<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1995
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KOMAG, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-2914864
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
275 SOUTH HILLVIEW DRIVE
MILPITAS, CALIFORNIA 95035
(408) 946-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN C. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KOMAG, INCORPORATED
275 SOUTH HILLVIEW DRIVE
MILPITAS, CALIFORNIA 95035
(408) 946-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD M. LEONARD, ESQ. ROBERT T. CLARKSON, ESQ.
BROBECK, PHLEGER & HARRISON WILSON, SONSINI, GOODRICH & ROSATI
TWO EMBARCADERO PLACE PROFESSIONAL CORPORATION
2200 GENG ROAD 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94303-0913 PALO ALTO, CALIFORNIA 94304-1050
(415) 424-0160 (415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment
plans, please check the following box. / /
If securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFER PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, par value $.01
per share................... 2,012,500 $56.69 $114,088,625 $39,341.00
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</TABLE>
(1) Includes a maximum of 262,500 shares that the Underwriters have the option
to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee based upon the average of the high and low sale prices per
share for the Common Stock on July 12, 1995, as reported on the Nasdaq
National Market, in accordance with Rule 457(c) promulgated under the
Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 19, 1995
1,750,000 SHARES
KOMAG, INCORPORATED
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
The last reported sale price of the Common Stock, which is quoted under the
symbol "KMAG", on the Nasdaq National Market on July 18, 1995 was $57.00 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" AT PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $250,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 262,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount, and proceeds to the Company will be $ ,
$ , and $ , respectively. See "Underwriting."
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
certificates for the shares will be ready for delivery in New York, New York, on
or about August , 1995.
GOLDMAN, SACHS & CO.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
------------------------
The date of this Prospectus is , 1995.
<PAGE> 3
AVAILABLE INFORMATION
Komag, Incorporated ("Komag" or the "Company") is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information may be
inspected and copies of such materials may be obtained at prescribed rates at
the Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, as well as the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Common Stock of the Company is quoted on the Nasdaq National Market. Reports
and other information concerning the Company may be inspected at the offices of
the Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (the "Registration Statement") of which this
Prospectus is a part, including exhibits relating thereto, which has been filed
with the Commission under the Securities Act of 1933, as amended (the "Act"), in
Washington, D.C. Statements made in this Prospectus as to the contents of any
referenced contract, agreement or other document are not necessarily complete,
and each such statement shall be deemed qualified in its entirety by reference
thereto. Copies of the Registration Statement and the exhibits and schedules
thereto may be obtained, upon payment of the fee prescribed by the Commission,
or may be examined without charge, at the office of the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission (Commission File No.
0-16852) pursuant to the Exchange Act are incorporated herein by reference: (1)
the Company's Annual Report on Form 10-K for the fiscal year ended January 1,
1995; (2) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended April 2, 1995 and July 2, 1995; (3) the Company's Proxy Statement for the
Annual Meeting of Stockholders held on May 24, 1995; (4) the description of the
Common Stock contained in the Company's Registration Statement on Form 8-A filed
with the Commission on April 29, 1989; and (5) all other documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of this
offering.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents which are incorporated herein by
reference (other than exhibits to such information, unless such exhibits are
specifically incorporated by reference into the information this Prospectus
incorporates). Requests should be directed to Komag, Incorporated, 275 South
Hillview Drive, Milpitas, California 95035, Attention: William L. Potts, Jr.,
Chief Financial Officer or by telephone at (408) 946-2300.
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in, or
incorporated by reference into, this Prospectus.
THE COMPANY
Komag, Incorporated ("Komag" or the "Company") designs and manufactures
thin-film media ("disks"), the primary storage medium for digital data in
computer hard disk drives. Komag believes it is recognized as the leader in the
thin-film media market. The Company's business strategy relies on the
combination of advanced technology and cost-effective, high volume manufacturing
to advance its leadership position. The Company believes that the combination of
these two capabilities is a significant competitive advantage and enables the
Company to support its customers' technically advanced, high volume product
programs. Komag's products address the high-capacity/high-performance segments
of the disk drive market and are used in products such as disk arrays, network
file servers, high-end personal computers, and engineering workstations. With
facilities in the United States, Malaysia and Japan, Komag is the world's
largest thin-film media manufacturer.
The Company has capitalized on its technological strength in thin-film
processes and its manufacturing capabilities to achieve the leading market
position in the thin-film media market. Komag's technological strength stems
from knowledge of materials science and an understanding of the interplay
between disks, heads and other drive components. Komag's manufacturing expertise
in thin-film media is evidenced by its history of delivering reliable products
in high volume. Through the utilization of proprietary processes and techniques,
the Company has the capability to cost-effectively produce advanced disk
products that exhibit uniform performance characteristics. Historically, the
Company has operated at or near full capacity with favorable manufacturing
yields and equipment utilization rates.
Komag's customers include both OEM disk drive manufacturers, such as
Seagate Technology, Inc., Quantum Corporation and Western Digital Corporation,
and computer systems manufacturers that produce their own disk drives, such as
Hewlett-Packard Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................................. 1,750,000 Shares(1)
Common Stock to be outstanding after the offering.... 25,129,829 Shares(2)
Nasdaq National Market Symbol........................ KMAG
Use of proceeds...................................... Capital expenditures and general
corporate purposes, including working
capital. See "Use of Proceeds."
</TABLE>
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(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on shares outstanding as of July 2, 1995 and the 1,750,000 shares to
be offered by the Company. Excludes as of July 2, 1995, 2,909,035 shares of
Common Stock reserved for issuance under the Company's Stock Option Plans
and Employee Stock Purchase Plan. Options for 2,541,016 shares under the
Stock Option Plans were outstanding at July 2, 1995.
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED -----------------------
------------------------------------- JULY 3, JULY 2,
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA(1):
Net sales...................... $ 326,801 $ 385,375 $ 392,391 $ 195,475 $ 225,870
Gross profit................... 67,765 91,439 125,386 62,785 78,787
Restructuring charge........... -- 38,956 -- -- --
Operating income (loss)........ 19,432 (5,323) 76,945 38,056 48,737
Net income (loss).............. 16,893 (9,901) 58,522 29,398 38,241
Net income (loss) per share.... $ 0.79 $ (0.46) $ 2.54 $ 1.29 $ 1.59
Number of shares used in per
share computation........... 21,412 21,372 22,997 22,758 23,985
</TABLE>
RESULTS OF MEDIA OPERATIONS(2):
<TABLE>
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 279,544 $ 334,542 $ 392,391 $ 195,475 $ 225,870
Gross profit................... 78,229 109,456 125,386 62,785 78,787
Operating income............... 47,307 67,101 76,945 38,056 48,737
Income from media operations... $ 34,914 $ 45,879 $ 58,522 $ 29,398 $ 38,241
</TABLE>
<TABLE>
<CAPTION>
JULY 2, 1995
----------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................ $ 121,371 $ 216,632
Net property, plant & equipment................................ 265,438 265,438
Long-term debt (less current portion).......................... 11,667 11,667
Stockholders' equity........................................... 380,933 476,194
Total assets................................................... $ 481,960 $ 577,221
</TABLE>
- ---------------
(1) The Company previously supplied thin-film recording heads for hard disk
drives through Dastek, Inc., which has ceased operations. Consolidated
results of operations for 1992 and 1993 include the results of Dastek.
Consolidated results of operations for 1994 and the first six months of
1995 do not include any Dastek results.
(2) Results of media operations exclude Dastek, Inc.'s operating results for
fiscal 1992 and 1993 and the related restructuring charge in fiscal 1993.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) Adjusted to reflect the issuance and sale of the 1,750,000 shares offered
hereby and the receipt of estimated proceeds therefrom (assuming the
Underwriters' over-allotment option is not exercised). See "Use of
Proceeds" and "Capitalization."
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus and incorporated
herein by reference, the following factors should be carefully considered in
evaluating the Company and its business before purchasing shares of Common Stock
offered hereby.
RAPID TECHNOLOGICAL CHANGE
The thin-film disk industry has been characterized by rapid technological
developments, increasingly shorter product life cycles, and price erosion. The
Company believes that its future success depends, in large measure, on its
ability to continually improve existing process technologies and to develop and
implement new process technologies in a timely manner. Such technologies must
support cost-effective, high volume production of thin-film disks that meet the
ever-advancing customer requirements for enhanced magnetic recording performance
(characterized in part by coercivity level, magnetization thickness product, and
noise/overwrite capability), improved mechanical performance (characterized in
part by glide height, stiction, wear, and corrosion), and reduced defect levels
(characterized in part by quantity and size). Although the Company has a
significant, ongoing research and development effort to advance its process
technologies and the resulting products, there can be no assurance that the
Company will be able to develop and implement such technologies in a timely
manner in order to compete effectively against competitors' products and/or
entirely new data storage technologies. In addition, protection of technology
through patents and other forms of intellectual property rights in technically
sophisticated fields is commonplace. There can be no assurance that others will
not perfect such intellectual property rights and either enforce those rights to
prevent the Company from practicing certain technologies or demand royalty
payments from the Company in return for practicing those technologies. The
Company's results of operations would be materially adversely affected if the
Company's efforts to advance its process technologies were not successful or if
the technologies that the Company had chosen not to develop were proven to be
viable competitive alternatives.
MANUFACTURING IMPROVEMENTS AND CAPACITY EXPANSION
Inasmuch as the Company is operating its disk production lines at or near
full capacity, future sales and earnings growth will depend on the successful
expansion of the Company's manufacturing capacity. Such capacity expansion may
be accomplished through additional gains in disk output from existing production
lines and through the installation of new production lines at existing and new
manufacturing facilities. To improve disk output from existing production lines,
the Company strives to reduce process cycle times, improve manufacturing yields,
and increase equipment utilization rates. Additionally, the Company is upgrading
certain older existing production lines to a new design standard that should
enhance the production capabilities of these older machines. Should the
Company's efforts in these areas not produce the desired results, the Company's
rate of growth may be constrained or curtailed. Furthermore, should the Company
experience a deterioration in manufacturing performance or a delay or unforeseen
outcome arising from the machine upgrade program, the Company's results of
operations would be materially adversely affected.
The Company currently plans to add new production lines at its existing
manufacturing plant in Penang, Malaysia during 1995 and the first half of 1996
that will fully utilize all available floor space at this facility. Construction
of a new manufacturing facility was recently commenced in the east Malaysian
state of Sarawak. This facility is expected to become operational in the first
half of 1996. There can be no assurance that the Company's additional production
lines will be installed as scheduled or will experience the high levels of
manufacturing efficiencies attained by the Company's existing production lines.
The Company must attract, train, motivate and retain highly-trained and
dedicated employees, particularly at the Company's planned start-up operations
in Sarawak. Manufacturing and other issues which may occur in connection with
the commencement and subsequent expansion of operations in any location and in
particular Sarawak, a business location with limited experience in advanced
manufacturing, could materially adversely affect the Company's results of
operations.
