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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MICROPOLIS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MICROPOLIS CORPORATION
21211 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
NOTICE AND PROXY STATEMENT
FOR ACTION TO BE TAKEN BY WRITTEN CONSENT
IN LIEU OF A MEETING OF STOCKHOLDERS
To Our Stockholders:
Attached hereto is a Proxy Statement which solicits the written consent of
the stockholders of Micropolis Corporation, a Delaware corporation (the
"Company"), for the following action:
To authorize and approve: (i) the sale (the "Sale") of substantially all of
the Company's assets (other than cash and accounts receivable) related to its
disk drive business, to ST Chatsworth Pte Ltd, a Singapore corporation and a
wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore
corporation, pursuant to the terms of an Asset Purchase Agreement dated as of
January 24, 1996 (the "Purchase Agreement"), a copy of which is attached as
Appendix C to the Proxy Statement, and (ii) an amendment to the Company's
Certificate of Incorporation to change the name of the Company to StreamLogic
Corporation (the "Name Change").
The Sale and the Name Change are being presented to the stockholders as a
single unified proposal (the "Proposal") and approval of the Proposal will
constitute approval of both the Sale and the Name Change. The Proposal is
described in detail in the Proxy Statement attached to this notice and
incorporated herein by this reference.
On March 6, 1996, the Board of Directors received the opinion of Salomon
Brothers Inc, an investment banking and advisory firm, that the consideration
to be received by the Company in the Sale is fair, from a financial point of
view, to the Company. After consideration of, among other things, the terms
and conditions of the Purchase Agreement and the opinion of Salomon Brothers
Inc, the Board of Directors determined that the proposed Sale is fair to and
in the best interests of the Company's stockholders and has unanimously
approved the proposed Sale and the Name Change and recommends that
stockholders approve the Proposal. The Board of Directors believes that it is
in the best interests of the Company and its stockholders to solicit such
approval as of the earliest possible date. In order to accomplish this
objective, the Board of Directors is hereby soliciting the approval of the
Proposal by stockholders by written consent, in lieu of a meeting of
stockholders.
By Order of the Board of
Directors
Ericson M. Dunstan
Secretary
Chatsworth, California
March 7, 1996
In order to ensure your representation in the action to be taken by
written consent, you are requested to sign and date the enclosed Consent
Card as promptly as possible and return it in the enclosed envelope (to
which no postage need be affixed if mailed in the United States).
<PAGE>
MICROPOLIS CORPORATION
21211 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
PROXY STATEMENT FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
This Proxy Statement is furnished to the stockholders by the Board of
Directors of Micropolis Corporation, a Delaware corporation (the "Company" or
"Micropolis"), for solicitation of the written consent of stockholders to
approve (i) the sale (the "Sale") of substantially all of the Company's assets
(other than cash and accounts receivable) related to its disk drive business,
to ST Chatsworth Pte Ltd, a Singapore corporation and a wholly-owned
subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation,
pursuant to the terms of an Asset Purchase Agreement dated as of January 24,
1996 (the "Purchase Agreement"), a copy of which is attached as Appendix C to
this Proxy Statement, and (ii) an amendment to the Company's Certificate of
Incorporation to change the name of the Company to StreamLogic Corporation
(the "Name Change"). The Sale and the Name Change are being presented to the
stockholders as a single unified proposal (the "Proposal") and approval of the
Proposal will constitute approval of both the Sale and the Name Change.
It is anticipated that the mailing to stockholders of this Proxy Statement
and the enclosed Consent Card will commence on or about March 8, 1996. The
procedure for indicating approval of the Proposal is described in detail in
this Proxy Statement.
GENERAL INFORMATION
VOTING SHARES AND VOTING RIGHTS
Stockholders of record at the close of business on February 16, 1996 (the
"Record Date") are entitled to approve the Proposal. There were 15,580,413
shares of Common Stock of the Company issued and outstanding on that date.
Each share of the Common Stock is entitled to one vote. The Proposal must be
approved by the holders of a majority of the outstanding shares of the Common
Stock of the Company.
The beneficial ownership of the Company's Common Stock by certain beneficial
owners and by each of the Company's directors, certain of its most highly-
compensated executive officers and all executive officers and directors as a
group is set forth below under "Security Ownership of Certain Beneficial
Owners and Management."
Under the Company's Bylaws and pursuant to applicable Delaware law, any
action which may be taken at any annual or special meeting of the stockholders
of the Company may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
The matter being considered by the stockholders is being submitted for action
by written consent, rather than by votes cast at a meeting. A copy of the
Purchase Agreement pursuant to which the proposed Sale is to be made is
attached to this Proxy Statement as Appendix C, and the text of the proposed
amendment to the Company's Certificate of Incorporation effecting the Name
Change is set forth in full under "The Name Change." The Proposal will be
deemed to have been approved upon receipt by the Company of Consent Cards
which have not previously been revoked representing the approval of a majority
of the shares of Common Stock issued and outstanding on the Record Date,
provided that such approval is received on or prior to March 28, 1996 (the
"Termination Date"). If, however, sufficient written consents have not been
received by the Termination Date, the Company reserves the right to extend the
solicitation of written consents made hereby except that, under Delaware law,
such solicitation may not be extended beyond the date 60 days after the
earliest dated consent received by the Company. Any election to extend this
consent solicitation will be made by the Company by news release or other
similar public announcement. The date on which the Proposal is deemed approved
hereunder is referred to as the "Effective Date."
<PAGE>
Stockholders are being requested to indicate approval of the Proposal by
checking the appropriate box on the enclosed Consent Card and executing the
Consent Card. FAILURE TO CHECK ANY OF THE BOXES WILL, IF THE CONSENT CARD HAS
BEEN SIGNED, CONSTITUTE APPROVAL OF THE PROPOSAL. A complete description of
the proposed Sale and text of the amendment to the Company's Certificate of
Incorporation effecting the Name Change have not been set out on the Consent
Card itself because of space limitations. Nevertheless, signing and indicating
approval on the Consent Card will be deemed to be written consent to the
approval of the Proposal. Consent Cards that reflect abstentions will be
treated as voted for purposes of determining the approval of the Proposal and
will have the same effect as a vote against the Proposal; Consent Cards that
reflect "broker non-votes" will be treated as unvoted for purposes of
determining approval and will have the same effect as a vote against the
Proposal.
Execution of the Consent Card will constitute your approval, as a
stockholder of the Company, of the Proposal, and if sufficient written
consents are received, the Proposal will be deemed to have been approved by
the stockholders of the Company. Stockholder approval of the Proposal may not
prevent a stockholder from subsequently seeking to challenge the Proposal or
the actions of the Company's Board of Directors in approving the Proposal,
and, although the Company cannot determine in advance its position with
respect to any such challenge, it is possible that the Company could assert
such stockholder's or stockholders' approval of the Proposal as a defense, in
which case, if such defense were held meritorious, such stockholder or
stockholders could effectively be estopped from asserting such claims. No
dissenters or similar rights apply to stockholders who do not approve the
Proposal. If less than a majority of the outstanding shares of common stock
approve the Proposal, the Company cannot proceed with the Sale and the Name
Change.
The Company will pay the entire cost of the preparation and mailing of this
Proxy Statement and all other costs of this solicitation. Following the
initial mailing of this Proxy Statement, the Company and its agents may also
solicit proxies by mail, telephone, facsimile or in person; employees of the
Company who assist in such activities will not receive additional compensation
in connection therewith. D.F. King & Co., Inc. will receive approximately
$5,000 for their solicitation services.
DELIVERY OF WRITTEN CONSENTS
The Board of Directors requests that each Stockholder execute, date and mail
or deliver the Consent Card to D.F. King & Co., Inc., the Solicitor of the
Company, or Micropolis Corporation, at the following address, as appropriate:
BENEFICIAL OWNERS DIRECT STOCKHOLDERS OF RECORD
D.F. King & Co., Inc. Micropolis Corporation
77 Water Street c/o CMSS
New York, NY 10005-4495 Midtown Station
P.O. Box 816
New York, NY 10138-0834
An addressed envelope is provided for your convenience in returning the
Consent Card. THE CONSENT CARD SHOULD BE RETURNED AS SOON AS POSSIBLE AND, IN
ANY EVENT, FOR RECEIPT PRIOR TO MARCH 28, 1996. DO NOT SEND CONSENT CARDS TO
THE COMPANY.
REVOCATION OF WRITTEN CONSENTS
Any Consent Card executed and delivered by a stockholder may be revoked by
delivering written notice of such revocation prior to the Effective Date to
the Company at the address set forth below:
MICROPOLIS CORPORATION
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Chief Financial Officer
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Consent Cards may not be revoked after the Effective Date.
NOTICE OF EFFECTIVENESS OF PROPOSAL
If the Proposal is approved by stockholders and the Effective Date occurs,
the Company will promptly give notice thereof to all stockholders who have not
consented in writing to the extent required by Section 228(d) of the Delaware
General Corporation Law.
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SUMMARY
The following is a summary, for the convenience of stockholders, of certain
information with regard to the proposed Sale and proposed Name Change to be
acted upon by written consent. This summary is necessarily incomplete and
selective and is qualified in its entirety by reference to the complete Proxy
Statement and the Appendices thereto.
THE WRITTEN CONSENT SOLICITATION
PURPOSE OF THE SOLICITATION
Stockholders are being asked to consider and act by written consent upon a
single proposal (i) to approve the sale (the "Sale") of substantially all of
the Company's assets (other than cash and accounts receivable) related to its
disk drive business (the "Drive Business") to ST Chatsworth Pte Ltd, a
Singapore corporation ("STC" or "Micropolis Pte Ltd") and a wholly-owned
subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation ("ST"),
pursuant to the terms of an Asset Purchase Agreement dated as of January 24,
1996 (the "Purchase Agreement"), a copy of which is attached as Appendix C to
this Proxy Statement, and (ii) to adopt an amendment to the Company's
Certificate of Incorporation to change the name of the Company to StreamLogic
Corporation (the "Name Change").
The Sale and the Name Change are being presented to the stockholders as a
single unified proposal (the "Proposal") and approval of the Proposal will
constitute approval of both the Sale and the Name Change.
CONSENTS REQUIRED FOR APPROVAL; TERMINATION DATE
The Proposal will be deemed to have been approved upon receipt by the Company
of Consent Cards which have not previously been revoked representing the
approval of a majority of the shares of Common Stock issued and outstanding on
the Record Date, provided that such approval is received on or prior to March
28, 1996 (the "Termination Date"). If, however, sufficient written consents
have not been received by the Termination Date, the Company reserves the right
to extend the solicitation of written consents made hereby except that, under
Delaware law, such solicitation may not be extended beyond the date 60 days
after the earliest dated consent received by the Company.
Any Consent Card executed and delivered by a stockholder may be revoked by
delivering written notice of such revocation prior to the Effective Date to the
Company at 21211 Nordhoff Street, Chatsworth, California 91311; Attention:
Chief Financial Officer. Consent Cards may not be revoked after the Effective
Date.
THE PROPOSAL
THE SALE
Pursuant to the Purchase Agreement, STC will purchase substantially all the
assets, other than cash and receivables, of 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 (the "Sales Subsidiaries")(such assets, collectively,
the "Subject Assets"), and STC will assume certain of the Company's liabilities
relating to the Drive Business (the "Assumed Liabilities") on March 29, 1996 or
such other date as the Company and STC may agree (the "Closing Date"). The
Company's remaining assets will consist principally of the inventory, property,
plant and equipment related to its information storage subsystems and video
systems business (the "Systems Business") and its cash and accounts receivable.
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"). Pursuant
to the Purchase Agreement, STC may elect to purchase either the capital stock
or the assets of each of the Sales Subsidiaries. The Sale will be accounted for
by the parties using the purchase method of accounting.
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Based on publicly available information, ST was founded in 1967 to help
provide industrial capability for the then newly independent Republic of
Singapore. ST now has businesses in numerous areas including financial
services, infrastructure, information technology, precision engineering,
semiconductors and telemedia. ST and its subsidiaries and affiliates (the "ST
Group") reported revenue in 1994 of Singapore $2.5 billion, and reported a
profit of Singapore $130 million. The total workforce of the ST Group is over
14 thousand, with about 25% of the workforce holding engineering
qualifications. ST Group is the largest employer of engineers and technologists
in Singapore. STC, which is expected to be renamed Micropolis Pte Ltd, will be
a Singapore headquartered company under the ST Group.
The Company's principal executive offices are located at 21211 Nordhoff
Street, Chatsworth, California 91311; telephone (818) 709-3300. ST and STC are
located at 83 Science Park Drive, 01-01/02 The Curie, Singapore Science Park,
Singapore 118258; telephone 65-775-3266.
