. Croix, U.S. Virgin Islands 00820
MICROPOLIS LIMITED
c/o Roy West Trust Corporation (Cayman) Limited
Post Office Box 707
Grand Cayman
British West Indies
MICROPOLIS LTD. MICROPOLIS GMBH
4 Worton Drive Behringstrasse 10
Worton Grange 8033 Planegg bei Munchen
Reading, Berkshire West Germany
RG2 ODW
England MICROPOLIS A.B.--SCANDINAVIA
Aprilvagen 3
MICROPOLIS S.A.R.L. 17540 Jarfalla
2 Rue du Buisson aux Fraises Sweden
Z.I. de la Bonde
91300 Massy MICROPOLIS JAPAN LIMITED
France Madre Matsuda Bldg. 3F-312
4-13 Kioi-cho, Chiyoda-ku
MICROPOLIS CORPORATION (THAILAND) LTD. Tokyo, Japan 102
733/1-8 Moo 8, Phaholyothin Road
Kookot, Lumlookkar MICROPOLIS AUSTRALIA PTY.
Pathumthani 12130 Thailand LIMITED
Level 21, 201 Miller Street
MICROPOLIS CORPORATION--TAIWAN BRANCH North Sydney, NSW
Room 1111, 11F, No. 333 2060 Australia
Keelung Road, Sec. 1
Taipei, Taiwan, R.O.C. MICROPOLIS BV
% Executive Management
Trustmij BV
MICROPOLIS S.R.L.
Via G. Stephenson 43A DeBoeleaan 14
20157 Milan 1083 HJ Amsterdam
Italy The Netherlands
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 2-86334, 2-90423, 2-96906, 33-4569, 33-22619, 33-29469, 33-
42454, 33-44456, 33-50204, 33-64706, 33-53313 and 33-55737) pertaining to the
Stock Option Plan for Executive and Key Employees of Micropolis Corporation,
as amended, Employees' Stock Option Plan, as amended, the Stock Option Plan
for Directors of Micropolis Corporation, as amended, and Employee Stock
Purchase Plan of Micropolis Corporation and in the related Prospectuses of our
report dated February 1, 1996, with respect to the consolidated financial
statements and schedule of Micropolis Corporation included in the Annual
Report (Form 10-K) for the year ended December 29, 1995.
Our audits also included the financial statement schedule of Micropolis
Corporation listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Los Angeles, California
February 1, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF MICROPOLIS CORPORATION AS OF
AND FOR THE YEAR ENDED DECEMBER 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> DEC-29-1995
<CASH> 27,896
<SECURITIES> 0
<RECEIVABLES> 38,676
<ALLOWANCES> 5,427
<INVENTORY> 59,777
<CURRENT-ASSETS> 124,355
<PP&E> 135,689
<DEPRECIATION> 81,544
<TOTAL-ASSETS> 180,393
<CURRENT-LIABILITIES> 58,398
<BONDS> 113,102
15,580
0
<COMMON> 0
<OTHER-SE> 7,173
<TOTAL-LIABILITY-AND-EQUITY> 180,393
<SALES> 211,264
<TOTAL-REVENUES> 211,264
<CGS> 205,628
<TOTAL-COSTS> 205,628
<OTHER-EXPENSES> 86,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,961
<INCOME-PRETAX> (85,349)
<INCOME-TAX> (1,061)
<INCOME-CONTINUING> (84,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,288)
<EPS-PRIMARY> (5.46)
<EPS-DILUTED> (5.46)
</TABLE>