The Company has been operating all of its manufacturing facilities at or
close to capacity during the last year. Based upon its forecast of continued
high growth in demand for magnetic media, the Company
5
<PAGE> 7
has developed plans to increase its production capacity under a schedule that is
substantially more aggressive than its past expansion plans. Implementation of
this plan would entail parallel expansion at multiple locations rather than
serial expansion one location at a time, thus requiring precise manufacturing
planning. Successful execution of this parallel expansion will require timely
identification and acquisition of appropriate sites, receipt of requisite
approvals, construction and equipping of facilities, recruitment and retention
of a high quality workforce, and achievement of satisfactory manufacturing
results on a scale greater than the Company's prior expansions. There can be no
assurance that the Company will successfully manage this risk. In addition,
should actual demand for the Company's products not meet the Company's forecast,
and not absorb existing or planned additional capacity, the fixed costs and
operating expenses related to unused capacity would materially adversely affect
the Company's results of operations.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; DEPENDENCE ON HARD DISK DRIVE
INDUSTRY
The Company's sales are concentrated in a small number of customers due to
the high volume requirements of the dominant disk drive manufacturers and their
tendency to rely on a few suppliers because of the close interrelationship
between media performance and disk drive performance. Net sales to major
customers in the first half of 1995 were as follows: Seagate Technology,
Inc.--42%, Quantum Corporation--24%, Hewlett-Packard Company--21% and Western
Digital Corporation--8%. Given the relatively small number of high performance
disk drive manufacturers, the Company expects that it will continue its
dependence on a very limited number of customers. The Company's largest
customer, Seagate Technology, Inc., produces a portion of its thin-film disk
requirements internally and has recently announced a long term purchase
commitment with one of the Company's competitors. Seagate has also announced an
expansion of its facilities and could further expand internal production of
thin-film disks, either through direct investment or through the acquisition of
one of the Company's competitors, and could increase or execute additional
long-term purchase commitments with one or more of the Company's competitors.
Other customers and potential customers have, or could adopt, similar
strategies. Depending on the overall growth in market demand for disk products,
such actions could result in the reduction or cessation of purchases from the
Company, thus materially adversely affecting the Company's results of
operations. Additionally, if one or more of the Company's customers were to
begin selling disks on the open market in direct competition with the Company,
the Company's results of operations could be further adversely affected.
The demand for the Company's high performance thin-film disks depends upon
the demand for hard disk drives and the Company's ability to provide technically
superior products at competitive prices. The high performance segment of the
hard disk drive market is characterized by short product life cycles and rapid
technological change. Failure by the Company to qualify new products and/or
successfully achieve volume manufacturing of new customer products could
adversely affect the Company's results of operations. Furthermore, the Company's
sales are generally made pursuant to purchase orders which are subject to
cancellation, modification or rescheduling without significant penalties. There
can be no assurance that the Company's current customers will continue to place
orders with the Company, that orders by existing customers will continue at the
levels of previous periods, or that the Company will be able to obtain orders
from new customers.
CAPITAL NEEDS
The Company believes that, in order to achieve its long-term expansion
objectives and maintain and enhance its competitive position, it will need
significant additional financial resources over the next several years for
capital expenditures, working capital and research and development. During the
two-year period of 1995 and 1996, the Company expects to spend approximately
$400 million on capital expenditures. The Company believes that it will be able
to fund these expenditures from a combination of the proceeds of this offering,
cash flow from operations, funds available from existing and possibly new bank
lines of credit, and existing cash balances. However, in the event the Company
continues to expand its facilities at an aggressive rate, significant new
capital will be required, necessitating additional debt, equity or other
financing. There can be no assurance that such additional funds will be
available to the
6
<PAGE> 8
Company or, if available, will be available on favorable terms. In addition, the
Company may require additional capital for other purposes. If the Company is
unable to obtain sufficient capital, it could be required to reduce its capital
equipment and research and development expenditures, which could materially
adversely affect the Company's results of operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company believes that its future operating results will continue to be
subject to quarterly variations based upon a wide variety of factors, including
the cyclical nature of the hard disk drive industry, the ability to develop and
implement new manufacturing process technologies, the ability to introduce new
products and to achieve cost-effective, high volume production in a timely
manner, changes in product mix and average selling prices, the availability and
the extent of utilization of the Company's production capacity, manufacturing
yields, prolonged disruptions of operations at any of the Company's facilities
for any reason, changes in the cost of or limitations on availability of
materials and labor, and increases in production and engineering costs
associated with initial production of new product programs.
Because the thin-film disk industry is capital intensive and requires a
high level of fixed costs, gross margins are also extremely sensitive to changes
in volume. Assuming fixed average selling prices, reductions in manufacturing
efficiency would cause declines in gross margins. Additionally, decreasing
demand for the Company's products generally results in reduced average selling
prices and/or low capacity utilization that, in turn, adversely affects gross
margins and operating results. The Company's ability to maintain average selling
prices and gross margins is dependent on its ability to produce, in volume,
products that are differentiated on the basis of technological superiority. In
1994, the Company was delayed in introducing its 1800 oersted disk products and
its rate of growth and gross margins were adversely affected. In the second
quarter, the Company achieved a record gross margin of 38.1% as a result of
increased manufacturing efficiencies coupled with strong market demand for and
an industry shortage of 1800 oersted disks. In the event that market supply
meets or exceeds demand or the Company is unable to continue to increase its
production mix of 1800 oersted products, the Company's gross margin would likely
decrease. In the longer term, the Company believes that the gross margin may not
be sustainable at the second quarter's record high levels. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Discussion of Quarterly Results of Operations" and "Quarterly
Report on Form 10-Q -- Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Fluctuations in the financial results of Asahi Komag Co., Ltd. ("AKCL"),
the Company's unconsolidated Japanese disk manufacturing joint venture, could
also impact the Company's financial performance. Equity in net income of AKCL
contributed 9.3% of the Company's 1994 consolidated net income. The Company
anticipates that AKCL's equity income will account for a smaller percentage of
1995 consolidated net income. AKCL is subject to many of the same types of risks
facing the Company. In addition, the equity income derived from AKCL may
fluctuate over time due its dependence on a more limited customer base
(Matsushita-Kotobuki Electronics Industries, Ltd. and Fujitsu Ltd. accounted for
68% and 31%, respectively, of AKCL's first half 1995 net sales), yen/dollar
exchange rate fluctuations, and further write-downs by AKCL of its investment in
Headway Technologies, Inc., a U.S.-based magneto-resistive head research and
development company.
RISK OF FOREIGN OPERATIONS
In 1994, sales to customers in the Far East, including foreign subsidiaries
of domestic companies, accounted for 51% of the Company's net sales from its
U.S. and Malaysian facilities, and the Company anticipates that international
sales will continue to represent the majority of its net sales. All of the
Company's sales are currently priced in U.S. dollars worldwide. Certain costs at
the Company's foreign manufacturing and marketing operations are incurred in the
local currency. The Company also purchases certain operating supplies and
production equipment from Japanese suppliers in yen denominated transactions.
Accordingly, the Company's operating results are subject to the risks inherent
with international operations, including but not limited to, compliance with or
changes in the law and
7
<PAGE> 9
regulatory requirements of foreign jurisdictions, fluctuations in exchange
rates, tariffs or other barriers, difficulties in staffing and managing foreign
operations, exposure to taxes in multiple jurisdictions, and transportation
delays and interruptions.
The Company's existing Malaysian manufacturing facility accounted for 20%
and 37% of the Company's 1994 consolidated net sales and operating income,
respectively. The Company anticipates that this operation will account for a
greater percentage of consolidated net sales and operating income in 1995.
Prolonged disruption of operations at this facility for any reason would cause
delays in shipments of the Company's products, thus materially adversely
affecting the Company's results of operations.
COMPETITION
The Company's thin-film disk products are used primarily in the
high-capacity segment of the 3 1/2-inch and 5 1/4-inch hard disk drive market,
where product performance, consistent quality and availability, taken together,
are of great competitive importance. If the technology involved in the
manufacture of thin-film disks does not continue to advance rapidly, or if the
Company is not able to keep pace with such advances, the Company may face
increased price competition from other manufacturers. Such competition could
materially adversely affect its results of operations.
Current thin-film disk competitors fall into three groups: U.S. non-captive
manufacturers, U.S. captive manufacturers, and Japan-based manufacturers.
Historically, each of these groups has supplied approximately one-third of the
worldwide thin-film disk unit output. Based upon research conducted by an
independent market research firm, the Company believes it is the leading
supplier of thin-film disks with a market share greater than twice the size of
any of the U.S. non-captive manufacturers or Japan-based manufacturers. The
Company's U.S. non-captive thin-film disk competitors include Akashic Memories
Corporation (a subsidiary of Kubota, Inc.), HMT Technology (a subsidiary of
Hitachi Metals, Ltd.) and StorMedia, Inc. Japan-based thin-film disk competitors
include Fuji Electric Company, Ltd., Mitsubishi Kasei Corp., Showa Denko K.K.
and HOYA Corporation. The U.S. captive manufacturers include IBM and OEM drive
manufacturers, such as Seagate Technology, Inc., Conner Peripherals, Inc., and
Western Digital Corporation, which manufacture disks as a part of their vertical
integration programs. To date, IBM and these OEM drive manufacturers have sold
nominal quantities of disks in the open market. However, the Company believes
any significant investments in new disk production capacity by computer or disk
drive companies, coupled with slower market growth for data storage, could
reduce the number of potential customers and increase competition for the
remaining market. Such conditions could materially adversely affect the
Company's results of operations.
The disk drive market has historically been characterized by rapid
incremental technological developments that have required substantial
improvement in disk performance. To succeed in this dynamically changing
industry, the Company must continuously advance its thin-film technology at a
pace consistent with or faster than its competitors. In addition, the Company
must capture a market share position that will insure a competitive cost
structure over the long run as these markets mature. The Company believes that
its thin-film manufacturing facility in Penang, Malaysia provides a significant
competitive cost advantage relative to most other thin-film disk manufacturers
that currently operate exclusively in the U.S. and Japan.
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced and can be expected to
experience substantial price volatility in response to actual or anticipated
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, developments
related to patents or other intellectual property rights, developments in the
Company's relationships with its customers or suppliers, and other events or
factors. In addition, any shortfall or changes in revenue, gross margins,
earnings, or other financial results from analysts' expectations could cause the
price of the Company's Common Stock to fluctuate significantly. In recent years,
the stock market in general has experienced extreme price and volume
fluctuations, which have particularly affected the market price of many
technology companies and which have often been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. See "Price Range of
Common Stock."
8
<PAGE> 10
THE COMPANY
Komag, Incorporated ("Komag" or the "Company") designs and manufactures
thin-film media ("disks"), the primary storage medium for digital data in
computer hard disk drives. Komag believes it is recognized as the leader in the
thin-film media market. The Company's business strategy relies on the
combination of advanced technology and cost-effective, high volume manufacturing
to advance its leadership position. The Company believes that the combination of
these two capabilities is a significant competitive advantage and enables the
Company to support its customers' technically advanced, high volume product
programs. Komag's products address the high-capacity/high-performance segments
of the disk drive market and are used in products such as disk arrays, network
file servers, high-end personal computers, and engineering workstations. With
facilities in the United States, Malaysia and Japan, Komag is the world's
largest thin-film media manufacturer.
Greater processing power, more sophisticated operating systems and
application software, high-resolution graphics, and larger data bases are among
the developments that have required ever higher performance from disk drives.