TERMS OF THE PURCHASE AGREEMENT
The purchase price for the Drive Business will be an amount equal to
approximately the net book value of the Subject Assets as of the Closing Date,
plus (i) $7 million as consideration for goodwill of the Drive Business and the
name "Micropolis," (ii) approximately $1.3 million as consideration for the
amount of the agreed upon value over book value of the real property owned by
Micropolis Thailand (the "Thai Property"), and (iii) approximately $1.5 million
as consideration for the estimated amount of the appraised value over the book
value of certain of the Company's fixed assets (the "Corporate Assets"), minus
the Assumed Liabilities, including $8 million as a warranty claims reserve. The
purchase price may not exceed approximately $56 million (an amount equal to
110% of the purchase price calculated as of December 29, 1995), however, and if
the purchase price calculated as of the Closing Date is in excess of such
amount it will be reduced by such excess.
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. Based on its current
estimate of first quarter 1996 operating results and a Closing Date of March
29, 1996, which results are difficult to estimate, and from which actual
results could vary considerably (due to 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 Company expects that on the anticipated
Closing Date the net book value of the Subject Assets (excluding the Option
Real Property) will be approximately $119 million, the purchase price for
goodwill and the value of the Thai Property and Corporate Assets over book
value will be approximately $10 million, and the Assumed Liabilities, including
$8 million as a warranty claims reserve, will be approximately $77 million.
Thus, the total estimated cash consideration payable to the Company by STC
(assuming no adverse adjustments for indemnity or other factors) would be
approximately $50 million, before repayment of amounts due under a $10 million
Facility Agreement (the "Facility") provided to the Company by STC.
On the Closing Date STC will transfer an initial payment (the "Initial
Payment") to the Company equal to a portion of the estimated Purchase Price,
offset by repayment of the Facility. Within three days after confirmation by
STC of the actual net book values of the Subject Assets and Assumed
Liabilities, and not later than 24 days after the Closing Date (except for
amounts in dispute), STC will pay the balance of the Purchase Price to the
Company, less 5% of such balance (the "Holdback Amount"). If STC disagrees with
the Company's determination of the purchase price (based on the combined
balance sheet of the Drive Business as of the Closing Date prepared by the
Company) after review thereof by STC's accountants, it may dispute the
calculation of the purchase price and withhold amounts in dispute. Pursuant to
the Purchase Agreement, any such dispute will be resolved by an independent
accounting firm mutually acceptable to the parties, if the parties cannot
resolve such dispute by agreement. There can be no assurance that STC will not
dispute the Company's calculation of the
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purchase price in material respects or that, in the event of such a dispute,
the resolution of such dispute will be favorable to the Company. On or prior to
the date six months after the Closing Date, STC shall pay to the Company the
Holdback Amount, less any sums owed to, or claimed by, STC under the Purchase
Agreement. See "Terms of the Purchase Agreement--Purchase Price" and "--
Indemnification."
On the Closing Date, the Company and STC will enter into a patent cross-
licensing agreement pursuant to which the Company will retain a license to use
the patents related to the Drive Business transferred to STC and the Company
will license to STC the right to use its patents related to the Systems
Business and also will enter into a computer services agreement which will
permit the Company to use STC's computer systems at no charge for a period of
two years after the Closing Date. If STC elects to purchase the capital stock
of a Sales Subsidiary rather than its assets, StreamLogic and Micropolis Pte
Ltd will also enter into a distribution agreement whereby Micropolis Pte Ltd
will distribute StreamLogic's Systems Business products through such Sales
Subsidiary for a period of two years following the Closing Date. If,
alternatively, STC elects to purchase the assets of such Sales Subsidiary, then
StreamLogic will agree to distribute disk drives through such Sales Subsidiary
for Micropolis Pte Ltd until such time as Micropolis Pte Ltd has set up its own
distribution system. Pursuant to the Purchase Agreement, the Company will be
prohibited from competing with STC in the Drive Business for a period of five
years after the Closing Date. See "Terms of the Purchase Agreement--Cross--
License, Computer Services and Distribution Agreements" and "--Certain
Covenants Following the Closing."
The Company and STC may mutually consent to terminate the Purchase Agreement
prior to the Closing Date. Either party may terminate the Purchase Agreement if
there is a material misrepresentation or breach of warranty or covenant by the
other party and such misrepresentation or breach results in a failure to
satisfy a condition to such non-breaching party's obligation to consummate the
transactions contemplated by the Purchase Agreement, or if the conditions to
such party's obligation to close under the Purchase Agreement have not been
satisfied or waived prior to the Closing Date. If the Purchase Agreement is
terminated, the contract provides that all obligations of both parties will
terminate without liability (except for amounts owed by the Company to STC
under the Facility; see "The Proposed Sale--General"), except that if a party
terminates due to a knowing and wilful breach by the other party of its
representations and warranties or covenants in the Purchase Agreement, the
breaching party will not be released from any liability to the other party
under the Purchase Agreement.
OPINION OF FINANCIAL ADVISOR
The Company's financial advisor, Salomon Brothers Inc ("Salomon Brothers"),
has rendered a written opinion that the consideration to be received by the
Company in the Sale is fair, from a financial point of view, to the Company. A
copy of the opinion, which sets forth the assumptions made, general procedures
followed, matters considered and limitations on the review undertaken in
rendering such opinion, is attached hereto as Appendix A and should be read in
its entirety. Salomon Brothers will receive a fee for its services provided in
connection with the Sale, a substantial portion of which is contingent upon
consummation of the Sale. See "Opinion of Financial Advisor."
INTEREST OF MANAGEMENT IN SALE
Four offers of employment have been discussed by STC with officers of
Micropolis (individuals with title of Vice President or higher), and three were
accepted contingent upon the completion of the Sale. In the case of the
accepted offers to the Vice President of Sales and the Vice President of Human
Resources, the offers were for positions with substantially similar
responsibilities with the same salary and benefits as these positions have
provided recently. In addition, a guaranteed bonus of approximately 5% was
offered. In the case of the accepted offer to the Senior Vice President of
Engineering, Dr. Eric Dunstan, a 36% raise was offered in lieu of certain
continuing retirement benefits which had been a benefit of employment at the
Company. Dr. Dunstan has also agreed to continue to serve as a director of
StreamLogic Corporation, and will receive directors' fees and stock options
consistent with those of the other outside directors. In addition, a bonus of
up to $125 thousand to be determined by the Compensation Committee will be paid
to Dr. Dunstan by the Company in recognition of his service to the Company.
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<PAGE>
The Compensation Committee of the Board of Directors has begun discussions
with Mr. Larry Smart, the Chairman of the Board, President and Chief Executive
Officer, with respect to arrangements for Mr. Smart's continued employment by
the Company after the Sale. The Compensation Committee believes that Mr.
Smart's retention is important to the success of StreamLogic but has deferred
consideration of any additional commitments to Mr. Smart until after
consummation of the Sale.
The Board of Directors has agreed to establish an Indemnification Trust for
the benefit of directors and certain executive officers and to deposit therein
the sum of $500 thousand from the proceeds of the Sale to secure the
indemnification obligations of the Company to such persons.
The Board of Directors has appointed a Special Committee of the Board of
Directors consisting of independent, nonemployee directors to review and
evaluate the terms of the Sale, and incident thereto to evaluate and review the
reasonableness of the business plan of StreamLogic and the other alternatives
available to the Company. The Special Committee has recommended approval of the
Sale to the full Board of Directors. See "Interest of Management in Sale,"
"Background" and "Recommendations of Board of Directors; Reasons for the Sale."
TAX CONSEQUENCES
The Sale will be a taxable transaction to the Company, and will result in
approximately $1.1 million of alternative minimum tax to the Company. See Note
10 of Notes to Consolidated Financial Statements. The Sale will not be a
taxable event for stockholders. See "Tax Consequences."
CONDUCT OF BUSINESS AFTER SALE; USE OF PROCEEDS
If the Sale is consummated, 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.
StreamLogic will be located at 21329 Nordhoff Street in Chatsworth,
California, in a building currently owned by it and have approximately 150
employees. It is also possible that this building 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.
StreamLogic will have a source of disk drives under an OEM Supply Agreement
which it has entered into with Micropolis Pte Ltd, 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
Micropolis Pte Ltd. StreamLogic must offer all its disk drive business and
requirements to Micropolis Pte Ltd on a right of first refusal basis, subject
to the ability of Micropolis Pte Ltd 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.
StreamLogic will also use the computer systems and related services of
Micropolis Pte Ltd at no charge for a period of two years following the Closing
Date. In addition, the parties will enter into a patent cross-licensing
agreement. If STC elects to purchase the capital stock of certain of the Sales
Subsidiaries, StreamLogic and Micropolis Pte Ltd will also enter into a
distribution agreement whereby Micropolis Pte Ltd will distribute StreamLogic's
Systems Business products through such Sales Subsidiaries for a period of two
years following the Closing Date. If STC elects to purchase the assets of
certain of the Sales Subsidiaries, then StreamLogic will agree to distribute
disk drives through such Sales Subsidiaries for Micropolis Pte Ltd until such
time as Micropolis Pte Ltd has set up its own distribution system.
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
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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. See "Conduct of Business After Sale; Use of Proceeds."
THE PROPOSED NAME CHANGE
The right to use the name "Micropolis" is included in the assets being
purchased by STC pursuant to the Purchase Agreement. Therefore, if the Sale is
consummated, the Company will be obligated to change its corporate name. The
Board of Directors believes that the corporate name "StreamLogic Corporation"
appropriately identifies the scope of the continuing business of the Company.
DISSENTERS' RIGHTS
Stockholders of the Company will not be entitled to any appraisal or
dissenters' rights in connection with the Sale or the Name Change.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required to approve the Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the stockholders vote to
approve the Sale and the Name Change. The Board of Directors believes that the
terms of the Purchase Agreement are fair and that the Sale is in the best
interests of the Company and its stockholders.
In recommending that the stockholders approve the Proposal, the Board of
Directors considered various factors, including the recommendations of
management and the Special Committee of the Board of Directors appointed to
consider the Sale, and the opinion of Salomon Brothers that the consideration
to be received by the Company in the Sale is fair, from a financial point of
view, to the Company. The Board also considered the Company's deteriorating
competitive position and disappointing financial results in the disk drive
business in recent periods, its limited financial alternatives if the Sale is
not consummated, and other factors. See "Recommendation of the Board of
Directors; Reasons for the Sale."
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1995
------------
1995 1994 1993 1992 1991
(UNAUDITED) ----- ----- ----- ----- ----
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 39,343 $211,264 $346,314 $382,926 $396,579 $350,875
Cost of sales 31,664 205,628 286,856 315,436 306,482 285,555
-------- -------- -------- -------- -------- --------
Gross Profit 7,679 5,636 59,458 67,490 90,097 65,320
OPERATING
EXPENSES:
Research and 13,643 42,469 43,648 36,112 27,868 24,065
development
Selling, gen- 13,660 44,274 43,500 41,906 38,656 33,258
eral and ad-
ministrative
Restructuring -- -- -- 5,496 -- --
charge
-------- -------- -------- -------- -------- --------
Total operating 27,303 86,743 87,148 83,154 66,524 57,323
expenses
-------- -------- -------- -------- -------- --------
Income (loss) (19,624) (81,107) (27,690) (16,024) 23,573 7,997
from operations
Other expense, 4,242 4,242 2,985 3,888 2,683 3,504
net
-------- -------- -------- -------- -------- --------
Income (loss) (23,866) (85,349) (30,675) (19,912) 20,890 4,493
before income
taxes
Income tax (1,061) (1,061) -- 4 1,333 150
provision
(benefit)
-------- -------- -------- -------- -------- --------
Net income $(22,805) $(84,288) $(30,675) $(19,916) $ 19,557 $4,343
(loss)(1)
======== ======== ======== ======== ======== ========
Earnings (loss) $ (1.48) $ (5.46) $ (2.03) $ (1.34) $ 1.33 $ .32
per share(1)
======== ======== ======== ======== ======== ========
Weighted average
common and
common equivalent
shares
outstanding 15,445 15,445 15,100 14,835 14,720 13,674
======== ======== ======== ======== ======== ========
Balance sheet
data
Working capital $103,535 $65,957 $121,022 $144,423 $163,394 $141,850
Total assets 126,490 180,394 233,915 250,429 259,624 244,909
Long term debt:
Term Loan -- 18,102 -- -- -- --
Facility
10% Convertible 20,000 20,000 -- -- -- --
Subordinated
Notes due 1998
6% Convertible 75,000 75,000 75,000 75,000 75,000 75,000
Subordinated
Debentures due
2012
Shareholders' 14,358 7,173 89,630 118,356 136,257 114,629
equity
</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).