For example, the first 5 1/4-inch hard disk drive, introduced in 1980, offered a
capacity of five megabytes (one million bytes is a megabyte or "MB") with a
storage density of less than ten megabits (one million bits is a megabit or
"Mb"; eight bits is one byte) per square inch. Current high-performance
3 1/2-inch drives have capacities of four gigabytes (one billion bytes is a
gigabyte or "GB") with densities typically of four hundred megabits per square
inch. Advances in component technology have been critical to improving the
performance and storage capacity of disk drives.
Today's disk drives offer this enhanced performance at a very low price as
a result of the design and manufacturing efficiencies that have been achieved
throughout the data storage industry. These price/performance considerations,
coupled with the increasing demand for digital storage, are driving the strong
unit demand for high-performance disk drives. The market for disk drives is
forecasted to grow at a compound annual growth rate of approximately 30% over
the next two years from approximately 68 million units in 1994 to approximately
116 million units in 1996, according to International Data Corporation, an
independent market research firm. As a result, the Company believes the market
for thin-film disks will grow at a comparable rate.
The Company has capitalized on its technological strength in thin-film
processes and its manufacturing capabilities to achieve the leading market
position in the thin-film media market. The Company's technological strength
stems from knowledge of materials science and an understanding of the interplay
between disks, heads and other drive components. The primary factors governing
the density of storage achievable on a disk's surface are (1) the minimum
distance at which read/write heads can reliably pass over the surface of the
disk to detect a change in magnetic polarity when reading from the disk, defined
as glide height (measured in microinches or millionths of an inch), and (2) the
strength of the magnetic field required to change the polarity of a bit of data
on the magnetic layer of a disk when writing, defined as coercivity (measured in
oersteds). The lower the glide height, the more accurately and reliably the bit
can be retrieved. The higher the coercivity of the media, the smaller the width
of the bit that can be stored. The Company's plating, polishing and texturing
processes result in a low defect, uniform surface that currently permits the
read/write heads to pass over the disk surface at glide heights as low as 1.5
microinches. The platinum-cobalt based alloy deposited on the surfaces of Komag
disks allows high coercivities with excellent low noise, magnetic
characteristics. The combination of these factors results in more data stored in
a given area on the disk surface. The Company believes that it is currently the
leading volume supplier of 1800 oersted, 1.5 microinch glide height, thin-film
media, the most advanced media presently being shipped in commercial volume.
As the glide height in advanced disk drives approaches near contact
recording levels (1.5 microinches and below), a more integrated approach in the
design and development of disks and heads is required. Komag undertook two
initiatives in 1994 to ensure that there would be close cooperation between the
Company and various head suppliers. The Company holds a minority equity position
in Headway Technologies, Inc., which is developing and manufacturing an advanced
magneto-resistive recording head. In addition, the Company entered into an
agreement with Read-Rite Corporation, a leading inductive thin-film head
manufacturer, that facilitates the exchange of advanced prototype
9
<PAGE> 11
products between the two companies and promotes cooperation in the development
of improved disk-to-head interfaces. The higher recording densities achieved
through use of thin-film media and thin-film heads continues to enable the
manufacture of smaller, higher capacity disk drives at a lower overall cost per
bit stored.
Komag's manufacturing expertise in thin-film media is evidenced by its
history of delivering reliable products in high volume. Through the utilization
of proprietary processes and techniques, the Company has the capability to
cost-effectively produce advanced disk products that exhibit uniform performance
characteristics. Such uniform performance characteristics enhance the
reliability of the drive products manufactured by the Company's customers. In
addition, these characteristics raise production yields on the customers'
manufacturing lines, which is an important cost consideration in high
performance disk drives with large component counts. Manufacturing costs are
highly dependent upon the Company's ability to effectively utilize its installed
physical capacity to produce large volumes of products at acceptable yields. To
improve yields and capacity utilization, Komag has adopted formal continuous
improvement programs at all of its worldwide operations. The Company's media
manufacturing facilities throughout the world are certified under ISO 9000, an
internationally recognized quality standard. The process technologies employed
by the Company require substantial capital investment. In addition, long lead
times to install new increments of physical capacity complicate capacity
planning. Historically, the Company has operated at or near full capacity with
favorable manufacturing yields and equipment utilization rates.
The Company currently has 18 production lines in three countries: ten in
the United States, four in Malaysia, and four at its manufacturing joint venture
in Japan. On a rotating basis for the next two years, one U.S. production line
will be out of production as it is upgraded to a new design standard. Certain
older production lines at the Japanese joint venture will also be upgraded. The
Company plans to add two additional lines during the remainder of 1995 (one each
in Malaysia and Japan) and has begun construction of a new "front end"
manufacturing facility in the east Malaysian state of Sarawak. This new facility
will manufacture plated, polished substrates that will be subsequently shipped
to the Company's facilities in the United States and Penang, Malaysia for
completion. Production at this new facility is expected to begin in the first
half of 1996. The Company also plans to add two new production lines by mid-1996
at its Penang, Malaysia facility, thus utilizing all available space at that
plant. In addition, due to strong market demand for the Company's disk products,
the Company has committed to further expand its physical production capacity and
is currently in the process of identifying new plant sites in the United States
and Southeast Asia. The addition of new production lines at the Company's
manufacturing joint venture in Japan is also under consideration.
The Company manufacturers and sells primarily 95 mm and 130 mm disks for
3 1/2-inch and 5 1/4-inch hard disk drives, respectively. The Company sells its
disk products to independent original equipment manufacturers ("OEMs") for
incorporation into drives which are marketed under the disk drive manufacturers'
own labels. Net sales to the Company's major customers in the first half of 1995
were as follows: Seagate Technology, Inc.-42%, Quantum Corporation-24%,
Hewlett-Packard Company- 21%, and Western Digital Corporation-8%.
The Company was organized in 1983 and is incorporated in the State of
Delaware. The Company's executive offices are located at 275 South Hillview
Drive, Milpitas, California 95035 (telephone number (408) 946-2300). Current
manufacturing operations are conducted by the Company in the United States and
Malaysia as well as through two joint ventures with three Japanese manufacturing
partners. Asahi Komag Co., Ltd. ("AKCL"), a joint venture with Asahi Glass Co.,
Ltd. and Vacuum Metallurgical Company, manufactures thin-film media in Japan and
Komag Material Technology, Inc. ("KMT"), a U.S.-based joint venture with Kobe
Steel, Ltd., produces disk substrates for use in the Company's media operations.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds from the sale of securities offered hereby are estimated
at $95,260,625 ($109,587,219 if the Underwriters' over-allotment option is fully
exercised). The Company intends to use the net proceeds for capital expenditures
and general corporate purposes, including working capital. During the two-year
period of 1995 and 1996, total capital expenditures are estimated at
approximately $400 million and at July 2, 1995 the Company's current,
non-cancellable capital expenditure commitments totalled approximately $80
million. See "Risk Factors--Capital Needs." Proceeds may also be used to acquire
companies, products or technologies that complement the Company's business
should such opportunities arise. No specific acquisitions are being planned or
negotiated as of the date of this Prospectus. Pending such uses, the net
proceeds may be temporarily invested in short-term obligations such as
certificates of deposit issued by banks, government obligations and money market
securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all cash for use in the operation and
expansion of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. In addition, certain of the
Company's debt agreements limit the amount of dividend payments without the
prior consent of the lender.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "KMAG." The following table sets forth for the range of high and low
closing sales prices.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1993
First Quarter.................................................. $ 24 $ 17
Second Quarter................................................. 21 1/2 16 3/8
Third Quarter.................................................. 23 3/4 15 3/8
Fourth Quarter................................................. 18 14 1/8
FISCAL YEAR 1994
First Quarter.................................................. 27 5/8 15 3/4
Second Quarter................................................. 25 1/4 17 3/4
Third Quarter.................................................. 26 1/2 19 1/4
Fourth Quarter................................................. 28 5/8 24 1/8
FISCAL YEAR 1995
First Quarter.................................................. 337/16 23 1/8
Second Quarter................................................. 52 1/4 31 3/4
Third Quarter (through July 18, 1995).......................... 605/16 51 1/4
------ ------
</TABLE>
On July 18, 1995, the last reported sale price for the Common Stock on the
Nasdaq National Market was $57.00 per share.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the consolidated long-term debt and
capitalization of the Company at July 2, 1995 and as adjusted to give effect to
the issuance and sale by the Company of the 1,750,000 shares of Common Stock
offered hereby assuming a public offering price of $57.00 per share, and the
application of the estimated net proceeds therefrom. The financial data in the
following table should be read in conjunction with the Company's audited
consolidated financial statements (and notes thereto) at January 1, 1995
incorporated herein by reference and the Company's unaudited consolidated
quarterly financial statements (and notes thereto) at July 2, 1995, included
elsewhere herein.
<TABLE>
<CAPTION>
AS OF JULY 2, 1995
-----------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
Current portion of long-term debt(2).......................... $ 11,357 $ 11,357
========= ============
Long-term debt, less current portion(2)....................... $ 11,667 $ 11,667
Minority interest in consolidated subsidiary.................. 4,671 4,671
Stockholders' equity(3):
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, none outstanding............................. -- --
Common Stock, $.01 par value, 35,000,000 shares authorized,
23,379,829 shares issued and outstanding, 25,129,829
shares issued and outstanding as adjusted................ 234 251
Additional paid-in capital.................................. 245,093 340,337
Retained earnings........................................... 125,031 125,031
Accumulated translation adjustment.......................... 10,575 10,575
--------- --------------
Total stockholders' equity............................... 380,933 476,194
--------- --------------
Total capitalization.................................. $ 397,271 $ 492,532
========= ============
</TABLE>
- ---------------
(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) For additional information regarding long-term debt, see Note 6 to
Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 1995 incorporated herein
by reference. See "Information Incorporated by Reference."