The above unaudited pro forma selected consolidated financial information of
Micropolis as of December 29, 1995 has been prepared to illustrate the effect
of the proposed Sale. The selected financial information has been prepared as
though the Sale had occurred on December 29, 1995 for purposes of the pro forma
balance sheet data and as of December 31, 1994 for purposes of the pro forma
statement of operations data. The pro forma adjustments and the assumptions on
which they are based are described in the notes to unaudited pro forma
financial statements, which are included in Item 8, "Financial Statements and
Supplementary Data," to the
9
<PAGE>
Company's Annual Report on Form 10-K for the year ended December 29, 1995 (the
"Form 10-K") attached hereto as Appendix B.
The unaudited pro forma selected consolidated financial information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated financial position or consolidated results of operations of
the Company 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 the Company at any future date or the consolidated results of
operations of the Company for any future period. Furthermore, no effect has
been given in the selected consolidated statement of operations data 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 used in
calculating the accompanying pro forma balance sheet data, are preliminary and
subject to the consummation of the Sale. Such amounts will change based on the
operating results through the closing date. The unaudited pro forma selected
consolidated financial information should be read in conjunction with the
historical consolidated financial statements of Micropolis, which are included
in Item 8 to the Form 10-K.
10
<PAGE>
THE PROPOSED SALE
GENERAL
Pursuant to the Purchase Agreement, STC will purchase substantially all the
assets, other than cash and receivables, of 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 (the "Sales Subsidiaries")(such assets, collectively,
the "Subject Assets"), and STC will assume certain of the Company's
liabilities relating to the Drive Business (the "Assumed Liabilities") on
March 29, 1996 or such other date as the Company and STC may agree (the
"Closing Date"). The Company's remaining assets will consist principally of
the inventory, property, plant and equipment related to its information
storage subsystems and video systems business (the "Systems Business") and its
cash and accounts receivable. 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"). Pursuant to the Purchase Agreement, STC may elect to purchase
either the capital stock or the assets of each of the Sales Subsidiaries. The
Sale will be accounted for by the parties using the purchase method of
accounting.
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 US dollar prime rate plus 1%.
Based on publicly available information, ST was founded in 1967 to help
provide industrial capability for the then newly independent Republic of
Singapore. ST now has businesses in numerous areas including financial
services, infrastructure, information technology, precision engineering,
semiconductors and telemedia. ST and its subsidiaries and affiliates (the "ST
Group") reported revenue in 1994 of Singapore $2.5 billion, and reported a
profit of Singapore $130 million. The total workforce of the ST Group is over
14 thousand, with about 25% of the workforce holding engineering
qualifications. ST Group is the largest employer of engineers and
technologists in Singapore. STC, which is expected to be renamed Micropolis
Pte Ltd, will be a Singapore headquartered company under the ST Group.
The Company's principal executive offices are located at 21211 Nordhoff
Street, Chatsworth, California 91311; telephone (818) 709-3300. ST and STC are
located at 83 Science Park Drive, 01-01/02 The Curie, Singapore Science Park,
Singapore 118258; telephone 65-775-3266.
BACKGROUND
The Company's principal business since its inception has been the design,
manufacture and sale of disk drives, which in fiscal 1995 accounted for
approximately 80% of the Company's revenues. The Company also designs and
manufactures information storage subsystems and video systems which in fiscal
1995 accounted for approximately 18% of the Company's revenues. See Item 1,
"Business," to the Company's Annual Report on Form 10-K for the year ended
December 29, 1995 (the "Form 10-K") attached hereto as Appendix B for a
description of the Company's current businesses.
In recent years competition and the rate of technological change in the disk
drive industry have 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. As a result of the above and
other factors, the Company has incurred substantial operating losses in each
of the last three fiscal years, and the Company's cash balance fell from $63.2
million at December 30, 1994 to $27.9 million at December 29, 1995. See Item 7
to Form 10-K, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
11
<PAGE>
As previously disclosed on February 10, 1995 in a press release issued by the
Company and in the Company's Form 10-K and 10-Q reports, during the first
quarter of 1995 the Company experienced sharply lower orders than anticipated
for its 4 gigabyte ("GB") 3 1/2-inch and 9 GB 5 1/4-inch drives. The reduction
in orders for these drives was the primary reason for the sharp decline in
revenues during the first quarter compared to the previous quarter.
The Company also experienced significant component related manufacturing
problems during 1995. These problems began in the first quarter of 1995 when
the Company experienced a problem with the magnetic recording heads used in its
2 GB Taurus 2 drive. This problem shut down production for the entire quarter,
and caused the Company to write off $6.3 million of inventory. The Company
resolved this component problem, and resumed production and shipments of the
Taurus 2 drives in the second quarter of 1995.
On March 23, 1995, the Company announced the expected results of its first
quarter of operations, and itemized a number of the measures being taken to
stabilize the situation. The Company noted at that time that, while it believed
it had sufficient liquidity to meet its short term financial needs, should
second quarter revenues prove to be significantly lower than anticipated, the
Company could be required later in the year to seek additional financing. The
Company cautioned that although it believed such financing could be obtained
from its present lenders or other sources if needed, there could be no
assurance as to the terms on which it would be available, if at all. The
Company added that while it believed the long term prospects for very high
capacity drives and disk-based subsystems were good, and that its products
should compete well in those markets, given its current and near term operating
results, management had decided to retain outside assistance to help it in
formulating and implementing its recovery plan and had retained Salomon
Brothers to assist it in the review of operational and financial alternatives.
During the second quarter of 1995, the Company experienced technical
difficulties with the spindle motor used in its 4 GB Capricorn 4 drives and
these difficulties resulted in lost sales and delays in OEM qualifications for
its products. The root cause of these problems was identified and corrective
actions were implemented during the third quarter of 1995. This resulted in
higher manufacturing and warranty costs.
In the Spring of 1995 the Company's management prepared a recovery plan,
whose main elements included resolving the component problems with the
Company's disk drives, reestablishing its OEM business, improving sales through
the distribution channel of its 4 and 9 GB disk drives and lowering expenses.
The Company also nominated Chriss W. Street, J. Lawrence Smart and S. Kenneth
Kannappan to the Board of Directors to replace two directors who did not wish
to continue as directors. Messrs. Street and Kanappan were subequently elected
directors, together with Stuart Mabon and Ericson M. Dunstan. On July 10, 1995,
the Board elected Mr. Larry Smart to the position of President and Chief
Executive Officer, and on August 16, 1995, Mr. Mabon resigned as Chairman of
the Board and Mr. Smart was appointed Chairman.
In July 1995, the Board of Directors instructed Salomon Brothers to prepare a
confidential sale memorandum concerning the Company and to distribute such
memorandum to persons potentially interested in acquiring some or all of the
Company's business. With the assistance of Micropolis' management, Salomon
Brothers did so. Throughout the Fall of 1995, the Company and Salomon Brothers
contacted 17 domestic and foreign corporations believed to be potential
acquirors, including corporations in the disk drive business and corporations
in other computer and hardware related businesses. Five potential acquirors
sought and were sent copies of the confidential sale memorandum and a sixth
received an executive summary. Three of such potential acquirors met with
management of the Company to discuss further the possible acquisition of the
Company or the Drive Business, but only ST made an offer for either the Company
or the Drive Business. The Board of Directors was regularly informed about the
status and progress of Salomon Brothers' efforts.
12
<PAGE>
During August 1995, Mr. Taroon Kamdar, President of Micropolis Asia-Pacific,
informed Mr. S.C. Tien, a senior executive of ST, that Micropolis was seeking
potential acquirors. Mr. Tien indicated that ST might have an interest in
entering the disk drive business through a transaction with Micropolis.
Shortly after Mr. Kamdar's initial discussion, a meeting was held between Mdm.
Ho Ching, Managing Director of ST, Mr. Tien and Mr. Kamdar to further discuss
ST's interest. Occasional contacts continued during September and October
among these and other senior officers and employees of ST and the Company.
During this time period there were no negotiations between the parties.
In unrelated transactions, Singapore Technologies Construction Pte Ltd ("ST
Construction"), a subsidiary of ST, had been hired by the Company in December
1994 as the general contractor for construction of its new facility in
Singapore (the "New Singapore Facility"). On September 27, 1995, pursuant to a
letter of intent dated June 9, 1995, ST Construction together with another ST
subsidiary, ST Capital Ltd, became the construction lenders for the New
Singapore Facility.
In November, management prepared an analysis of the Company's alternatives
if no external transaction were undertaken, which the Board considered at its
December 6, 1995 meeting.
On December 13, 1995, ST wrote to Micropolis and indicated that it had a
potential interest in purchasing the disk drive assets of the Company for
approximately their net book value, assuming the related liabilities and
paying a premium of approximately $7 million for the name Micropolis and other
intangibles. ST's potential interest was discussed and evaluated by Micropolis
senior management and certain follow-up material was prepared and sent to ST,
including a pro forma balance sheet of the Drive Business on a stand-alone
basis as of October 1995, together with the assumptions supporting such
analysis. Micropolis management continued to evaluate the proposal and
prepared analyses of matters which would require action should the Company
decide to proceed with ST.
On December 20, 1995, the Micropolis Board of Directors met to consider the
matter of ST's potential interest. ST's letter of December 13 was discussed by
the Board of Directors, as were various factors still to be addressed, such as
the assumption of warranty obligations, whether and to what extent the Company
would undertake downsizing in light of the pendency of the transaction and how
the parties would maintain distribution capabilities in Europe. The Board of
Directors discussed the difficulty that the Company's management had been
having meeting its recovery plans since July 1995, and the factors
contributing to that difficulty. It discussed the status of the Company's cash
position and its relationships with vendors, and questioned whether the
Company could reasonably expect suppliers to continue to maintain normal
credit trade terms given the declining cash position of the Company and the
likelihood of a "going concern" opinion modification from the Company's
auditors. The Board of Directors discussed the status of the Company's OEM
business and prospects, and the likely impact on that business of continued
losses and financial difficulties. The Board of Directors also reviewed the
status of the Company's product quality levels, and whether such levels were
now believed to be at industry levels. The Board was informed that based upon
the data available to it, the Company believed that such a point had been
reached, but fully recovering the Company's historical reputation for quality
was proving difficult and contributing to soft sales and unpredictable
operating results.
The Board also reviewed the discussion it had at its last meeting on
December 6, 1995, when it had reviewed management's recommendation to reduce
headcount dramatically in order to reduce operating costs and expenses.
Management also prepared a very preliminary analysis of the systems business
on a stand-alone basis, cautioning the Board of Directors that substantially
more work was required by management to put together a business plan for a
stand-alone company. Based on this preliminary analysis, it appeared that a
systems business would run relatively small operating losses until it could
achieve sales of approximately $20-$25 million per quarter, at which point it
could reach break-even. The Company's product and marketing plans (on the
systems side of the business) appeared to support achieving such revenue
levels within about a year from the date of a separation from the Drive
Business.
The Board of Directors considered all of this information and the possible
outcomes of these issues versus the potential outcome of a sale to ST. The
Board of Directors concluded that a sale to ST was likely to be in the
13
<PAGE>
best interests of stockholders and thus authorized management to proceed to
negotiate such a sale. A timetable for completing the transaction was laid out
and subsequently discussed and agreed with ST. The Board of Directors also
considered whether the Company should seek to restructure its debt as part of
the process of pursuing an asset sale to ST. Certain alternatives for
achieving such a restructuring were discussed as well as the timeframes for
such processes, and the Board instructed management to pursue such analyses
further.
Mr. Smart, Mr. Kamdar and Ms. Barbara V. Scherer, Vice President--Finance
and Chief Financial Officer of the Company, thereafter met with Dr. Chen and
Mr. Chua, representatives of ST, to further define the principal terms of the
proposed transaction. Agreement in principle was reached after negotiations,
and the conclusions, which represented the principal terms later embodied in
the Purchase Agreement, recorded in a letter delivered December 21, 1995 to ST
from Micropolis.
Between December 20, 1995 and January 2, 1996, Micropolis management, with
the assistance of both Salomon Brothers and the Company's legal counsel,
Latham & Watkins, evaluated several alternatives with respect to restructuring
its 6% Convertible Subordinated Debentures (the "6% Debentures") and other
debt prior to or concurrently with the Sale. These alternatives included: cash
redemption at a negotiated discount from par, partial cash redemption/exchange
offer, restructuring via a "pre-packaged" Chapter 11 proceeding, and retention
of debt at current terms (no debt restructuring). The advantages,
disadvantages, and processes involved in accomplishing each of these
alternatives was considered.
The Company decided against pursuing a debt restructuring simultaneously
with the Sale transaction basically because completing the restructuring
process in the requisite accelerated time frame was considered to be
unrealistic. In addition, the Company considered the fact that the consent of
the holder of the 10% Convertible Subordinated Notes due 1998 would be needed
to consummate the Sale, and it might be necessary to retire such Notes thereby
requiring the use of up to $26 million of the proceeds of the Sale. While a
prepackaged Chapter 11 proceeding may have facilitated a restructuring
process, the potential adverse effects of a bankruptcy proceeding on the
reputation of Micropolis, and ST's potential unwillingness to accommodate such
a process, were considered. Finally, the Board of Directors considered it
prudent to retain flexibility, liquidity and capital resources for investment
in the Systems Business rather than immediately committing to the use of funds
for the purpose of restructuring the 6% Debentures.
On December 27, 1995 a detailed due diligence plan was prepared by ST and
formal diligence commenced thereafter.
On January 8, 1996, based on unusual trading activity in Micropolis Common
Stock, the Company determined to announce the agreement in principle with ST
and ongoing negotiations, and to comment on fourth quarter results. Before the
market opened on January 9, a press release was issued. On the same date, the
Company completed a reduction of its Chatsworth, California corporate
headquarters workforce in order to prepare for the Sale and the related
restructuring into a systems business. The cost of the workforce reduction was
approximately $400 thousand and this cost will be included in the first
quarter 1996 operating results.
On January 13, 1996 the final version of a confidentiality agreement (which
had been agreed to in substance previously) was executed by ST and the
Company.
The possibility that ST might seek to employ various vice presidents of
Micropolis arose during the course of discussions between a senior executive
of ST and certain officers of Micropolis during a trip by the ST executive to
Micropolis in the second week of January 1996. As such possibility emerged,
the Board of Directors appointed a Special Committee of independent directors
to consider the possible transaction, consisting of Mr. Chriss W. Street and
Mr. S. Kenneth Kannappan. The Special Committee retained separate legal
counsel, Goldstein, Axelrod & Digioia, LLP, at the expense of the Company. The
Special Committee did not consider the interest of management in the
transaction in evaluating the proposed Sale; the Special Committee, however,
did consider whether the employees who were likely to receive offers were
essential to the management of StreamLogic or were principally involved in the
Drive Business, and concluded that their departure would not adversely affect
StreamLogic.
14
<PAGE>
On January 20, 1996 ST presented an initial draft of the definitive
agreement to the Company; the draft was distributed to appropriate Micropolis
personnel and counsel, including corporate counsel, patent counsel, Cayman
Islands, Singapore, and Thai counsel. The draft was also distributed to the
Special Committee and to Micropolis' tax and corporate accountants. Meetings
to negotiate the definitive agreement commenced in Singapore on January 22,
1996, and negotiations continued throughout January 24. Input on the draft and
the negotiated definitive agreement were received throughout the process from
the Micropolis advisors. Negotiations concluded on January 24, 1996 with the
execution and delivery of the Purchase Agreement, subject to approval by the
Micropolis Board of Directors and stockholders and other conditions. See
"Terms of the Purchase Agreement."
On January 25, 1996, Micropolis issued a press release announcing the
signing of the Purchase Agreement.
On January 26, 1996 the Board met to consider the Purchase Agreement with
representatives of management, Salomon Brothers, Latham & Watkins, and
Goldstein, Axelrod & Digioia LLP. Salomon Brothers advised the Board of its
preliminary views as to the fairness, from a financial point of view, of the
consideration to be received by the Company in the Sale, but noted that
additional work needed to be done before a final fairness opinion could be
rendered. The directors asked detailed questions about and actively discussed
the various elements of the Purchase Agreement, the negotiation process, the
financial outlook for the Company, the use of proceeds and other matters. The
Board of Directors and its Special Committee discussed the possibility of a
substantial recovery in the Drive Business without such a transaction and
agreed that the prospects for such a recovery were extremely unlikely. There
was also a substantial discussion about the Company's limited and declining
cash resources and agreement that alternative financing sources were
expensive, and extremely limited, if available at all. The Special Committee
asked management and the Company's advisors for certain additional information
regarding the proposed business of the Company after the Sale and about the
liquidation value of the Drive Business for its further consideration before
it would render its report and recommendation in the matter of the sale of the
disk drive assets to ST, and the meeting was adjourned to February 1. See
"Opinion of Financial Advisor--Liquidation Analysis."
A series of meetings between the Special Committee, its outside counsel, the
various advisors to the Company, and the Company's independent accounting firm
were scheduled. Management made itself available to the Committee and its
counsel, and prepared the additional material requested by the Committee for
its consideration. The Special Committee conferred from Monday, January 29,
1996 through Thursday, February 1, 1996 and reviewed and discussed a wide
variety of materials. In addition, Salomon Brothers continued its analysis of
the fairness of the proposed transaction to the Company from a financial point
of view and of the proposed business of the Company after the Sale. Salomon
Brothers advised the Special Committee on January 31, 1996 and the Board of
Directors on February 1, 1996 of its updated preliminary views as to the
fairness, from a financial point of view, of the consideration to be received
by the Company in the Sale but did not render a final fairness opinion.
Salomon Brothers also provided the Special Committee with the requested
analysis of the proposed business of the Company after the Sale. Based on the
results of the foregoing, the Special Committee of the Board of Directors
prepared a report to the full Board of Directors recommending unanimously that
it vote to approve the Purchase Agreement, subject to receipt of a final
fairness opinion from Salomon Brothers in substantially the form presented
preliminarily by Salomon Brothers to the meeting, and to the satisfaction of
other conditions to the Purchase Agreement (the "Conditions"). The full Board
of Directors met on February 1, approved the Purchase Agreement subject to the
Conditions, and directed management to proceed with all necessary actions to
effect the transaction as promptly as practicable. See "Recommendations of
Board of Directors; Reasons for the Sale."
On February 16, 1996, the Company entered into the Facility with STC. The
Company borrowed $2 million under the Facility on February 16, 1996 to pay
certain accounts payable relating to the Drive Business.
On March 6, 1996, Salomon Brothers delivered the final fairness opinion to
the Company.
15
<PAGE>
RECOMMENDATION OF BOARD OF DIRECTORS; REASONS FOR THE SALE
The Board of Directors unanimously recommends that the stockholders vote to
approve the Sale and the Name Change. The Board of Directors believes that the
terms of the Purchase Agreement are fair and that the Sale is in the best
interests of the Company and its stockholders.
In the course of reaching the decision to recommend that the stockholders
approve the Proposal, the Board consulted with the Special Committee, and the
Board and Special Committee consulted with management, Salomon Brothers, Ernst
& Young LLP, the Company's independent accountants, and the respective legal
advisors to the Company and the Special Committee. The Board and the Special
Committee considered, among other things, the following factors:
1. The Company's deteriorating competitive position in the disk drive
business, as evidenced by declining sales and increasing losses
experienced in recent periods, and diminishing prospects for a
turnaround given the Company's present resources. See Item 1 to Form 10-
K, "Business," and Item 8, "Financial Statements and Supplementary
Data."
2. The fact that since at least March 1995, when the Company announced its
intention to explore strategic alternatives directly and through its
advisors, including Salomon Brothers, the Company has actively sought
significant investment or a transaction, and that the Purchase Agreement
is the successful culmination of that search. The process commenced in
March was intended to, and in the view of the Board of Directors did,
broadly solicit and fairly test interest in a debt or equity investment
in the Company, a sale of the Company, control of the Company or
substantial assets of the Company, and strategic or other alliances with
the Company. See "Background."
3. The Company's negative cash flow and dwindling cash position, which is
not expected to be sufficient to sustain operations at recent levels
beyond the first quarter of 1996. See Item 7 to Form 10-K, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity."
4. That the only apparent means to quickly generate or conserve a
significant amount of additional cash would be a substantial reduction
in force and restructuring of the Company's operations. In the view of
the Board of Directors, such actions would further reduce the remaining
value of the Company's Drive and Systems businesses. In addition, such
actions would not assure the Company's continued viability.
5. The opinion of Salomon Brothers that the consideration to be received by
the Company in the Sale is fair, from a financial point of view, to the
Company. See "Opinion of Financial Advisor."
6. The apparent viability of the Company's Systems Business as its sole
continuing business, and the lack of any offers to purchase the Company
as a whole or to purchase the Systems Business. In this regard, the
Board of Directors considered, among other things, the high level of
debt relative to the remaining assets for the Systems Business and the
inability of the continuing Company to meet the criteria for continued
inclusion on the Nasdaq National Market System as a result of its
deficit net worth, as well as the Company's alternatives and prospects
if it did not proceed with the Sale. See Item 7 to Form 10-K,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--StreamLogic," "Conduct of Business After the Sale; Use of
Proceeds" and "Background."
7. That, based on the above, including the Company's alternatives and
prospects, the opinions of its advisors, and other factors, the Board of
Directors believes that if the Sale is consummated the value of the
Company should be enhanced.
8. That, based on the above, the Sale appeared to afford the best
alternative not only for the Company and its stockholders, but also for
its employees (substantially all of whom are expected to continue to be
employed by STC and StreamLogic), customers, and suppliers, and the
communities in which the Company has conducted its operations.
16
<PAGE>
TERMS OF THE PURCHASE AGREEMENT
The following is a brief summary of certain provisions of the Purchase
Agreement, which is attached hereto as Appendix C. This summary is qualified
in its entirety by reference to the Purchase Agreement.
The Sale. The Purchase Agreement provides that, if the Sale is approved by
the Company's stockholders, and the other conditions to the Closing are
satisfied or waived, the Company will sell the Subject Assets to STC in
exchange for payment by STC of the cash portion of the purchase price and the
assumption by STC of the Assumed Liabilities on the Closing Date. The terms of
the Purchase Agreement were agreed to by the Company and STC after arms-length
negotiations.
Purchase Price. The purchase price for the Drive Business will be an amount
equal to approximately the net book value of the Subject Assets as of the
Closing Date, plus (i) $7 million as consideration for goodwill of the Drive
Business and the name "Micropolis," (ii) approximately $1.3 million as
consideration for the amount of the agreed upon value over the book value of
the real property owned by Micropolis Thailand (the "Thai Property"), and
(iii) approximately $1.5 as consideration for the estimated amount of the
appraised value over the book value of certain of the Company's fixed assets
(the "Corporate Assets"), minus the Assumed Liabilities, including $8 million
as a warranty claims reserve. The purchase price may not exceed approximately
$56 million (an amount equal to 110% of the purchase price calculated as of
December 29, 1995), however, and if the purchase price calculated as of the
Closing Date is in excess of such amount it will be reduced by such excess (as
so adjusted, if necessary, the "Purchase Price").
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. Based on its current
estimate of first quarter 1996 operating results and a Closing Date of March
29, 1996, which results are difficult to estimate, and from which actual
results could vary considerably (due to 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 cash collections and purchases
of components during the quarter), the Company expects that on the anticipated
Closing Date the net book value of the Subject Assets (excluding the Option
Real Property, which is estimated to have a net book value of approximately
$3.2 million as of the Closing Date) will be approximately $119 million, the
purchase price for goodwill and the value of the Thai Property and Corporate
Assets over book value will be approximately $10 million, and the Assumed
Liabilities, including $8 million as a warranty claims reserve, will be
approximately $77 million. Thus, the estimated cash consideration payable to
the Company by STC (assuming no adverse adjustments for indemnity or other
factors) would be approximately $50 million, before repayment of amounts due
under the Facility.
As of December 29, 1995, the net book value of the Subject Assets (excluding
the Option Real Property) was approximately $102 million, the purchase price
for goodwill and the value of the Thai Property and Corporate Assets over book
value was approximately $9.8 million and the Assumed Liabilities were
approximately $60 million. Thus, the cash consideration payable to the Company
by STC (assuming no adverse adjustments for indemnity or other factors) as of
that date would have been approximately $50.9 million. On the Closing Date,
such amount would be reduced by amounts due under the Facility. Although the
amounts sold to, assumed by, or paid by STC to the Company pursuant to the
Purchase Agreement will vary from the amounts determined as of December 29,
1995, the ultimate proceeds to the Company will not necessarily be materially
affected. For example, if the amounts of Subject Assets and Assumed
Liabilities at the Closing Date are the same as at December 29, 1995, except
that the amount of inventory is reduced by $5 million, and there are no other
changes, the amount of cash payable by STC to the Company would be reduced by
$5 million; however, the amount of the inventory reduction would likely have
resulted from sales of the inventory, and the sales would have yielded either
cash or accounts receivable, which assuming collection of the accounts, would
return to the Company the $5 million (or more).