(3) Excludes, as of July 2, 1995, 2,909,035 shares reserved for issuance under
the Company's Stock Option Plans and Employee Stock Purchase Plan. Options
for 2,541,016 shares under the Stock Option Plans were outstanding at July
2, 1995.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the
fiscal years ended 1992, 1993, and 1994 and the balance sheet data as of fiscal
year end 1993 and 1994 are derived from and qualified by reference to the
Company's audited consolidated financial statements incorporated by reference
herein. The consolidated statement of operations data for the fiscal years 1990
and 1991 and the balance sheet data as of fiscal year end 1990, 1991 and 1992
are derived from the Company's audited consolidated financial statements not
included or incorporated by reference in this Prospectus. The selected
consolidated statement of operations data for the six-month periods ended July
3, 1994 and July 2, 1995 and the selected consolidated balance sheet data as of
July 2, 1995, have been derived from unaudited interim financial statements of
the Company contained elsewhere herein and reflect, in management's opinion, all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results of operations for these periods. Results of
operations for interim periods are not necessarily indicative of results of
future periods. The information presented below should be read in conjunction
with the Company's consolidated financial statements, notes thereto and other
financial information incorporated by reference herein. See "Information
Incorporated by Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED ---------------------
--------------------------------------------------------- JULY 3, JULY 2,
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1):
Net sales..................................... $ 179,921 $ 279,194 $ 326,801 $ 385,375 $ 392,391 $ 195,475 $ 225,870
Cost of sales................................. 136,996 211,009 259,036 293,936 267,005 132,690 147,083
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 40,925 68,185 67,765 91,439 125,386 62,785 78,787
Operating expenses:
Research, development and engineering....... 12,603 18,028 26,366 29,641 21,340 10,813 12,012
Selling, general and administrative......... 14,135 20,571 21,967 28,165 27,101 13,916 18,038
Restructuring charge........................ -- -- -- 38,956 -- -- --
Merger costs................................ -- 2,111 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................. 26,738 40,710 48,333 96,762 48,441 24,729 30,050
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....................... 16,187 27,475 19,432 (5,323) 76,945 38,056 48,737
Other income (expense):
Interest income............................. 4,143 5,680 4,617 2,915 3,306 1,518 2,164
Interest expense............................ (3,917) (5,630) (2,929) (5,510) (2,933) (1,622) (1,198)
Other, net.................................. 1,309 1,082 1,518 605 48 152 444
--------- --------- --------- --------- --------- --------- ---------
Other income (expense).................... 1,535 1,132 3,206 (1,990) 401 48 1,410
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interests and equity in joint venture
income.................................... 17,722 28,607 22,638 (7,313) 77,366 38,104 50,147
Provision for income taxes.................... 6,370 14,293 18,375 26,405 23,210 11,050 12,537
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority interests and
equity in joint venture income............ 11,352 14,314 4,263 (33,738) 54,156 27,054 37,610
Minority interest in net income (loss) of
consolidated subsidiaries................... (882) 1,025 (9,458) (18,977) 1,091 407 871
Equity in net income of unconsolidated joint
venture..................................... 1,086 2,070 3,172 4,860 5,457 2,751 1,502
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ 13,320 $ 15,359 $ 16,893 $ (9,901) $ 58,522 $ 29,398 $ 38,241
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share(2)................ $ 0.76 $ 0.75 $ 0.79 $ (.46) $ 2.54 $ 1.29 $ 1.59
========= ========= ========= ========= ========= ========= =========
Number of shares used in per share
computation................................. 17,480 20,463 21,412 21,372 22,997 22,758 23,985
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR END
--------------------------------------------------------- JULY 2,
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Working capital.................................... $ 63,150 $ 97,808 $ 97,894 $ 97,265 $ 118,230 $ 121,371
Net property, plant & equipment.................... 90,690 120,904 192,051 187,267 228,883 265,438
Long-term debt & capital lease obligations (less
current portion)................................. 25,057 16,516 27,613 29,482 16,250 11,667
Stockholders' equity............................... 128,747 202,077 248,738 255,331 331,215 380,933
Total assets....................................... $ 191,110 $ 276,979 $ 355,849 $ 382,297 $ 404,095 $ 481,960
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
1992 was a 53-week year, whereas, 1990, 1991, 1993 and 1994 were 52-week
years. The fourth quarter of 1992 was a 14-week quarter, whereas the first,
second and third quarters were 13-week quarters. The additional week in the
fourth quarter of 1992 did not have a material impact on the Company's
results of operations.
(2) Fully diluted amount disclosures are not required because they are
substantially the same as primary amounts disclosed for these periods.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF MEDIA OPERATIONS
The Company previously supplied thin-film recording heads for hard disk
drives through Dastek, Inc., which ceased operations in mid-1994. Results of
media operations below exclude Dastek, Inc.'s 1992 and 1993 results of
operations and the related restructuring charge in 1993:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED -----------------------
------------------------------------- JULY 3, JULY 2,
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
ANNUAL AND SIX-MONTHS RESULTS OF
OPERATIONS:
Net sales.......................... $ 279,544 $ 334,542 $ 392,391 $ 195,475 $ 225,870
Cost of sales...................... 201,315 225,086 267,005 132,690 147,083
--------- --------- --------- --------- ---------
Gross profit..................... 78,229 109,456 125,386 62,785 78,787
Operating expenses:
Research, development and
engineering................... 13,263 17,867 21,340 10,813 12,012
Selling, general and
administrative................ 17,659 24,488 27,101 13,916 18,038
--------- --------- --------- --------- ---------
Total operating expenses.... 30,922 42,355 48,441 24,729 30,050
--------- --------- --------- --------- ---------
Operating income................... 47,307 67,101 76,945 38,056 48,737
Other income (expense):
Interest income.................. 3,486 2,674 3,306 1,518 2,164
Interest expense................. (1,815) (4,038) (2,933) (1,622) (1,198)
Other, net....................... 1,851 606 48 152 444
--------- --------- --------- --------- ---------
Other income (expense)...... 3,522 (758) 421 48 1,410
--------- --------- --------- --------- ---------
Income before income taxes,
minority interest and equity
in joint venture income....... 50,829 66,343 77,366 38,104 50,147
Provision for income taxes......... 18,375 24,825 23,210 11,050 12,537
--------- --------- --------- --------- ---------
Income before minority interest
and equity in joint venture
income........................ 32,454 41,518 54,156 27,054 37,610
Minority interest in net income of
consolidated subsidiary.......... 712 499 1,091 407 871
Equity in net income of
unconsolidated joint venture..... 3,172 4,860 5,457 2,751 1,502
--------- --------- --------- --------- ---------
Income from media
operations.................. $ 34,914 $ 45,879 $ 58,522 $ 29,398 $ 38,241
========= ========= ========= ========= =========
</TABLE>
The following table sets forth for the period indicated certain financial
data as a percentage of media net sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED -----------------------
------------------------------------- JULY 3, JULY 2,
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................ 28.0 32.7 32.0 32.1 34.9
Operating income.................... 16.9 20.1 19.6 19.5 21.6
Income from media operations........ 12.5 13.7 14.9 15.0 16.9
</TABLE>
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form 10-K
incorporated herein by reference for a discussion covering a comparison of the
Company's 1992, 1993 and 1994 results of operations. See "Information
Incorporated by Reference."
14
<PAGE> 16
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Quarterly Report on Form
10-Q included herein for a discussion covering a comparison of the Company's
results of operations for the six-month periods ended July 3, 1994 and July 2,
1995. See "Quarterly Report on Form 10-Q."
<TABLE>
<CAPTION>
1994 1995
----------------------------------------- ---------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTERLY RESULTS OF OPERATIONS:
Net sales........................... $ 97,701 $ 97,774 $ 98,172 $ 98,744 $ 105,063 $ 120,807
Cost of sales....................... 64,813 67,877 66,602 67,713 72,296 74,787
-------- -------- -------- -------- --------- ---------
Gross profit...................... 32,888 29,897 31,570 31,031 32,767 46,020
Operating expenses:
Research, development and
engineering.................... 5,325... 5,488 5,324 5,203 6,065 5,947
Selling, general and
administrative................. 7,525 6,391 6,499 6,686 7,542 10,496
-------- -------- -------- -------- --------- ---------
Total operating expenses....... 12,850 11,879 11,823 11,889 13,607 16,443
-------- -------- -------- -------- --------- ---------
Operating income.................... 20,038 18,018 19,747 19,142 19,160 29,577
Other income (expense):
Interest income................... 717 801 902 886 1,034 1,130
Interest expense.................. (852) (770) (679) (632) (614) (584)
Other, net........................ 437 (285) 53 (157) (384) 828
-------- -------- -------- -------- --------- ---------
Other income (expense)......... 302 (254) 276 97 36 1,374
-------- -------- -------- -------- --------- ---------
Income before income taxes,
minority interest and equity in
joint venture income........... 20,340 17,764 20,023 19,239 19,196 30,951
Provision for income taxes.......... 6,015 5,035 6,387 5,773 4,800 7,737
-------- -------- -------- -------- --------- ---------
Income before minority interest
and equity in joint venture
income......................... 14,325 12,729 13,636 13,466 14,396 23,214
Minority interest in net income of
consolidated subsidiary........... 148 259 265 419 415 456
Equity in net income of
unconsolidated joint venture...... 1,267 1,484 1,644 1,062 899 603
-------- -------- -------- -------- --------- ---------
Net income..................... $ 15,444 $ 13,954 $ 15,015 $ 14,109 $ 14,880 $ 23,361
======== ======== ======== ======== ========= =========
Net income per share................ $ 0.68 $ 0.61 $ 0.65 $ 0.60 $ 0.63 $ 0.96
======== ======== ======== ======== ========= =========
</TABLE>
The following table sets forth for the period indicated certain financial
data as a percentage of revenue:
<TABLE>
<CAPTION>
1994 1995
---------------------------------------- ------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Gross Profit....................... 33.7 30.6 32.2 31.4 31.2 38.1
Operating Income................... 20.5 18.4 20.1 19.4 18.2 24.5
Net income......................... 15.8 14.3 15.3 14.3 14.2 19.3
</TABLE>
DISCUSSION OF QUARTERLY RESULTS OF OPERATIONS:
The Company's consolidated quarterly net sales remained flat in the $98-$99
million range during 1994 due primarily to the Company's delayed introduction of
next generation, 1800 oersted disk products. In comparison to older generation
1600 oersted disks, the newer 1800 oersted disk permits a doubling of the
storage density on a disk's surfaces. The Company's existing process
technologies used in the production of 1600 oersted disks required substantial
redesign to accommodate the reduced
15
<PAGE> 17
defect levels and enhanced magnetic performance required in 1800 oersted and
above disk products. These substantial changes in the Company's process
technologies required more time to implement than originally expected.
During the first two quarters of 1994, the Company experienced sharper than
normal declines in its overall selling price due in part to the delay in
attaining volume production of higher priced, next generation 1800 oersted
disks. During these quarters, 1600 oersted product prices declined sharply as
the industry supply of these older generation products met or exceeded industry
demand. The declines in average selling prices during the first two quarters
were offset by increased unit sales that arose from the higher unit production
achieved during these periods. In contrast to the first two quarters of the
year, the overall average selling price remained stable during the third and
fourth quarters of 1994 as demand for the Company's products increased. Unit
production output, however, was constrained during these quarters as additional
production capacity at the Company's Malaysian facility was offset by decreased
unit production at the Company's U.S. facilities. As part of the program to
change its process technologies, one U.S. production line was removed from
production early in the fourth quarter for upgrading. On a rotating basis over
the next two years, one U.S. production line will continually be out of
production for upgrading according to the Company's current plans.
The Company's quarterly gross margins and net income for 1994 remained in a
narrow range, consistent with the flat net sales performance. During the fourth
quarter of 1994, the Company began volume production of 1800 oersted products at
its U.S. factories. The average selling price for the fourth quarter increased
slightly on a sequential basis over the third quarter due to the increased mix
of 1800 oersted disks. Start-up costs associated with the volume manufacturing
ramp of 1800 oersted disks at the Company's U.S. facilities, however,
constrained fourth quarter profitability.
During the first quarter of 1995 the Company continued to aggressively
convert production to 1800 oersted products. As these newer, higher priced
products accounted for an increasing proportion of unit sales, the overall
average selling price rose. Overall unit production output expanded modestly
between the fourth quarter of 1994 and the first quarter of 1995 due to improved
manufacturing efficiencies and the addition of a new production line in March at
the Company's Malaysian manufacturing facility. The Company began volume
production of 1800 oersted products at its Malaysian facility during the first
quarter of 1995. As expected, start-up costs associated with this volume
manufacturing ramp limited first quarter profitability in much the same manner
as the U.S. volume manufacturing ramp affected fourth quarter 1994
profitability.