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On the Closing Date, STC will transfer an initial payment (the "Initial
Payment") to the Company equal to 90% of the book value of the Subject Assets
other than inventory, plus 50% of the book value of the inventory and the $9.8
million payment for goodwill and the Thai Property and Corporate Assets
premium, less the book value of the Assumed Liabilities including the $8
million warranty claims reserve, offset by repayment of the Facility. Within
three days after confirmation by STC of the actual net book values of the
Subject Assets and Assumed Liabilities, and not later than 24 days after the
Closing Date (except for amounts in dispute), STC will pay the balance of the
Purchase Price to the Company, less 5% of such balance (the "Holdback
Amount"). If STC disagrees with the Company's determination of the purchase
price (based on the combined balance sheet of the Drive Business as of the
Closing Date prepared by the Company) after review thereof by STC's
accountants, it may dispute the calculation of the purchase price and withhold
amounts in dispute. Pursuant to the Purchase Agreement, any such dispute will
be resolved by an independent accounting firm mutually acceptable to the
parties, if the parties cannot resolve such dispute by agreement. There can be
no assurance that STC will not dispute the Company's calculation of the
purchase price in material respects or that, in the event of such a dispute,
the resolution of such dispute will be favorable to the Company. On or prior
to the date six months after the Closing Date, STC will pay to the Company the
Holdback Amount, less any sums owed to, or claimed by, STC under the Purchase
Agreement. The Company's indemnification liabilities pursuant to the Purchase
Agreement may exceed the Holdback Amount, up to the total amount of the
Purchase Price. See "--Indemnification."
The Sale will be accounted for by the parties using the purchase method of
accounting.
Subject Assets and Assumed Liabilities. The Subject Assets to be sold by the
Company consist of (a) all inventories associated with the Drive Business, (b)
all machinery and equipment used in the manufacture and repair of disk drive
products worldwide, (c) the capital stock of the Company's subsidiary
Micropolis Corporation (Thailand) Ltd., (d) either the capital stock or the
assets of each of the Sales Subsidiaries, (e) all leased and owned
manufacturing, testing and repair facilities in Singapore (including the New
Singapore Facility) and Thailand, (f) worldwide leased sales offices, other
than the leased portion of the Option Real Property, (g) contracts and
customer lists related to the Drive Business, and (h) patents and trademarks
and other intellectual property associated with the Drive Business, including
the name "Micropolis" and as is more specifically described in the Purchase
Agreement. In addition, under the Purchase Agreement STC has an option to
include the owned and/or leased portion of the Option Real Property in the
Subject Assets.
The Assumed Liabilities consist of (a) trade and other accounts payable and
current liabilities associated with the Drive Business, (b) other accrued
liabilities associated with and arising from the Drive Business (including
warranty claims), (c) existing lease obligations related to all of the
Company's sales offices (excluding the leased portion of the Option Real
Property unless STC exercises its option to include such property in the
Subject Assets), open purchase orders and commitments for inventory, capital
additions and trade show expenditures related to the Drive Business, (d)
liabilities relating to the Company's Singapore production facilities
(including obligations with respect to the New Singapore Facility under the
Loan Agreement with ST Capital Ltd, an affiliate of STC), and (e) certain
employment benefits required by law to be paid to employees of the Company
accepting employment with STC.
Retained Assets and Liabilities. The assets retained by the Company include
(a) all cash, cash equivalents and short term investments, (b) all trade
accounts receivable, (c) all inventories associated with the Systems Business,
(d) all leased and owned manufacturing and testing equipment in Chatsworth,
California related to the Systems Business, (e) contracts and customer lists
related to the Systems Business, and (f) patents and trademarks and other
intellectual property associated with the Systems Business. In addition, if
STC fails to exercise the option to include in the Subject Assets the leased
or owned portion of the Option Real Property and the capital stock of one or
more of the Sales Subsidiaries, ownership of such Option Real Property and the
capital stock of such Sales Subsidiaries will be retained by the Company
(although in that case STC will have purchased the assets of such Sales
Subsidiaries) .
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The liabilities retained by the Company include (a) trade and other accounts
payable and current liabilities associated with the Systems Business, (b)
other accrued liabilities associated with and arising from the Systems
Business (including the Company's guaranty obligation regarding Tulip Memory
Systems), (c) open purchase orders and commitments for inventory, capital
additions and trade show expenditures related to the Systems Business, (d)
obligations under the Company's 10% Convertible Subordinated Notes, and (e)
obligations under the Company's 6% Convertible Subordinated Debentures.
Cross-License, Computer Services and Distribution Agreements. Pursuant to
the Purchase Agreement, the Company and STC will enter into a licensing
agreement whereby STC will license to the Company the right to use all of the
patents related to the Drive Business transferred to STC under the Purchase
Agreement and the Company will license to STC the right to use all of its
patents related to the Systems Business at the Closing Date. The Purchase
Agreement also provides for a computer services agreement between the Company
and STC, which will permit the Company to use STC's computer systems after the
Closing Date. If STC elects to purchase the capital stock of a Sales
Subsidiary rather than its assets, StreamLogic and Micropolis Pte Ltd will
also enter into a distribution agreement whereby Micropolis Pte Ltd will
distribute StreamLogic's Systems Business products through such Sales
Subsidiary for a period of two years following the Closing Date. If,
alternatively, STC elects to purchase the assets of such Sales Subsidiary,
then StreamLogic will agree to distribute disk drives through such Sales
Subsidiary for Micropolis Pte Ltd until such time as Micropolis Pte Ltd has
set up its own distribution system.
Representations and Warranties. The Purchase Agreement contains various
representations and warranties relating to, among other things (i) the
Company's and STC's organization and similar corporate matters, (ii)
authorization, execution, delivery and enforceability of the Purchase
Agreement and related matters, (iii) title to and condition of the Subject
Assets, (iv) the financial statements of the Company and other information
delivered to STC, (v) absence of certain changes, (vi) contracts, agreements
and commitments of the Company, (vii) absence of conflicts, (viii) compliance
with law, (ix) litigation, (x) patents and patent applications, (xi) employee
matters, (x) tax matters and (xi) environmental matters. The representations
and warranties made in the Purchase Agreement will generally survive for one
year following the Closing Date, except with respect to certain
representations and warranties relating to Micropolis Thailand and any Sales
Subsidiaries that STC elects to acquire by purchase of capital stock which
shall survive for a period of two years.
Certain Covenants Pending Closing. Pursuant to the Purchase Agreement, STC
and the Company have agreed that during the period from the date of the
Purchase Agreement until the Closing Date, except as otherwise consented to by
STC in writing, the Company will, among other things (i) conduct the Drive
Business in the ordinary course consistent with prior practice and applicable
laws and regulations, (ii) keep STC informed of, and consult with STC with
respect to, material proposals and matters affecting the Drive Business, and
provide reasonable access to STC to information and properties related to the
Drive Business, (iii) use its best efforts to preserve the business
organization and reputation of the Drive Business, keep available the service
of employees, maintain the Subject Assets in good working order and condition
and maintain the goodwill of the customers, suppliers and lenders of the Drive
Business, (v) not sell or encumber any of the Subject Assets except in the
ordinary course of business, (vi) not effect any merger or dissolution or
winding up of, or amend the Certificate of Incorporation of, the Company,
(vii) observe and perform all obligations to third parties which relate to the
Drive Business, (viii) pay all taxes relating to the Drive Business, (ix) not
borrow money or make any capital commitments and (x) not change the nature or
organization of the Drive Business.
Certain Conditions to Closing. Under the Purchase Agreement, consummation of
the Sale is subject to the approval of the Company's stockholders and certain
other conditions, unless waived by the party benefiting therefrom, including
but not limited to (i) the continuing accuracy as of the Closing Date of the
representations and warranties of the Company set forth in the Purchase
Agreement, (ii) performance of all the obligations in the Purchase Agreement
required to be performed on or before the Closing Date, (iii) each party
obtaining any necessary governmental and third party consents to effect the
transactions contemplated by the Purchase Agreement and (iv) the absence of
any loss or damage by calamity or casualty which would materially interfere
with the Drive Business or materially impair the value of the Drive Business
as a going concern.
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Certain Covenants Following the Closing. Pursuant to the Purchase Agreement,
STC has agreed to, among other things, pay all documentary, stamp, sales,
transfer and similar taxes payable in connection with the sale and transfer of
the Subject Assets and Assumed Liabilities. STC has also agreed to use its
reasonable efforts to assist the Company in collection of the accounts
receivable related to the Drive Business created prior to the Closing Date.
STC has agreed to perform after the Closing Date, in accordance with customary
business standards, all warranty service in relation to the Drive Business
products sold by the Company prior to the Closing Date. The Company has
agreed, among other things, not to compete, directly or indirectly, with the
Drive Business anywhere in the world for a period of five years from the
Closing Date. The Company has also agreed to change its corporate name
following the Closing Date, as the name "Micropolis" is included in the
Subject Assets being sold to STC. See "The Name Change." With respect to
employees of the Company who accept offers of employment with STC, the Company
has agreed to be liable for any costs, damages, losses or expenses arising out
of such persons' employment prior to the closing, and STC has agreed to be
liable for such costs, damages, losses and expenses arising out of the
employment of such persons by STC after the closing.
Indemnification. The Company has agreed to indemnify and hold harmless STC
against any losses arising out of or due to the breach of its representations,
warranties or covenants contained in the Purchase Agreement and against all
liabilities of the Company that are not Assumed Liabilities. The
indemnification obligation of the Company does not arise until the aggregate
amount of such losses arising out of all such breaches, covenants or
liabilities exceeds $100,000, in which case the Company will be liable for all
such amounts. The maximum liability of the Company for such indemnification is
limited to the Purchase Price. The Company is not liable for claims made
pursuant to such indemnity unless it receives notice thereof within one year
following the Closing Date, except with respect to claims relating to
Micropolis Thailand and any Sales Subsidiaries that STC elects to acquire by
purchase of capital stock, with respect to which notice must be received
within two years of the Closing Date. The Company has also agreed to indemnify
and hold harmless STC against any losses arising out of certain environmental
matters and activities related to the Drive Business and the Subject Assets,
which indemnity has no stated expiration.
Expenses. All costs and expenses incurred in connection with the Purchase
Agreement and the transactions contemplated thereby, including legal and
accounting fees and expenses, will be paid by the party incurring such costs
and expenses.
Termination Provisions. The Company and STC may mutually consent to
terminate the Purchase Agreement prior to the closing. Either party may
terminate the Purchase Agreement if there is a material misrepresentation or
breach of warranty or covenant by the other party and such misrepresentation
or breach results in a failure to satisfy a condition to such non-breaching
party's obligation to consummate the transactions contemplated by the Purchase
Agreement, or if the conditions to such party's obligation to close under the
Purchase Agreement have not been satisfied or waived prior to the Closing
Date. If the Purchase Agreement is terminated, the Purchase Agreement provides
that all obligations of both parties will terminate without liability (except
for amounts owed by the Company to STC under the $10 Million Facility
Agreement), except that if a party terminates due to a knowing and wilful
breach by the other party of its representations and warranties or covenants
in the Purchase Agreement, the breaching party will not be released from any
liability to the other party under the Purchase Agreement.
CONDUCT OF BUSINESS AFTER THE SALE; USE OF PROCEEDS
If the Sale is consummated 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.
StreamLogic will be located at 21329 Nordhoff Street in Chatsworth,
California, in a building currently owned by it and have approximately 150
employees. It is also possible that this building 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
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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.
StreamLogic will have a source of disk drives under an OEM Supply Agreement
which it has entered into with Micropolis Pte Ltd, 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 Micropolis Pte Ltd. StreamLogic must offer all its disk drive business and
requirements to Micropolis Pte Ltd on a right-of-first-refusal basis, subject
to the ability of Micropolis Pte Ltd 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.
StreamLogic will also use the computer systems and related services of
Micropolis Pte Ltd at no charge for a period of two years. In addition, the
parties will enter into a patent cross-licensing agreement. If Micropolis Pte
Ltd elects to purchase the capital stock of certain of the Sales Subsidiaries,
StreamLogic and Micropolis Pte Ltd will also enter into a distribution
agreement whereby Micropolis Pte Ltd will distribute StreamLogic's Systems
Business products through such Sales Subsidiaries for a period of two years
following the Closing Date. If Micropolis Pte Ltd elects to purchase the
assets of certain of the Sales Subsidiaries, then StreamLogic will agree to
distribute disk drives through such Sales Subsidiaries for Micropolis Pte Ltd
until such time as Micropolis Pte Ltd has set up its own distribution system.
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.
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. See Item 7 to Form 10-K "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
StreamLogic" and "Liquidity and Capital Resources" and "Interest of Management
in Sale."
After the Sale is consummated, the Company expects to have a deficit net
worth and therefore not to meet the criteria for continued inclusion in 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. In addition, the sale of the Common Stock could become
subject to a Securities and Exchange Commission rule that imposes various
sales practices on sales of securities governed by the rule to persons other
than established customers and accredited investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may have an adverse effect
on the ability of the broker-dealer to sell the Common Stock on behalf of its
customers.