Overall unit production volume between the first and second quarters of
1995 rose strongly due to increased manufacturing yields on 1800 oersted
products, reduced process cycle times, and full utilization of the additional
production line installed in March, 1995. Higher unit sales and a rising average
selling price associated with an increasing mix of 1800 oersted products
produced a strong sequential increase in net sales. Improved manufacturing
efficiencies, combined with the rising average selling price, led to an
expansion in the gross margin percentage and increased overall profitability for
the second quarter.
The Company anticipates that overall unit production volume will continue
to rise during the third and fourth quarters of 1995 but not necessarily at the
same rate as between the first and second quarters of 1995. Assuming market
demand continues to remain strong, the Company will remain production
constrained during this time period.
16
<PAGE> 18
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Montgomery Securities and
Hambrecht & Quist LLC are acting as representatives, has severally agreed to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
------------------------------------------------------------------------ ----------------
<S> <C>
Goldman, Sachs & Co.....................................................
Montgomery Securities...................................................
Hambrecht & Quist LLC...................................................
----------------
Total................................................................. 1,750,000
==============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 262,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 1,750,000 shares of Common
Stock offered.
The Company has agreed that during the period beginning from the date of
this Prospectus and continuing to and including the date 90 days after the date
of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any securities of the Company (other than pursuant to existing employee stock
purchase and option plans) which are similar to the shares of Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of Common Stock, without the prior written consent of the
representatives of the Underwriters, except for the shares of Common Stock
offered hereby.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In connection with this offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market immediately prior to the commencement of sales in this offering, in
accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on the Nasdaq National Market limited by the bid
prices of independent market makers for a security and making purchases of a
security which are limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
17
<PAGE> 19
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison, Palo Alto, California and for the
Underwriters by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The consolidated financial statements of Komag, Incorporated appearing in
Komag, Incorporated's Annual Report (Form 10-K) for the year ended January 1,
1995, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference
which is based in part on the reports of Chuo Audit Corporation, independent
auditors. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
18
<PAGE> 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JULY 2, 1995
COMMISSION FILE NUMBER 0-16852
KOMAG, INCORPORATED
(REGISTRANT)
INCORPORATED IN THE STATE OF DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER 94-2914864
275 SOUTH HILLVIEW DRIVE, MILPITAS, CALIFORNIA 95035
TELEPHONE: (408) 946-2300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
ON JULY 2, 1995, 23,379,829 SHARES OF THE REGISTRANT'S COMMON STOCK, $0.01
PAR VALUE, WERE ISSUED AND OUTSTANDING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q-1
<PAGE> 21
INDEX
KOMAG, INCORPORATED
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated income statements -- Three- and six-months ended July 2,
1995,
and July 3, 1994.......................................................... Q-3
Consolidated balance sheets -- July 2, 1995, and January 1, 1995.......... Q-4
Consolidated statements of cash flows -- Six months ended July 2, 1995,
and July 3, 1994.......................................................... Q-5
Notes to consolidated financial statements -- July 2, 1995................ Q-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ Q-7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... Q-10
Item 2. Changes in Securities..................................................... Q-10
Item 3. Defaults Upon Senior Securities........................................... Q-10
Item 4. Submission of Matters to a Vote of Security Holders....................... Q-10
Item 5. Other Information......................................................... Q-11
Item 6. Exhibits and Reports on Form 8-K.......................................... Q-11
SIGNATURES........................................................................... Q-12
</TABLE>
Q-2
<PAGE> 22
PART I. FINANCIAL INFORMATION
KOMAG, INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ---------------------
JULY 2 JULY 3 JULY 2 JULY 3
1995 1994 1995 1994
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales...................................... $120,807 $97,774 $225,870 $195,475
Cost of sales.................................. 74,787 67,877 147,083 132,690
-------- ------- -------- --------
GROSS PROFIT......................... 46,020 29,897 78,787 62,785
Operating expenses:
Research, development and engineering........ 5,947 5,488 12,012 10,813
Selling, general and administrative.......... 10,496 6,391 18,038 13,916
-------- ------- -------- --------
16,443 11,879 30,050 24,729
-------- ------- -------- --------
OPERATING INCOME..................... 29,577 18,018 48,737 38,056
Other income (expense):
Interest income.............................. 1,130 801 2,164 1,518
Interest expense............................. (584) (770) (1,198) (1,622)
Other, net................................... 828 (285) 444 152
-------- ------- -------- --------
1,374 (254) 1,410 48
Income before income taxes, minority interest,
and equity in joint venture income........... 30,951 17,764 50,147 38,104
Provision for income taxes..................... 7,737 5,035 12,537 11,050
-------- ------- -------- --------
Income before minority interest and equity in
joint venture income......................... 23,214 12,729 37,610 27,054
Minority interest in net income of consolidated
subsidiary................................... 456 259 871 407
Equity in net income of unconsolidated joint
venture...................................... 603 1,484 1,502 2,751
-------- ------- -------- --------
NET INCOME........................... $ 23,361 $13,954 $ 38,241 $ 29,398
======== ======= ======== ========
Net income per share........................... $ 0.96 $ 0.61 $ 1.59 $ 1.29
======== ======= ======== ========
Number of shares used in per share
computation.................................. 24,234 22,822 23,985 22,758
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
Q-3
<PAGE> 23
KOMAG, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 2 JANUARY 1
1995 1995
--------- ---------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 79,173 $ 47,329
Short-term investments............................................. 17,000 46,619
Accounts receivable less allowances of $2,380 in 1995 and $2,223 in
1994............................................................ 56,259 44,778
Inventories:
Raw materials................................................... 18,916 15,030
Work-in-process................................................. 4,391 5,652
Finished goods.................................................. 1,958 3,419
--------- ---------
Total inventories.......................................... 25,265 24,101
Prepaid expenses and deposits...................................... 2,058 1,611
Deferred income taxes.............................................. 7,069 7,069
--------- ---------
Total current assets....................................... 186,824 171,507
Investment in Unconsolidated Joint Venture........................... 28,805 22,653
Property, Plant and Equipment
Land............................................................... 4,360 4,360
Building........................................................... 34,484 33,322
Equipment.......................................................... 355,364 294,626
Furniture.......................................................... 5,570 4,711
Leasehold Improvements............................................. 47,388 45,633
--------- ---------
447,166 382,652
Less allowances for depreciation and amortization.................. (181,728) (153,769)
--------- ---------
Net property, plant and equipment.......................... 265,438 228,883
Deposits and Other Assets............................................ 893 1,052
--------- ---------
$ 481,960 $ 424,095
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................................. $ 23,160 $ 17,842
Accounts payable to related parties................................ 2,791 2,354
Accrued compensation and benefits.................................. 21,292 17,913
Other liabilities.................................................. 1,451 1,665
Income taxes payable............................................... 5,402 271
Current portion of long-term debt.................................. 11,357 13,232
--------- ---------
Total current liabilities.................................. 65,453 53,277
Long-term Debt, less current portion................................. 11,667 16,250
Deferred Income Taxes................................................ 18,725 18,725
Other Long-term Liabilities.......................................... 511 548
Minority Interest in Consolidated Subsidiary......................... 4,671 4,080
Stockholders' Equity
Preferred stock.................................................... -- --
Common stock....................................................... 234 229
Additional paid-in capital......................................... 245,093 238,262
Retained earnings.................................................. 125,031 86,790
Accumulated foreign currency translation adjustments............... 10,575 5,934
--------- ---------
Total stockholders' equity................................. 380,933 331,215
--------- ---------
$ 481,960 $ 424,095
========== ==========
</TABLE>
- ---------------
Note: The balance sheet at January 1, 1995 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
Q-4
<PAGE> 24
KOMAG, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 2 JULY 3
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 38,241 $ 29,398
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 28,822 22,633
Provision for losses on accounts receivable..................... (73) 134
Equity in net income of unconsolidated joint venture............ (1,502) (2,751)
Loss on disposal of equipment................................... 480 594
Deferred rent................................................... (37) 25
Minority interest in net income of consolidated subsidiary...... 871 407
Changes in operating assets and liabilities:
Accounts receivable........................................... (11,408) 1,560
Inventories................................................... (1,164) 7,842
Prepaid expenses and deposits................................. (456) 1,384
Trade accounts payable........................................ 5,318 (3,279)
Accounts payable to related parties........................... 437 (379)
Accrued compensation and benefits............................. 3,379 (435)
Other liabilities............................................. (214) (560)
Income taxes payable.......................................... 5,131 3,181
Restructuring liability....................................... -- (14,125)
-------- --------
Net cash provided by operating activities.................. 67,825 45,629
INVESTING ACTIVITIES
Acquisition of property, plant and equipment....................... (65,970) (35,486)
Purchases of short-term investments................................ (6,525) (42,121)
Proceeds from short-term investments at maturity................... 36,144 47,948
Proceeds from disposal of equipment................................ 113 2,470
Deposits and other assets.......................................... 159 285
-------- --------
Net cash used in investing activities...................... (36,079) (26,904)
FINANCING ACTIVITIES
Increase in notes payable.......................................... -- 1,500
Payments of notes payable.......................................... -- (4,500)
Payments of long-term obligations.................................. (6,458) (6,280)
Sale of Common Stock, net of issuance costs........................ 6,836 6,336
Distribution to minority interest holder........................... (280) (280)
-------- --------
Net cash provided by (used in) financing activities........ 98 (3,224)
Increase in cash and cash equivalents......................... 31,844 15,501
Cash and cash equivalents at beginning of year..................... 47,329 27,159
-------- --------
Cash and cash equivalents at end of period......................... $ 79,173 $ 42,660
========= =========
</TABLE>
See notes to consolidated financial statements.
Q-5
<PAGE> 25
KOMAG, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 2, 1995
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and six-month periods ended July
2, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended January 1, 1995.
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The three-month reporting periods for the comparable years included
in this report are each comprised of thirteen weeks.
NOTE 2 -- INVESTMENT IN DEBT SECURITIES
The Company invests its excess cash in high-quality, short-term debt and
equity instruments. Short-term investments consist primarily of AAA-rated,
municipal auction-rate preferred stock with maturities greater than 90 days.
None of the Company's investments have maturities greater than one year.
The following is a summary of the Company's investments by major security
type at amortized cost which approximates its fair value:
<TABLE>
<CAPTION>
JANUARY
JULY 2, 1,
1995 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
State and local government securities................................. $80,009 $70,765
Corporate debt securities............................................. 5,250 2,417
Mortgage-backed securities............................................ 18,133 10,677
-------- -------
$103,392 $83,859
======== =======
Amounts included in cash and cash equivalents......................... $86,392 $37,240
Amounts included in short-term investments............................ 17,000 46,619
-------- -------
$103,392 $83,859
======== =======
</TABLE>
The Company utilizes zero-balance accounts and other cash management tools
to invest all available funds including bank balances in excess of book
balances.
NOTE 3 -- INCOME TAXES
The estimated annual effective income tax rate for 1995 of 25% is lower
than the 1995 combined federal and state statutory rate of 41% and the effective
income tax rate for 1994 of 30%. The Company's wholly-owned thin-film media
operation, Komag USA (Malaysia) Sdn., has been granted a tax holiday for a
period of five years commencing in July 1993. The decrease in the effective
income tax rate for 1995 relative to 1994 is primarily due to anticipated growth
in the percentage of consolidated income to be derived from the Malaysian
operation in 1995.
NOTE 4 -- SUBSEQUENT EVENT
On July 18, 1995, the Board of Directors of the Company authorized the
Company to proceed with filing a Registration Statement with the Securities and
Exchange Commission for the sale of up to 2,012,500 shares of the Company's
Common Stock.
Q-6
<PAGE> 26
KOMAG, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Revenue
Net sales of thin-film media increased 24% in the second quarter of 1995
relative to the second quarter of 1994. Unit sales volume growth and an increase
in the overall average selling price accounted for approximately two-thirds and
one-third of this substantial net sales increase, respectively. The overall
average selling price typically strengthens only as the result of product mix
shifts to higher-priced, more technologically advanced product offerings. Price
reductions for individual product offerings are characteristic of the thin-film
media industry. The Company began a rapid transition to its current highest-
density product offering (1800 Oe) in the fourth quarter of 1994. Sales of this
product accounted for 61% of unit sales in the second quarter of 1995. The
higher sales mix of 1800 Oe product and a favorable pricing environment arising
from an industry shortage of this product resulted in smaller than normal price
reductions for individual product offerings and strengthened the overall average
selling price in the second quarter of 1995 relative to the second quarter of
1994. Unit sales of the Company's highest density product offering in the second
quarter of 1994 (1600 Oe) accounted for approximately 67% of net sales in the
quarter, but revenues were adversely affected by pricing as industry supply of
this product met or exceeded demand.
In addition to sales of its internally produced disk products, the Company
resells products manufactured by its Japanese joint venture, Asahi Komag Co.,
Ltd. ("AKCL"). Distribution sales of thin-film media manufactured by AKCL were
$0.3 million in the second quarter of 1995 compared to $2.2 million in the
second quarter of 1994. The Company expects that distribution sales of AKCL
product will be minimal throughout 1995 as demand within the Japanese thin-film
media market is expected to continue to absorb most of AKCL's production output.
Net sales increased 16% in the first half of 1995 relative to the first
half of 1994. Over three-quarters of the increase was due to higher unit sales
volume. The overall average selling price increased between the comparable
six-month periods due to the transition to 1800 Oe product and the favorable
pricing environment arising from strong market demand. Distribution sales of
AKCL manufactured thin-film media were $0.4 million in the first half of 1995
compared to $5.5 million in the first half of 1994.
During the second quarter of 1995 three customers individually accounted
for at least ten percent of consolidated net sales: Seagate Technology, Inc.
(42%), Quantum Corporation (24%), and Hewlett-Packard Company (21%). The Company
expects that it will continue to derive a substantial portion of its sales from
a relatively few number of customers. The distribution of sales among customers
may vary from quarter to quarter based on the match of the Company's product
capabilities with specific disk drive programs of the customers.
Increased production volume may occur due to increased effective capacity
(additional production lines and/or reduced process cycle time) and improvements
in manufacturing efficiencies (yields and/or equipment utilization). The
increased unit production volume required to support the growth in unit sales in
the second quarter of 1995 relative to the second quarter of 1994 was almost
entirely achieved through an increase in effective production capacity. The
Company has historically increased effective production capacity through
implementation of process improvement programs designed to improve unit output
and the addition of sputtering lines. Shortened process cycle times resulting
from these process improvement programs accounted for nearly one-half of the
increase in effective capacity in the second quarter of 1995 relative to the
second quarter of 1994. Net physical capacity additions provided the remaining
increase in unit production volume. The Company added its thirteenth, fourteenth
and fifteenth sputtering lines in January 1994, August 1994 and March 1995,
respectively. One of the Company's fifteen sputtering lines is exclusively
devoted to research and development activities. In late 1994,the Company began a
Q-7
<PAGE> 27
program to upgrade its sputtering machines to enhance product capabilities and
shorten process cycle times. The Company expects one machine will be out of
production on a rotating basis for the next two years. Unit production provided
by a slightly improved manufacturing yield mostly offset the unfavorable impact
of lower equipment utilization in the second quarter of 1995 relative to the
second quarter of 1994. An electrical power outage affecting most of the
Malaysian island of Penang halted production at the Company's Penang facility
for several days late in the second quarter of 1995 and contributed to the
decrease in equipment utilization.
Increased unit production volume in the first half of 1995 compared to the
first half of 1994 was primarily achieved through higher effective capacity in
the current year period. Approximately one-half of the effective capacity
increase resulted from process cycle time reductions. Net physical capacity
additions provided the remaining increase in effective capacity. The effects of
slightly lower equipment utilization in the first half of 1995 relative to the
first half of 1994 were partially offset by an improvement in manufacturing
yields.
The Company anticipates that overall unit production volume will continue
to rise during the third and fourth quarters of 1995 but not necessarily at the
same rate as between the first and second quarters of 1995. Assuming market
demand continues to remain strong, the Company will remain production
constrained during this time period.
Gross Margin
The gross margin percentage for the second quarter of 1995 increased
substantially to 38.1% from 30.6% in the second quarter of 1994. The increase
was attributable to the combination of a higher overall average selling price
and a reduction in the overall average unit production cost, resulting primarily
from shortened cycle times. The electrical power disruption in Malaysia
partially offset the effects of these shortened cycle times on the average unit
production cost. The Company believes it is adequately insured for this
manufacturing disruption and has accrued for a settlement in other income.
The gross margin percentage for the first half of 1995 increased to 34.9%
from 32.1% for the first half of 1994. The increase was primarily attributable
to the higher overall average selling price associated with the mix of 1800 Oe
product. The positive effects of manufacturing efficiencies achieved during the
first half of 1995 were offset in part by 1800 Oe production start-up costs
incurred during the first quarter at the Company's Malaysian facility, by
process equipment write-offs recorded for the cessation of the Company's
magneto-optic disk product line, and by the effects of the electrical power
disruption in Malaysia.
The gross margin percentage for the second quarter of 1995 reached an
historical high for the Company and increased markedly from the 31.2% achieved
for the first quarter of 1995. The elimination of start-up costs associated with
the production ramp of 1800 Oe products and the substantial on-going
manufacturing efficiency improvements, combined with a rising overall average
selling price due to strong market demand and an industry shortage of 1800 Oe
disks, resulted in the record gross margin percentage. To the extent these
factors continue, gross margins should continue to exceed the Company's
historical levels. There can be no assurance, however, that industry demand for
high performance 1800 Oe products will continue to outpace supply. In the event
that market supply meets or exceeds demand or the Company is unable to continue
to increase its production mix of 1800 Oe products, the Company's gross margin
percentage would likely decrease. In the longer term the Company believes that
the gross margin percentage may not be sustainable at these record high levels.
Operating Expenses
Research and development ("R&D") expenses increased 8% ($0.5 million) and
11% ($1.2 million) in the three- and six-month periods of 1995, respectively,
compared to the comparable periods of 1994. The increases between these periods
were mainly due to development costs for advanced thin-film media. Selling,
general and administrative ("SG&A") expenses increased $4.1 million in both the
second quarter of 1995 relative to the second quarter of 1994 and in the first
half of 1995 relative to the first half
Q-8
<PAGE> 28
of 1994. The increases were primarily due to higher provisions for the Company's
bonus and profit sharing programs resulting from the substantially higher
operating performance in the 1995 periods. Excluding provisions for bad debts
and the Company's bonus and profit sharing programs, SG&A expenses increased
approximately $0.1 million between the three-month periods and $0.5 million
between the six-month periods. Increases in administrative costs required to
support the growth in the business accounted for the increase.
Interest and Other Income/Expense
Interest income increased $0.3 million (41%) in the second quarter of 1995
relative to the second quarter of 1994 and $0.6 million (43%) in the first half
of 1995 relative to the first half of 1994. The increases were due primarily to
higher interest rates in the current year periods. Average cash and short-term
investment balances were relatively unchanged between the three- and six-month
comparisons. Interest expense decreased $0.2 million (24%) in the second quarter
of 1995 relative to the second quarter of 1994 and $0.4 million (26%) in the
first half of 1995 relative to the comparable period in 1994 due to lower
average outstanding debt balances in the current year periods. Other income
increased $1.1 million in the second quarter of 1995 compared to the second
quarter of 1994 and $0.3 million in the first half of 1995 relative to the first
half of 1994. The increase between the three-month comparisons was primarily due
to the accrual for an insurance recovery related to the electrical power
disruption at the Company's Malaysian manufacturing facility. The increase
between the six-month periods was the net effect of the insurance accrual and
lower foreign currency gains at the Company's Malaysian operations in the first
half of 1995.
Income Taxes
The estimated annual effective income tax rate for 1995 of 25% is lower
than the 1995 combined federal and state statutory rate of 41% and the effective
income tax rate for 1994 of 30%. The Company's wholly-owned thin-film media
operation, Komag USA (Malaysia) Sdn., has been granted a tax holiday for a
period of five years commencing July 1993. The decrease in the effective income
tax rate for 1995 relative to 1994 is primarily due to anticipated growth in the
percentage of consolidated income to be derived from the Malaysian operation in
1995.
Minority Interest in KMT/Equity in Net Income of AKCL
The minority interest in the net income of consolidated subsidiary
represented Kobe Steel USA Holdings Inc's 45% share of Komag Material
Technology, Inc.'s ("KMT's") net income. KMT recorded net income of $1.0 million
and $1.9 million in the second quarter and first half of 1995, respectively,
compared to $0.6 million and $0.9 million in the second quarter and first half
of 1994, respectively.
The Company records 50% of AKCL's net income as equity in net income of
unconsolidated joint venture. AKCL reported net income of $1.2 million in the
second quarter of 1995, down from $3.0 million in the second quarter of 1994.
AKCL reported net income of $3.0 million for the first half of 1995 compared to
$5.5 million for the first half of 1994. AKCL's functional currency is the
Japanese yen and the Company translates AKCL's yen-based income statements to
U.S. dollars at the average exchange rate for the period. The yen strengthened
approximately 18% and 14% between the comparable three-and six-month periods,
respectively. AKCL's net income would have been approximately $0.8 million and
$2.3 million in the second quarter and first half of 1995, respectively, had the
yen-based income statement been translated at the average rates in effect for
the comparable 1994 periods. The differences between the 1994 results and the
yen adjusted 1995 results for both the three- and six-month periods were
attributable to the combination of lower operating performance and the continued
partial writedown of AKCL's investment in Headway Technologies, Inc. AKCL
recorded writedowns of $1.2 million and $2.2 million (net of tax) in the second
quarter of 1995 and first half of 1995, respectively. AKCL will continue such
write downs until Headway emerges from the development stage. These writedowns
are a function of losses incurred at Headway.
Q-9
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES:
Cash and short-term investments of $96.2 million at the end of the second
quarter of 1995 increased $2.2 million from the end of the prior fiscal year.
Consolidated operating activities generated $67.8 million in cash during the
first half of 1995 and more than funded the Company's $66.0 million of capital
spending during the six-month period. Sales of Common Stock under the Company's
stock option and stock purchase programs during this period generated $6.8
million, while repayments of long-term obligations used $6.5 million.
Total capital expenditures for 1995 are currently planned at approximately
$150 million. Construction of a 230,000 square-foot manufacturing plant on a
55-acre site in the east Malaysian state of Sarawak, capital expenditures
associated with process improvements in the U.S. and Malaysian facilities,
installation of two additional sputtering lines, and payments on an additional
sputtering line (expected to be installed in Malaysia in 1996) are the major
components of the capital plan. Non-cancellable commitments at July 2, 1995
total approximately $80 million.