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If the Sale is not approved and consummated by the end of March, as
presently scheduled, the Company expects to be at or near the limit of its
cash resources. In such case, the Company anticipates that it could rely on
the assistance of ST to fund negative cash flow 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 conducted, nor does it expect that any
advantageous alternative transaction, if available, could be rapidly arranged.
Accordingly, if the Sale were to fail, the Company would be required
immediately to restructure its operations, and may be compelled to seek
reorganization under Chapter 11 of the Bankruptcy Code. The Company believes
this process would likely result in little or no residual value to
stockholders.
OPINION OF FINANCIAL ADVISOR
Salomon Brothers was retained as financial advisor by the Company in March
1995 to advise and assist it in identifying and evaluating various strategic
or financial alternatives available to the Company, including the possible
sale of the Company or one of its component businesses. Salomon Brothers has
rendered a written opinion dated March 6, 1996 to the Company's Board of
Directors to the effect that, based on the investigations and the procedures
carried out by it as set forth in its opinion, the consideration to be
received by the Company in the Sale is fair, from a financial point of view,
to the Company. No limitations were imposed by the Board of Directors upon
Salomon Brothers with respect to the investigations made or the procedures
followed by it in rendering such opinion.
The full text of the March 6, 1996 written opinion of Salomon Brothers,
which sets forth the assumptions made, general procedures followed, matters
considered and limitations on the review undertaken by Salomon Brothers, is
attached hereto as Appendix A. Such opinion should be read in its entirety by
the stockholders of the Company. Salomon Brothers' opinion is directed only to
the fairness, from a financial point of view, of the consideration to be
received by the Company and does not address the Company's underlying business
decision to effect the Sale or constitute a recommendation to any holder of
the Company's Common Stock as to how such holder should vote. Salomon
Brothers' opinion also does not constitute an opinion or imply any conclusion
of Salomon Brothers as to the likely trading range of the Company's Common
Stock or the financial viability of the Company following consummation of the
Sale. Although Salomon Brothers evaluated the financial terms of the Sale and
participated in discussions concerning the consideration to be paid, the
consideration to be received by the Company as a result of the Sale was
determined by arms-length negotiations between the Company and STC after
consultation by each of such parties with their respective financial advisors
and was not determined or recommended by Salomon Brothers. The summary of
Salomon Brothers' opinion set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of the written opinion, dated March
6, 1996, attached hereto as Appendix A.
In connection with rendering its opinion, Salomon Brothers reviewed (i) the
Purchase Agreement; (ii) certain publicly available information concerning the
Company, including the Annual Reports on Form 10-K of the Company for each of
the years in the three-year period ended December 31, 1994 and the Quarterly
Reports on Form 10-Q of the Company for the quarters ended September 30, July
1 and April 1, 1995 respectively; (iii) certain other internal information,
primarily financial in nature, including projections and estimates of
liquidation value, concerning the assets, business and operations of the
Company and the Drive Business furnished by the Company; (iv) certain publicly
available information concerning the trading of, and the trading market for,
the Company's Common Stock; (v) certain publicly available information with
respect to certain other companies that Salomon Brothers believed to be
comparable to the Company or the Drive Business and the trading markets for
certain of such other companies' securities; and (vi) certain publicly
available information concerning the nature and terms of certain other
transactions that Salomon Brothers considered relevant. Salomon Brothers also
considered such other information, financial studies, analyses, investigations
and financial, economic and market
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criteria that it deemed relevant. Salomon Brothers also held discussions with
members of the Company's senior management regarding the historic and current
business operations and future risks and prospects of the Company, the
anticipated adverse effects on the Company's business, assets, liabilities,
operations and prospects which the Company believes would occur if the Company
were not to effect the Sale as a result of, among other things, the Company's
current liquidity shortfall, the Company's anticipated inability to remedy
this liquidity shortfall and the substantial risk of the Company ceasing to
operate and dissolving the Drive Business, the anticipated substantial adverse
effects on the Company's stockholders, present and potential employees,
business partners and lenders that would result from such dissolution or
concerns about the potential for it, and the anticipated strategic benefits of
the Sale. In connection with its engagement, Salomon Brothers solicited offers
to acquire the Company or the Drive Business. ST provided the only offer for
either the Company or the Drive Business. Salomon considered this response to
its solicitation of offers in rendering its opinion.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available and neither
attempted independently to verify nor assumed responsibility for verifying any
of such information. Salomon Brothers did not conduct a physical inspection of
any of the properties or facilities of the Drive Business, nor did it make or
obtain or assume any responsibility for making or obtaining any independent
evaluations or appraisals of any such properties or facilities. With respect
to projections and estimates of liquidation values, Salomon Brothers assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
future financial performance of, or the prices which could be obtained upon a
liquidation sale of, the Drive Business, as the case may be. It is customary
for a financial advisor, such as Salomon Brothers, in arriving at a fairness
opinion with respect to the consideration to be received in a transaction such
as the Sale to make such an assumption with respect to projections and other
similar information, such as the estimates of liquidation values, prepared by
management and provided by management to the financial advisor for use in
arriving at its opinion. Management of the Company did not make any specific
representations to Salomon Brothers with respect to these projections or
estimates; however, the Company warranted to Salomon Brothers that all
information furnished to it by the Company would be complete and accurate in
all material respects and not misleading. Salomon Brothers expressed no view
with respect to such projections or estimates or the assumptions on which they
were based.
In conducting its analysis and arriving at its opinion, Salomon Brothers
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of the Company; (ii) the
business prospects of the Company and the Drive Business; (iii) the historical
and current market for the Company's Common Stock and for the equity
securities of certain other companies that Salomon Brothers believes to be
comparable to the Company or the Drive Business; and (iv) the nature and terms
of certain other acquisition transactions that Salomon Brothers believes to be
relevant. Salomon Brothers also took into account its assessment of general
economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally.
Salomon Brothers' opinion was based on conditions as they existed and could be
evaluated on the date thereof. The Company has not requested Salomon Brothers,
and Salomon Brothers does not have any obligation and has not performed the
review or analysis necessary, to update, revise or reaffirm its opinion to
consider or take into account events occurring or information obtained after
March 6, 1996.
In connection with the January 26, 1996 presentation to the Board regarding
its preliminary views as to the fairness, from a financial point of view, of
the consideration to be received by the Company in the Sale, Salomon Brothers
advised the Board that it had performed certain preliminary financial analyses
with respect to the Company and the Drive Business. Between January 26, 1996
and February 1, 1996, Salomon Brothers considered updated financial
information and market data in performing updates to these financial analyses
as well as performing additional financial analyses of the Drive Business and
of the proposed business of the Company after the Sale and made a presentation
to the Special Committee on January 31, 1996. On February 1, 1996, Salomon
Brothers again made a presentation to the Board regarding its preliminary view
that the
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consideration to be received from the Company in the Sale is fair, from a
financial point of view, to the Company. This view was based upon the
financial analyses of the Drive Business described below, but was not impacted
by the analysis of the proposed business of the Company after the Sale that
Salomon Brothers performed at the Board's request. Salomon Brothers'
presentations on January 26, 1996 and February 1, 1996 contained advice only
as to Salomon Brothers' preliminary views. No final opinion was rendered,
orally or in writing, in connection with either presentation. The financial
analyses performed by Salomon Brothers and presented to the Board on January
26, 1996, as updated on February 1, 1996, are summarized below.
Overview of the Company and Historical Trading Analysis. Salomon Brothers
reviewed for background purposes certain aspects of the financial performance
of the Company, including, among other things, revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), earnings before
interest and taxes ("EBIT"), net income, revenue growth, gross margin, EBIT
margin and net margin for fiscal years 1992, 1993, 1994 and 1995 and of the
Drive Business, including, among other things, revenue, EBITDA, EBIT, revenue
growth, gross margin, EBITDA margin and EBIT margin for the four quarters of
and full fiscal year 1995. Salomon Brothers also reviewed with the Board
certain information concerning the trading prices and volumes of trading of
the Company's Common Stock through January 29, 1996. Salomon Brothers noted
that the Company's Common Stock had traded down from a high of $11.00 per
share on January 23, 1995 to a low of $3.00 per share on December 14, 1995,
significantly underperforming during that period relative to other disk drive
manufacturers and relative to the overall S&P 500 composite of companies.
Salomon Brothers also noted that the Company had a cash balance of $27.9
million as of December 29, 1995, much of which was anticipated to be used by
the Company to finance its operations during the next three months, providing
some uncertainty as to the Company's ability to survive without obtaining
external capital. Salomon Brothers noted that, due to the Company's poor
historical financial performance, its low stock price and its limited business
prospects, the Company's access to capital markets is particularly limited.
Analysis of Selected Publicly-Traded Comparable Companies. Salomon Brothers
reviewed certain publicly available financial, operating and stock market
information for the Company and four other publicly-traded disk drive
companies (Conner Peripherals, Inc. ("Conner"), Quantum Corporation
("Quantum"), Seagate Technology, Inc. ("Seagate") and Western Digital
Corporation ("Western" and, collectively with Conner, Quantum and Seagate, the
"Comparable Companies")).
For the Company and each of the Comparable Companies, Salomon Brothers
reviewed its market capitalization, latest twelve months ("LTM") revenues,
compounded annual revenue growth rate over the last three fiscal years, LTM
gross margin, LTM EBIT margin and LTM Net Margin. Salomon Brothers noted that
the Company underperformed relative to each Comparable Company and to the
median (calculated excluding the Company) in each such category.
For the Company and each Comparable Company, Salomon Brothers calculated,
among other things, multiples of Equity Value (market capitalization) to
estimated 1996 net income (based upon the First Call Corporation and industry
research reports), LTM net income and tangible book value and multiples of
Firm Value (market capitalization plus book values of total debt, preferred
stock and minority interest less cash and cash equivalents) to LTM Revenues,
LTM EBITDA and LTM EBIT. An analysis of the multiples of Equity Value to
estimated 1996 net income was not meaningful for the Company, and yielded
multiples ranging from 6.3x to 17.3x, with a median (excluding the Company) of
10.5x for the Comparable Companies. An analysis of the multiples of Equity
Value to LTM net income was not meaningful for the Company, and yielded
multiples ranging from 10.1x to 24.4x with a median (excluding the Company) of
15.6x for the Comparable Companies. An analysis of the multiples of Equity
Value to tangible book value yielded 547.2% for the Company, and multiples
ranging from 167.5% to 368.3%, with a median (excluding the Company) of 251.4%
for the Comparable Companies. An analysis of the multiples of Firm Value to
LTM revenues yielded 62.7% for the Company, and multiples ranging from 27.8%
to 69.6%, with a median (excluding the Company) of 44.7% for the Comparable
Companies. An analysis of the multiples of Firm Value to LTM EBITDA was not
meaningful for the Company, and yielded multiples ranging from 4.8x to 8.4x,
with a median (excluding the Company) of
24
<PAGE>
5.9x for the Comparable Companies. An analysis of the multiples of Firm Value
to LTM EBIT was not meaningful for the Company, and yielded multiples ranging
from 6.8x to 16.8x, with a median (excluding the Company) of 8.8x for the
Comparable Companies.
Salomon Brothers derived from these calculations a range of multiples of
Firm Value to LTM revenue, Equity Value to tangible book value, Firm Value to
estimated 1996 revenue and Firm Value to estimated 1996 EBITDA. This range was
narrower than the range based solely on calculations from the public data
based on certain subjective and qualitative judgments applied by Salomon
Brothers to such calculations to more accurately reflect the valuation
sensitivity provided by this analysis. Using such derived range of multiples,
Salomon Brothers derived a valuation range for the Firm Value of the Drive
Business of $35.0 million to $85.0 million. Salomon Brothers noted that
valuation multiples based on LTM EBITDA, LTM and estimated 1996 EBIT, and LTM
and estimated 1996 net income were not meaningful as a result of the current
and projected operating losses of the Drive Business.
Analysis of Selected Mergers/Acquisition Transactions. Salomon Brothers also
reviewed certain publicly available financial, operating and stock market
information for six selected merger or acquisition transactions in the disk
drive industry. For each such transaction, Salomon Brothers calculated the
multiples of, among other things, Firm Value to LTM revenue, Equity Value to
tangible book value and Firm Value to LTM EBITDA. An analysis of the multiples
of Firm Value to LTM revenue yielded multiples ranging from 10.0% to 65.1%,
with a median of 35.6%. An analysis of the multiples of Equity Value to
tangible book value yielded multiples ranging from 60.0% to 660.9%, with a
median of 340.0%. An analysis of the multiples of Firm Value to LTM EBITDA
yielded multiples ranging from 8.7x to 40.9x, with a median of 16.4x. Salomon
Brothers derived from these calculations a range of multiples of Firm Value to
LTM revenue, Equity Value to tangible book value, Firm Value to estimated
next-year revenue (using a discount off LTM revenue to estimate next year
revenue) and Firm Value to estimated next-year EBITDA (using a discount off
LTM EBITDA to estimate next year EBITDA). This range was narrower than the
range based solely on calculations from the public data based on certain
subjective and qualitative judgments applied by Salomon Brothers to such
calculations to more accurately reflect the valuation sensitivity provided by
this analysis. Using such derived range of multiples, Salomon Brothers derived
a valuation range for the Firm Value of the Drive Business of $50.0 million to
$110.0 million. Salomon Brothers noted that valuation multiples based on LTM
EBITDA, LTM and estimated 1996 EBIT, and LTM and estimated 1996 net income
were not meaningful as a result of the current and projected operating losses
of the Drive Business.