The Company believes that, in order to achieve its long-term expansion
objectives and maintain and enhance its competitive position, it will need
significant additional financial resources over the next several years for
capital expenditures, working capital and research and development. The Company
has recently announced its intention to proceed with the registration and public
offering of up to 2,012,500 shares of the Company's Common Stock. During the
two-year period of 1995 and 1996, the Company expects to spend approximately
$400 million to add production capacity at its existing facilities, add a new
U.S. manufacturing facility, and begin construction of a southeast Asian
facility. While the Company has potential cash resources to fund these
expenditures through a combination of the proceeds of the anticipated public
offering, its existing cash balances, cash flow from operations, and funds
available from existing bank lines of credit, new debt or equity financing may
be required to fund this level of capital expenditures. If the Company is unable
to obtain sufficient capital it could be required to reduce its capital
equipment and research and development expenditures which could materially
adversely affect the Company's results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- Not Applicable.
ITEM 2. CHANGES IN SECURITIES -- Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --
(a) The Annual Meeting of Stockholders was held on May 24, 1995.
(b) The meeting included the election of the Board of Directors,
submitted as Item No. 1, whose names are as follows:
Tu Chen
Stephen C. Johnson
Craig R. Barrett
Chris A. Eyre
Irwin Federman
George A. Neil
Max Palevsky
Anthony Sun
Masayoshi Takebayashi
Q-10
<PAGE> 30
(c) Other matters voted upon at the stockholders meeting were:
Item No. 2, Approval of Amendments to Restated 1987 Stock Option
Plan; and Item No. 3, Ratification of the Selection of Ernst & Young
LLP as the Company's Independent Auditors for the year ended December
31, 1995.
Shares of Common Stock voted were as follows:
Item No. 1
(Election of Board of Directors)
<TABLE>
<CAPTION>
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR FROM EACH DIRECTOR
-------------- --------------------
<S> <C> <C>
Tu Chen........................................... 20,076,957 216,301
Stephen C. Johnson................................ 20,077,097 216,161
Craig R. Barrett.................................. 20,134,097 159,161
Chris A. Eyre..................................... 20,133,897 159,361
Irwin Federman.................................... 20,134,047 159,211
George A. Neil.................................... 20,077,097 216,161
Max Palevsky...................................... 20,133,847 159,411
Anthony Sun....................................... 20,133,597 159,661
Masayoshi Takebayashi............................. 20,076,928 216,330
</TABLE>
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Item No. 2
(Amendment to Restated 1987 Stock
Option Plan)...................... 15,772,071 4,207,976 216,226 --
Item No. 3
(Selection of Independent
Auditors)......................... 20,258,964 7,195 27,099 --
</TABLE>
(d) Not Applicable.
ITEM 5. OTHER INFORMATION -- Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- Not Applicable.
(b) Form 8-K -- Not Applicable.
Q-11
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOMAG, INCORPORATED
(Registrant)
By: /s/ WILLIAM L. POTTS, JR.
William L. Potts, Jr.
Vice President and
Chief Financial Officer
By: /s/ STEPHEN C. JOHNSON
Stephen C. Johnson
President and
Chief Executive Officer
July 18, 1995
Q-12
<PAGE> 32
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
Information Incorporated by
Reference............................ 2
Prospectus Summary..................... 3
Risk Factors........................... 5
The Company............................ 9
Use of Proceeds........................ 11
Dividend Policy........................ 11
Price Range of Common Stock............ 11
Capitalization......................... 12
Selected Consolidated Financial Data... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 14
Underwriting........................... 17
Legal Matters.......................... 18
Experts................................ 18
Quarterly Report on Form 10-Q.......... Q-1
</TABLE>
---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
1,750,000 SHARES
KOMAG, INCORPORATED
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
------------------
GOLDMAN, SACHS & CO.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all costs and
expenses (all of which will be paid by the Registrant) in connection with the
issuance and distribution of the securities being registered pursuant to this
Registration Statement, other than underwriting discounts and commissions, if
any. All of the amounts shown are estimates except the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
listing fee:
<TABLE>
<S> <C>
SEC Registration Fee................................................... $ 39,341
NASD Fee............................................................... 11,909
The Nasdaq National Market Listing Fee................................. 17,500
Blue Sky Fees and Expenses............................................. 10,000
Legal Fees and Expenses................................................ 85,000
Accounting Fees and Expenses........................................... 45,000
Printing Expenses...................................................... 35,000
Transfer Agent and Registrar's Fees and Expenses....................... 1,500
Miscellaneous.......................................................... 4,750
--------
Total............................................................. $250,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article VII Section 6 of the Registrant's Bylaws
provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as a director to the Company and its stockholder. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
indemnification agreements with its officers and directors which are intended to
provide the Registrant's officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. In certain
instances, the indemnification agreements may result in an expansion of the
substantive protection available to such individuals under the Certificate of
Incorporation and Bylaws. Reference is also made to Section 8 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
II-1
<PAGE> 34
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
4.2(1) Specimen Stock Certificate.
5.1 Opinion of Brobeck, Phleger & Harrison.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Chuo Audit Corporation.
23.3 Consent of Brobeck, Phleger & Harrison (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-3).
</TABLE>
- ---------------
(1) Incorporated by reference from a similarly numbered exhibit filed with
Amendment No.1 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission ("SEC") on May 26, 1987.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of the Registrant's Certificate of
Incorporation and Bylaws, Delaware Corporation Law, the Underwriting Agreement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 35
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN MILPITAS, CALIFORNIA, ON THIS 18TH DAY OF JULY, 1995.
KOMAG, INCORPORATED
By: /s/ STEPHEN C. JOHNSON
------------------------------------
Stephen C. Johnson
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears herein constitutes and appoints Stephen C. Johnson and William L. Potts,
Jr., and each of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitures, may
lawfully do or cause to be done by virtue hereof
II-3
<PAGE> 36
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------ --------------
<C> <C> <S>
/s/ TU CHEN Chairman of the Board July 18, 1995
- ------------------------------------- and Director
(Tu Chen)
/s/ STEPHEN C. JOHNSON President, Chief Executive July 18, 1995
- ------------------------------------- Officer and Director
(Stephen C. Johnson)
/s/ WILLIAM L. POTTS, JR. Vice President-Chief Financial July 18, 1995
- ------------------------------------- Officer and Secretary
(William L. Potts, Jr.) (Principal Financial and
Accounting Officer)
/s/ CRAIG R. BARRETT Director July 18, 1995
- -------------------------------------
(Craig R. Barrett)
/s/ CHRIS A. EYRE Director July 15, 1995
- -------------------------------------
(Chris A. Eyre)
/s/ IRWIN FEDERMAN Director July 18, 1995
- -------------------------------------
(Irwin Federman)
/s/ GEORGE A. NEIL Director July 18, 1995
- -------------------------------------
(George A. Neil)
/s/ MAX PALEVSKY Director July 18, 1995
- -------------------------------------
(Max Palevsky)
/s/ ANTHONY SUN Director July 18, 1995
- -------------------------------------
(Anthony Sun)
/s/ MASAYOSHI TAKEBAYASHI Director July 18, 1995
- -------------------------------------
(Masayoshi Takebayashi)
</TABLE>
II-4
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.............................................
4.2 (1) Specimen Stock Certificate.................................................
5.1 Opinion of Brobeck, Phleger & Harrison.....................................
23.1 Consent of Ernst & Young LLP...............................................
23.2 Consent of Chuo Audit Corporation..........................................
23.3 Consent of Brobeck, Phleger & Harrison (included in Exhibit 5.1)...........
24.1 Power of Attorney (included on page II-3)..................................
</TABLE>
- ---------------
(1) Incorporated by reference from a similarly numbered exhibit filed with
Amendment No.1 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission ("SEC") on May 26, 1987.
<PAGE> 1
Exhibit 1.1
KOMAG, INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
Goldman, Sachs & Co.
Montgomery Securities
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
August , 1995
Dear Sirs:
Komag, Incorporated, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
1,750,000 shares and, at the election of the Underwriters, up to 262,500
additional shares of Common Stock ("Common Stock") of the Company. The aggregate
of 1,750,000 shares to be sold by the Company is herein called the "Firm Shares"
and the aggregate of 262,500 additional shares to be sold by the Company is
herein called the "Optional Shares." The Firm Shares and the Optional Shares
which the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares."