Liquidation Analysis. Salomon Brothers also calculated the liquidation value
of the Drive Business utilizing estimates by management of the Company of the
prices that could be obtained upon a liquidation sale of the Drive Business.
Management estimated that accounts receivable and finished goods inventory
could be liquidated at 80% of book value and that raw materials could be
liquidated at 10% of book value. Using the book value of the Drive Business as
of December 29, 1995 and based upon management's estimates for the liquidation
value of the remaining assets, assuming payment in full of liabilities
associated with the Drive Business as of December 29, 1995 and the payment of
$7.5 million in termination costs and $2.0 million to $3.0 million in other
costs, Salomon Brothers calculated a liquidation value of the Drive Business
of between ($18.8 million) and $0.2 million.
Salomon Brothers calculated the Firm Value of the Drive Business, based upon
the estimated cash consideration to be received by the Company in the Sale,
plus the book value of accounts receivable that will be retained by the
Company, plus the book value of debt assumed by ST in the Sale, resulting in a
Firm Value of approximately $102.4 million. No reduction to the book value of
accounts receivable to be retained by the Company has been taken for possible
uncollectible accounts receivable in light of ST's agreement to assist the
Company in collecting amounts owing thereunder, including delaying shipment of
future orders, if necessary. Salomon Brothers noted that the Firm Value of the
Drive Business in the Sale compared favorably to the range of derived values
of $35.0 million to $85.0 million indicated by the comparable companies
analysis and the range of ($18.8 million) to $0.2 million indicated by the
liquidation analysis, each described above, and was well within
25
<PAGE>
the range of derived values of $50.0 million to $110.0 million indicated by
the comparable transactions analysis described above. Salomon Brothers also
noted that, based upon the Company's current and projected operating losses,
it would not be unreasonable to assess the derived value of the Drive Business
at the low end, and potentially below, the estimated ranges of Firm Value.
Accordingly, Salomon Brothers did not believe that the fact that the high end
of the range of values implied by the analysis of selected comparable
transactions was greater than the Firm Value of the Drive Business in the
Sale, or that the valuation of the Sale assumed collection of 100% of accounts
receivable retained by the Company, altered its preliminary views, but rather
that the analysis supported its preliminary conclusion.
Salomon Brothers has advised the Board that, in connection with rendering
its final written opinion, dated March 6, 1996, Salomon Brothers again
considered updated financial information and market data in performing updates
to the financial analyses described above that it utilized in providing its
oral preliminary views on January 26, 1996 and February 1, 1996. Salomon
Brothers stated that the updated financial analyses confirmed its preliminary
views and resulted in the written opinion described above.
The foregoing summary does not purport to be a complete description of the
analyses performed by Salomon Brothers or of its presentations to the Board.
The preparation of financial analyses and fairness opinions is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Salomon Brothers believes that its analyses (and the summary set
forth above) must be considered as a whole, and that selecting portions of
such analyses and of the factors considered by Salomon Brothers, without
considering all of such analyses and factors, could create an incomplete view
of the processes underlying the analyses conducted by Salomon Brothers and its
opinion. Salomon Brothers made no attempt to assign specific weights to
particular analyses. Any estimates contained in Salomon Brothers' analyses are
not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth therein. Estimates of values of companies
do not purport to be appraisals or necessarily to reflect the prices at which
companies may actually be sold. Because such estimates are inherently subject
to uncertainty, Salomon Brothers does not assume responsibility for their
accuracy.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in, among other things, the valuation of businesses and
their securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. The Company selected
Salomon Brothers on the basis of such expertise, Salomon Brothers' reputation
and its knowledge of the Company and its business. In the ordinary course of
its business, Salomon Brothers may trade the securities of the Company for its
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. Salomon Brothers has
previously rendered investment banking and financial advisory services to ST
for which it received customary compensation.
For all of Salomon Brothers' services provided in connection with the Sale,
including the rendering of its written fairness opinion referred to above, the
Company has paid to Salomon Brothers a fee delivered in March 1995 consisting
of warrants to purchase 80,081 shares of the Company's Common Stock on or
before March 28, 1997 at an exercise price of $5.00 per share, with a fair
market value equal to $150,000 on the date such warrants were delivered to
Salomon Brothers, and has agreed to pay an additional $600,000 upon
consummation of the Sale. This amount will cover Salomon Brothers' fees and
out-of-pocket expenses, and the Company will not separately reimburse Salomon
Brothers for its out-of-pocket expenses. The Company has agreed to indemnify
Salomon Brothers and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, relating to
or arising out of its engagement.
26
<PAGE>
INTEREST OF MANAGEMENT IN SALE
Four offers of employment have been discussed by STC with vice presidents of
Micropolis Corporation, and three were accepted contingent upon the completion
of the Sale. In the case of the accepted offers to the Vice President of Sales
and the Vice President of Human Resources, the offers were for positions with
substantially similar responsibilities with the same salary and benefits as
these positions have provided recently. In addition, a guaranteed bonus of
approximately 5% was offered. In the case of the accepted offer to the Senior
Vice President of Engineering, Dr. Eric Dunstan, a 36% raise was offered in
lieu of certain continuing retirement benefits which had been a benefit of
employment at Micropolis. Dr. Dunstan has also agreed to continue to serve as
a director of StreamLogic Corporation, and will receive directors' fees and
stock options consistent with those of the other outside directors. In
addition, a bonus of up to $125 thousand to be determined by the Compensation
Committee will be paid to Dr. Dunstan by Micropolis in recognition of his
service to the Company. In its evaluation of the Sale, the Special Committee
considered whether the employees who were likely to receive offers were
principally involved in the management of the Drive Business and were not
essential to the management of StreamLogic, so that their departure would not
adversely affect StreamLogic, and concluded that such was the case.
The Compensation Committee of the Board of Directors has begun discussions
with Mr. Larry Smart, the Chairman of the Board, President and Chief Executive
Officer, with respect to arrangements for Mr. Smart's continued employment by
the Company after the Sale. The Compensation Committee believes that Mr.
Smart's retention is important to the success of StreamLogic but has deferred
consideration of any additional commitments to Mr. Smart until after
consummation of the Sale.
The Board of Directors has agreed to establish an Indemnification Trust for
the benefit of directors and certain executive officers and to deposit therein
the sum of $500,000 from the proceeds of the Sale to secure the
indemnification obligations of the Company to such persons pursuant to
indemnification agreements between the Company and such persons and the
Company's By-laws.
The Board of Directors has appointed a Special Committee of the Board of
Directors consisting of independent, nonemployee directors to review and
evaluate the terms of the Sale, and incident thereto to evaluate and review
the reasonableness of the business plan of StreamLogic and the other
alternatives available to the Company. The Special Committee has recommended
approval of the Sale to the full Board of Directors. The Company has agreed to
pay the fees and expenses of special counsel of the Special Committee and to
pay Committee members $2,000 per day of service. See "Background."
TAX CONSEQUENCES
The Sale will be a taxable transaction to the Company. The Company will
recognize gain measured by the difference, if any, between the amount realized
from the sale of the assets and the Company's adjusted tax basis in such
assets. As discussed in Note 2 of Notes to Consolidated Financial Statements
in the Form 10-K, at December 29, 1995, foreign earnings of $45,671,000 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 additional alternative
minimum taxes of approximately $1,100,000 would be due. The consummation of
the Sale will not be a taxable event for income tax purposes for the Company's
stockholders. See Note 10 of Notes to Consolidated Financial Statements.
REGULATORY APPROVALS AND OTHER CONSENTS
Under the Hart-Scott-Rodino Act (the "HSR Act"), and the rules promulgated
by the Federal Trade Commission (the "FTC"), the Sale cannot be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. The Company and STC filed notification and report forms under the
HSR Act with the FTC and the Antitrust Division on February 16, 1996 and
February 20, 1996, respectively. On March 5, 1996, the FTC and the Antitrust
Division notified the Company and STC that early termination of the waiting
period requirements had been granted for the Sale as of such date.
27
<PAGE>
Under the Exon-Florio Amendment to the Defense Production Act of 1950 (the
"Exon-Florio Amendment"), the President of the United States may prohibit or
suspend the acquisition of, or investment in, a U.S. company by a non-U.S.
person if, after investigation, it is determined that such transaction
threatens to impair the national security of the United States. The Exon-
Florio Amendment permits parties which it might affect to submit voluntarily
notification to the Chairman of the Committee on Foreign Investments in the
United States ("CFIUS"). Any determination that an investigation is called for
must be made within 30 days of such notice. The Company and STC filed
notification of the Sale with CFIUS on February 26, 1996. It is a condition to
the closing of the Purchase Agreement that the Company receive written
notification from CFIUS that it will not undertake an investigation of the
transactions contemplated by the Purchase Agreement.
The Company is in the process of terminating its credit facility.
Approximately $1.3 million of the proceeds from the Sale will be used to repay
obligations currently covered by standby letters of credit issued under the
credit facility. No other borrowings are outstanding under the credit
facility. Liens securing amounts borrowed under the credit facility must be
released in order to allow a sale of the Subject Assets to STC. 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. The
consents of other parties under various other contracts in the ordinary course
of the Drive Business may also be required for the Sale, and will be sought.
It is anticipated that such required consents will either be obtained or, if
not obtained, will not prevent the Sale.
THE NAME CHANGE
The Board of Directors has approved the amendment of the Certificate of
Incorporation of the Company to effect a change of the Company's corporate
name to StreamLogic Corporation if the Sale is consummated. The complete text
of the amendment to the Certificate of Incorporation (the "Name Change
Amendment") is set forth below; however, such text, including the new
corporate name, is subject to change as may be required by the Delaware
Secretary of State.
The right to use the name "Micropolis" is included in the assets being
purchased by STC pursuant to the Purchase Agreement. Therefore, if the Sale is
consummated, the Company will be contractually obligated to change its
corporate name. The Board of Directors believes that the corporate name
"StreamLogic Corporation" appropriately identifies the scope of the continuing
business of the Company.
Assuming approval of the Proposal by the requisite vote of the stockholders,
the Name Change Amendment will be filed with the Delaware Secretary of State
as promptly as practicable after the consummation of the Sale and the Name
Change will become effective on the date of such filing. The voting and other
rights that presently characterize the Common Stock will not be altered by the
Name Change. If the Name Change is approved, Article 1 of the Company's
Certificate of Incorporation will be amended to read in full as follows:
ARTICLE I
The name of this Corporation is StreamLogic Corporation.
ADDITIONAL COMPANY INFORMATION
A description of the Company's business and properties, selected financial
data, financial statements, legal proceedings, management's discussion and
analysis of financial condition and results of operations and information with
respect to market prices of and dividends on the Company's Common Stock are
included in the Company's Form 10-K attached hereto as Appendix B.
On January 8, 1996, the last trading day prior to the date the proposed Sale
was publicly announced, the high and low sales prices for the Company's Common
Stock on the Nasdaq National Market System were 5 1/8 and 4 1/4, respectively.
On March 6, 1996, the high and low sales prices for the Company's Common Stock
on the Nasdaq National Market System were 2 9/16 and 2 5/16, respectively.
DISSENTERS' RIGHTS
Stockholders of the Company will not be entitled to any appraisal or
dissenters' rights in connection with the Sale or the Name Change.
28
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 2, 1996 regarding
beneficial ownership of the Common Stock of the Company by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) the Chief Executive Officer and certain other executive
officers and (iv) the Company's executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
--------------------------- ----------------------- ----------
<S> <C> <C>
Ryback Management Corporation (3)..... 5,373,748 34.3%
7711 Carondlet Avenue, Box 16900
St. Louis, Missouri 63105
State of Wisconsin Investment Board... 1,491,000 9.5%
P.O. Box 7842
Madison, Wisconsin 53707
Richard C. Perry...................... 1,150,000 7.3%
2635 Century Parkway, N.E.
Suite 1000
Atlanta, Georgia 30345
DIRECTORS
J. Larry Smart (CEO)................. 30,000
Ericson M. Dunstan................... 67,250(4) *
Chriss W. Street..................... 26,700 *
S. Kenneth Kannappan................. -- --
EXECUTIVE OFFICERS
Taroon C. Kamdar..................... 66,000(5) *
Barbara V. Scherer................... 20,893(6) *
Donald L. McDonell................... 12,400(7) *
All Directors and Executive
Officers as a Group (8 persons)..... 233,243(8) 1.5%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each named person is c/o
Micropolis Corporation, 21211 Nordhoff Street, Chatsworth, California
91311.
(2) Information with respect to beneficial ownership is based on information
furnished to the Company by each person included in the table, or based on
the most recent filings on Schedules 13D or 13G with the Securities and
Exchange Commission reporting beneficial ownership as of December 31, 1995
available at the date of this Proxy Statement. Except as indicated in the
notes to the table, each stockholder included in the table has sole voting
and dispositive power with respect to the shares shown to be beneficially
owned by the stockholder, subject to community property laws where
applicable.
(3) Shares held in a fiduciary capacity by Ryback Management Corporation
and/or Lindner Fund, Inc. Of the shares owned, 1,919,800 are directly
owned and 3,453,948 are indirectly owned due to the ownership of the
Company's 10% Convertible Subordinated Notes due 1998 and the Company's 6%
Convertible Subordinated Debentures due 2012. As set forth in the Schedule
13D filed with the Securities and Exchange Commission by Ryback Management
Corporation, Eric E. Ryback is the President of Ryback Management
Corporation. The Company is negotiating with the holder of the 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 which case the number of shares beneficially owned by the holder
of such notes could decrease, perhaps to zero.
29
<PAGE>
(4) Includes 8,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, February 2, 1996.
(5) Includes 66,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, February 2, 1996.
(6) Includes 9,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, February 2, 1996.
(7) Includes 10,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, February 2, 1996.
(8) Includes 103,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, February 2, 1996.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote is required to authorize the Sale and the
Name Change.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE SALE AND THE NAME CHANGE.
In the event the Proposal is not approved, the Sale and Name Change will not
be accomplished. If the Sale is not effected, the Company's ability to
continue its business is in question. See "Conduct of Business After Sale; Use
of Proceeds."
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Certain Unaudited Pro Forma Condensed Consolidated Financial Statements
giving effect to the Sale are set forth in Note 10 of Notes to Consolidated
Financial Statements contained in the Form 10-K.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARDS IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
ERICSON M. DUNSTAN
Secretary
Chatsworth, California
March 7, 1996
30
<PAGE>
APPENDIX A
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
[SALOMON BROTHERS LOGO]
Salomon Brothers Inc
& Worldwide Affiliates
Atlanta
Berlin
Boston
Chicago
Dallas
Frankfurt
Hong Kong
London
Los Angeles
Madrid
Melbourne
New York
Osaka
Paris
San Francisco
Seoul
Singapore
Sydney
Taipei
Tokyo
Toronto
Zurich
March 6, 1996
Board of Directors
Micropolis Corporation
21211 Nordhoff Street
Chatsworth, CA 91311
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to Micropolis Corporation (the "Company") of
the consideration to be received in the proposed sale (the "Proposed Sale") by
the Company to Singapore Technologies PTE Ltd. ("Acquiror") of certain of the
assets, subject to certain liabilities, of the Company's disk drive operations
(the "Subject Business") pursuant to the Asset Purchase Agreement, dated as of
January 24, 1996 (the "Agreement"), by and among the Company, several
subsidiaries of the Company and ST Chatsworth PTE Ltd., a subsidiary of
Acquiror.
As more specifically set forth in the Agreement, in the Proposed Sale the
Company will sell the Subject Business for an aggregate cash purchase price
equal to the net book value of the assets of the Subject Business, plus
$7,000,000, subject to certain adjustments, and the assumption of certain
liabilities (the "Consideration").
As you are aware, Salomon Brothers Inc has acted as financial advisor to the
Company in connection with the Proposed Sale and will receive a fee for our
services, a substantial portion of which is contingent upon consummation of
the Proposed Sale. Additionally, Salomon Brothers Inc has previously rendered
investment banking and financial advisory services to Acquiror for which we
received compensation. In addition, in the ordinary course of our business, we
may trade the debt and equity securities of the Company for our own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement; (ii) certain publicly
available information concerning the Company, including the Annual Reports on
Form 10-K of the Company for each of the years in the three year period ended
December 31, 1994 and the Quarterly Reports on Form 10-Q of the Company for
the quarters ended September 30, July 1 and April 1, 1995 respectively; (iii)
certain other internal information, primarily financial in nature, including
projections and estimates of liquidation value, concerning the assets,
business and operations of the Company and the Subject Business furnished to
us by the Company for purposes of our analysis; (iv) certain publicly
available information concerning the trading of, and the trading market for,
the common stock of the Company ("Company Common Stock"); (v) certain publicly
available information with respect to certain other companies that we believe
to be comparable to the Company or the Subject Business and the trading
markets for certain of such other companies' securities; and (vi) certain
publicly available
A-1
<PAGE>
Micropolis Corporation
March 6, 1996
Page 2
[SALOMON BROTHERS LOGO]
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant. We have also met with
certain officers and employees of the Company, to discuss the foregoing as
well as other matters we believe relevant to our inquiry, including the
anticipated adverse effects on the Company's business, assets, liabilities,
operations and prospects which the Company believes would occur if the Company
were not to effect the Proposed Sale as a result of, among other things, the
Company's current liquidity shortfall, the Company's anticipated inability to
remedy this liquidity shortfall and the substantial risk of the Company
ceasing to operate and dissolving the Subject Business, the anticipated
substantial adverse effects on the Company's shareholders, present and
potential employees, business partners and lenders that would result from such
dissolution or concerns about the potential for it, and the benefits which
would arise from effecting the Proposed Sale.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have not conducted a physical inspection of any of the
properties or facilities of the Subject Business, nor have we made or obtained
or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any such properties or facilities. With respect
to projections and estimates of liquidation values, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of, or the prices which could be obtained upon a
liquidation sale of, the Subject Business, as the case may be, and we express
no view with respect to such projections or estimates or the assumptions on
which they were based.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following:
(i) the historical and current financial position and results of operations of
the Company; (ii) the business prospects of the Company and the Subject
Business; (iii) the historical and current market for the Company Common Stock
and for the equity securities of certain other companies that we believe to be
comparable to the Company or the Subject Business; and (iv) the nature and
terms of certain other acquisition transactions that we believe to be
relevant. We have also taken into account our assessment of general economic,
market and financial conditions as well as our experience in connection with
similar transactions and securities valuation generally. We have also
considered the process that resulted in the execution of the Agreement,
including our solicitation of offers to acquire the Company and/or the Subject
Business and the responses received to such solicitation. Our opinion
necessarily is based upon conditions as they exist and can be evaluated on the
date hereof and we assume no responsibility to update or revise our opinion
based upon circumstances or events occurring after the date hereof. Our
opinion is, in any event, limited to the fairness, from a financial point of
view, of the Consideration to be received by the Company in the Proposed Sale
and does not address the Company's underlying business decision to effect the
Proposed Sale or constitute a recommendation to any holder of Company Common
Stock as to how such holder should vote with respect to the Proposed Sale. Our
opinion as expressed below does not constitute an opinion or imply any
conclusion as to the likely trading range for the Company Common Stock or the
financial viability of the Company following consummation of the Proposed
Sale.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that the Consideration to be received by the Company in the Proposed
Sale is fair, from a financial point of view, to the Company.
Very truly yours,
SALOMON BROTHERS INC
A-2
<PAGE>
APPENDIX B
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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)
<TABLE>
<S> <C>
DELAWARE 95-3093858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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:
<TABLE>
<S> <C>
TITLE OF CLASS TITLE OF CLASS
-------------- --------------
Common Stock, $1.00 par value 6% Convertible Subordinated
Debentures due 2012
</TABLE>
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MICROPOLIS CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 29, 1995
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business ..................................................................... B-1
Item 2. Properties ................................................................... B-8
Item 3. Legal Proceedings............................................................. B-8
Item 4. Submission of Matters to a Vote of Security Holders........................... B-8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... B-9
Item 6. Selected Financial Data ...................................................... B-10
Management's Discussion and Analysis of Financial Condition and Results of
Item 7. Operations.................................................................... B-11
Item 8. Financial Statements and Supplementary Data................................... B-18
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9. Disclosure.................................................................... B-38
PART III
Item 10. Directors and Executive Officers of the Registrant ........................... B-38
Item 11. Executive Compensation ....................................................... B-39
Item 12. Security Ownership of Certain Beneficial Owners and Management................ B-39
Item 13. Certain Relationships and Related Transactions................................ B-39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. B-40
</TABLE>
<PAGE>
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.
B-1
<PAGE>
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,
B-2
<PAGE>
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.
B-3
<PAGE>
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.
B-4
<PAGE>
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
B-5
<PAGE>
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
B-6
<PAGE>
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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<PAGE>
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.
B-8
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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.
B-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).
B-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.
B-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
B-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.
B-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
B-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.
B-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.
B-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.
B-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......................... B-19
Consolidated Statements of Operations for the fiscal years ended December
29, 1995,
December 30, 1994 and December 31, 1993.................................. B-20
Consolidated Balance Sheets as of December 29, 1995 and December 30, 1994. B-21
Consolidated Statements of Cash Flows for the fiscal years ended December
29, 1995,
December 30, 1994 and December 31, 1993.................................. B-22
Consolidated Statements of Shareholders' Equity for the three years ended
December 29, 1995........................................................ B-23
Notes to Consolidated Financial Statements................................ B-24
</TABLE>
B-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
B-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.
B-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 outstand-
ing (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.
B-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 liabili-
ties........................................ (11,358) 12,644 12,240
Other assets................................. (393) 1,226 (432)
-------- -------- --------
Net cash provided by (used in) operating activi-
ties............................................ (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 in-
vestments....................................... $ 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.
B-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.
B-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
B-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.
B-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.
B-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.
B-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.
B-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.
B-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
B-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.
B-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>
B-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.
B-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
B-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.
B-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 admin-
istrative................. 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 out-
standing.................... 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.
B-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.
B-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.
B-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.
B-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>
B-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.
B-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.
B-42
<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>
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
By: /s/ Barbara V. Scherer
Dated: March 7, 1996 __________________________________
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 pro-
tection......................... $4,455,000 $2,950,000 $1,978,000 $5,427,000
1994:
Allowance for doubtful accounts,
customer returns and price pro-
tection......................... $1,375,000 $5,736,000 $2,656,000 $4,455,000
1993:
Allowance for doubtful accounts,
customer returns and price pro-
tection......................... $1,390,000 $ 323,000 $ 338,000 $1,375,000
</TABLE>
- --------
*Write-offs against reserves
S-2
<PAGE>
APPENDIX C
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);
C-2
<PAGE>
3
(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;
C-3
<PAGE>
4
(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;
C-4
<PAGE>
5
(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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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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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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(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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(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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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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32
(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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35
(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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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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(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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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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(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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(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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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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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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66
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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67
(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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68
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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69
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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70
(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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71
"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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72
"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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<PAGE>
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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77
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
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<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
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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
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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
C-81
<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>
- --------------------------------------------------------------------------------
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MICROPOLIS CORPORATION
CONSENT CARD FOR ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
TO BE EFFECTIVE AS SET FORTH IN THE PROXY STATEMENT
ACCOMPANYING THIS CONSENT CARD.
Proposed consent resolution to approve and authorize a single proposal (i)
to approve the sale of substantially all of Micropolis Corporation's assets
(other than cash and accounts receivable) related to its disk drive business
to ST Chatsworth Pte Ltd, a Singapore corporation and a wholly-owned
subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation,
pursuant to the terms of an Asset Purchase Agreement, and (ii) to adopt an
amendment to the Company's Certificate of Incorporation to change the name of
the Company to StreamLogic Corporation.
- -------------------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
- -------------------------------------------------------------------------------
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
-- DO NOT FOLD, STAPLE OR MUTILATE --
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as indicated
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ABOVE PROPOSAL.
FAILURE TO CHECK ANY OF THE BOXES WITH RESPECT TO THE PROPOSAL WILL, IF THIS
CONSENT CARD HAS BEEN SIGNED AND DATED, CONSTITUTE APPROVAL OF AND CONSENT TO
THE ADOPTION OF THE PROPOSAL.
FOR AGAINST ABSTAIN
[_] [_] [_]
____________________________________
Consent Card Number
_____________________________________
Number of Shares
Dated: ________________________, 1996
_____________________________________
_____________________________________
(Signature(s) of Stockholders(s))
(Note--Please sign exactly as your name or names appear on the label. If more
than one name appears, all persons so designated should sign. When signing in a
representative capacity, please give your full title.)
Please return promptly in the enclosed envelope, which requires no postage if
mailed in the U.S.A.
- --------------------------------------------------------------------------------
-- DO NOT FOLD, STAPLE OR MUTILATE --