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 33- ) in
respect of the Firm Shares and the Optional Shares has been filed with the
Securities and Exchange Commission (the "Commission"); such registration
statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, and, excluding exhibits thereto, but including
all documents incorporated by reference in the prospectus contained
therein, to you for each of the other Underwriters, have been declared
effective by the Commission in such form; no other document with respect to
such registration statement or document incorporated by reference therein
has heretofore been filed with the Commission; and no stop order suspending
the effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in such registration
statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Securities Act of 1933, as
amended (the "Act"), being hereinafter called a "Preliminary Prospectus";
the various parts of such registration statement, including all exhibits
thereto and including (i) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the registration statement at the time it was
declared effective and (ii) the documents incorporated by reference in the
prospectus contained in the registration statement at the time such part of
the registration statement became effective, each as amended at the time
such part of the registration statement became effective, being hereinafter
called the "Registration Statement"; and such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, being hereinafter called
the "Prospectus"; and any reference herein to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Preliminary Prospectus or Prospectus, as the
case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include
<PAGE> 2
any documents filed after the date of such Preliminary Prospectus or
Prospectus, as the case may be, under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and incorporated by reference in such
Preliminary Prospectus or Prospectus, as the case may be; and any reference
to any amendment to the Registration Statement shall be deemed to refer to
and include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the
Registration Statement that is incorporated by reference in the
Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement thereto,
when such documents become effective or are filed with the Commission, as
the case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through you expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock, including
the issuance of stock options, warrants or other rights to purchase capital
stock of the Company (except for [the exercise of outstanding warrants] and
the exercise of employee stock options or grants pursuant to the Company's
Restated 1987 Stock Option Plan or its 1988 Employee Stock Purchase Plan
(the "Stock Plans")), or any material increase in the short term debt or
any increase in the long term debt of the Company or any of its
2
<PAGE> 3
subsidiaries, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries otherwise than as set forth
or contemplated in the Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
in fee simple to all material real property and good and marketable title
to all material personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are described
in the Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries;
(vii) The Company has been duty incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it leases properties, or
conducts any business, so as to require such qualification, or is subject
to no liability or disability material to the business of the Company and
its subsidiaries by reason of the failure to be so qualified in any such
jurisdiction; and the Company has no "significant subsidiary", as such term
is defined in Section 210.1-02 of Regulation S-X under the Act, other than
Asahi Komag Co., Ltd.;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Common Stock contained
in the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares and except that the Company owns (a) 55% of the capital stock of
Komag Material Technology, Inc., (b) a 50% interest in Komag Technology
Partners, a California general partnership, and (c) less than 20%
(calculated on a voting basis) of the capital stock of Headway
Technologies, Inc.) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Common Stock contained in the Prospectus;
(x) The issue and sale of the Firm Shares and Optional Shares by the
Company and the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the
3
<PAGE> 4
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Firm Shares and Optional Shares and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(xi) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of the property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the consolidated
financial position, stockholders equity or results of operations of the
Company and its subsidiaries; and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(xii) Ernst & Young, who have audited certain consolidated financial
statements of the Company and its subsidiary, Komag Material Technology,
Inc., are independent auditors as required by the Act and the rules and
regulations of the Commission thereunder;
(xiii) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, adequate licenses or other rights to use all patents,
trademarks, service marks, trade names, copyrights, technology and know-how
necessary to conduct the business now or proposed to be conducted by the
Company as described in the Prospectus, and, except as disclosed in the
Prospectus, neither the Company nor any of its subsidiaries has received
any notice of infringement of or conflict with (and neither the Company nor
any of its subsidiaries knows of any such infringement of or conflict with)
asserted rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights, technology or know-how which the Company
believes is reasonably likely to result in any material adverse effect upon
the Company and its subsidiaries; and, except as disclosed in the
Prospectus, the Company's discoveries, inventions, products or processes
referred to in the Prospectus do not, to the Company's knowledge, infringe
or conflict with any right or patent of any third party or any discovery,
invention, product or process which is the subject of a patent application
filed by any third party known to the Company;
(xiv) Each of the Company and its subsidiaries has obtained any
permits, consents and authorizations required to be obtained by it under
laws or regulations relating to the protection of the environment or
concerning the handling, storage, disposal or discharge of toxic materials
(collectively, "Environmental Laws"), and any such permits, consents and
authorizations remain in full force and effect. Each of the Company and its
subsidiaries is in compliance with the Environmental Laws in all material
respects, and there is no pending or, to the Company's knowledge,
threatened, action or proceeding against the Company or any of its
subsidiaries alleging violations of the Environmental Laws.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at a purchase price per
share of $ , the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto, and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company at the purchase price per share set forth in clause (a) of this Section
2, that portion of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I
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hereto and the denominator of which is the maximum number of Optional Shares
which all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 262,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company to Goldman,
Sachs & Co. for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company, in New York
Clearing House or similar next day funds, all at the office of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004. The Company agrees to instruct
the bank at which the check is deposited that the funds are not to be made
available to the Company (nor transferred from the account of Goldman, Sachs &
Co.) prior to the Business Day next succeeding the Time of Delivery (as defined
below), and further agrees not to deposit any such check in the bank on which it
is drawn earlier than the Business Day next succeeding the Time of Delivery, nor
to take any other action with the purpose or effect of receiving immediately
available funds, or earning interest on such funds, until the Business Day next
succeeding the Time of Delivery. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 7:00 am., San Francisco Time, on
August , 1995 or such other time and date as you and the Company may agree
upon in writing, and, with respect to the Optional Shares, 7:00 a.m., San
Francisco Time, on the date specified by you in the written notice given by you
of the Underwriters' election to purchase such Optional Shares, or at such other
time and date as you and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery," such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery," and each
such time and date for delivery is herein called a "Time of Delivery." Such
certificates will be made available for checking and packaging at least
twenty-four hours prior to each Time of Delivery at the office of Goldman, Sachs
& Co., 85 Broad Street, New York, New York 10004.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when the Registration Statement, or
any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary
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<PAGE> 6
Prospectus or Prospectus, of the suspension of the qualification of the
Shares for offering or sales in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during
such same period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Act or the Exchange Act, to notify you and upon
your request to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies
as you may from time to time reasonably request of an amended Prospectus or
a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at
any time nine months or more after the time of issue of the Prospectus,
upon your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including at the option
of the Company Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date which is 90 days after the date hereof, not to
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to Stock Plans or on the conversion of
convertible securities outstanding on the date of this Agreement) which are
substantially similar to the Shares, without your prior written consent;
(f) To furnish to its holders in a timely fashion after the end of
each fiscal year an annual report (including a balance sheet and statements
of income, stockholders' equity and cash flow of the Company and its
consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of
each fiscal year, consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail; and
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and deliver
to you (i) as soon as they are available, copies of any reports and
financial
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<PAGE> 7
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company and its subsidiaries as you may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission).
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and independent auditors in connection
with the registration of the Shares under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Blue Sky Memorandum and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof; including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky surveys;
(iv) the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(v) the cost of preparing stock certificates; (vi) the cost and charges of any
transfer agent or registrar; and (vii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 6. It is understood that the Company
shall bear the cost of any other matter not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as provided
in this Section 6, Section 8 and Section 11 hereof, the Underwriters will pay
all of their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder therefore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the
Underwriters, shall have furnished to you such opinion or opinions (a draft
of each such opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of
the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
(c) Brobeck, Phleger & Harrison, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
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<PAGE> 8
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Common
Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, or is
subject to no material liability or disability by reason of failure to
be so qualified in any such jurisdiction (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of officers
of the Company, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such opinions and
certificates);
(iv) Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and nonassessable, and (except for
directors' qualifying shares and except that the Company owns (a) 55% of
the capital stock of Komag Material Technology, Inc., (b) a 50% interest
in Komag Technology Partners, a California general partnership, and (c)
less than 20% (calculated on a voting basis) of the capital stock of
Headway Technologies, Inc.) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
(such counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions and certificates);
(v) The real property and buildings held under lease by the Company
at its manufacturing facilities in Milpitas and San Jose, California,
are held, to our knowledge, under valid, binding and enforceable leases
with such exceptions as are not material and do not interfere with the
use made of such property and buildings by the Company;
(vi) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and, to the best of such counsel's knowledge, no such proceedings are
threatened;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
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(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement, except
the registration under the Act of the Shares, and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters; and
(x) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion),
when they or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Act or the Exchange Act,
as applicable, and the rules and regulations of the Commission
thereunder; and they have no reason to believe that any of such
documents, when such documents became effective or were so filed, as the
case may be, contained, in the case of a registration statement which
became effective under the Act, an untrue statement of a material fact,
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or, in the case
of other documents which were filed under the Exchange Act with the
Commission, an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
documents were so filed, not misleading; and
(xi) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder; they have no reason to
believe that, as of its effective date, the Registration Statement or
any further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading or that, as of such Time of Delivery, either the Registration
Statement or the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be incorporated by reference into
the Prospectus or required to be described in the Registration Statement
or the Prospectus which are not filed or incorporated by reference or
described as required.
(d) On the date of the Prospectus at a time prior to execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement and also at each
Time of Delivery, Ernst & Young shall have furnished to you a letter or
letters, dated the respective date of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b));
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any
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<PAGE> 10
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been
any change in the capital stock of the Company, including the issuance of
stock options, warrants or other rights to purchase capital stock,
otherwise than as set forth or contemplated in the Prospectus or upon the
exercise of outstanding warrants and the exercise of employee stock options
or grants pursuant to the Stock Plans, or any material increase in the
short term debt or any increase in the long-term debt of the Company or any
of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is in your judgment so material and adverse as to make
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; or (iii) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this clause (iii) in your judgment makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of Prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(h) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company,
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have furnished
or caused to be furnished certificates of officers of the Company as to the
matters set forth in subsections (a) and (e) of this Section 7, and as to
such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through you expressly for use therein.
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(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through you expressly for use therein; and will reimburse
the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law or if the indemnified party failed to
give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
(before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
11
<PAGE> 12
The Company and the Underwriters agree that if would not be just and
equitable if contributions pursuant to this subsection (d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account the equitable considerations referred to above in this subsection
(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters
obligations in this subsection (d) to contribute are several in proportion
to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company and to each person, if any, who controls the Company within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such
Shares, you or the Company shall have the right to postpone the Time of
Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees to file promptly any amendments to the Registration
Statement or the Prospectus which in your opinion may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such
person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the
12
<PAGE> 13
aggregate number of all the Shares to be purchased at such Time of Delivery
or if the Company shall not exercise the right described in subsection (b)
above to require non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the Underwriters
to purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter
or the Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any Underwriter except as
provided in Section 6 and Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you in care of Goldman, Sachs & Co., at 85 Broad
Street, New York, New York 10004, Attention: Registration Department; and if to
the Company shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company by you on request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters and the Company and, to the extent provided in Sections 8
and 10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of
13
<PAGE> 14
which shall be submitted to the Company for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
Komag, Incorporated
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Accepted as of the date hereof:
Goldman, Sachs & Co.
Montgomery Securities
Hambrecht & Quist LLC
- ---------------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
14
<PAGE> 15
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included or incorporated by reference in the Registration Statement or the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act or the Exchange Act, as applicable, and
the related published rules and regulations thereunder; and, if applicable,
they have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been separately furnished to the representatives of the
Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus and/or
included in the Company's quarterly report on Form 10-Q incorporated by
reference into the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Representatives; and on the
basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in the related
in all material respects with the applicable accounting requirements of the
Act and the Exchange Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the Exchange Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus and
included or incorporated by reference in Item 6 of the Company's Annual
Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for
15
<PAGE> 16
financial and accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included or incorporated by reference
in the Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Exchange Act
and the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus or included in the
Company's Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus, for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which such
data and items were derived, and any such unaudited data and items were
not determined on a basis substantially consistent with the basis for
the corresponding amounts in the audited consolidated financial
statements included or incorporated by reference in the Company's Annual
Report on Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived the unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited financial statements included
or incorporated by reference in the Company's Annual Report on Form 10-K
for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest balance sheet included
or incorporated by reference in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or stockholders' equity or
other items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included or incorporated by
reference in the Prospectus, except in each case for changes, increases
or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included or incorporated by reference in the Prospectus to the specified
date referred to in Clause (E) there were any decreases in consolidated
net revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in each
case as compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for increases or decreases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
16
<PAGE> 17
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus (excluding
documents incorporated by reference) or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives
or in documents incorporated by reference in the Prospectus specified by
the Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
17
<PAGE> 18
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE PURCHASED
TOTAL NUMBER OF FIRM IF MAXIMUM OPTION
UNDERWRITER SHARES TO BE PURCHASED EXERCISED
- ------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Goldman, Sachs & Co..............................
Montgomery Securities............................
Hambrecht & Quist LLC............................
---------------------- -----------
Total.................................. 1,750,000 262,500
=================== ===================
</TABLE>
18
<PAGE> 1
Ex. 5.1
[LETTERHEAD]
July 18, 1995
Komag, Incorporated
275 South Hillview Drive
Milpitas, California 95035
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by
Komag, Incorporated (the "Company") with the Securities and Exchange Commission
(the "Commission"), as thereafter amended or supplemented (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of 1,750,000 shares (including an option granted by you to
the Underwriters to purchase up to 262,500 shares to cover over-allotments, if
any) of the Company's Common Stock (the "Shares"). The Shares are to be sold to
the underwriters for resale to the public as described in the Registration
Statement and pursuant to the Underwriting Agreement being filed as an exhibit
thereto. As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be
taken by you in connection with the sale and issuance of the Shares.
It is our opinion that, upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares, and the Shares, when issued and sold in the manner described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this Opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment thereto.
Very truly yours,
/s/ Brobeck, Phelger & Harrison
-------------------------------
BROBECK, PHLEGER & HARRISON
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Komag, Incorporated
for the registration of 2,012,500 shares of its common stock and to the
incorporation by reference therein of our report dated January 31, 1995, with
respect to the consolidated financial statements and schedule of Komag,
Incorporated included in its Annual Report (Form 10-K) for the year ended
January 1, 1995 filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
July 18, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Komag, Incorporated
for the registration of 2,012,500 shares of its common stock and to the
incorporation by reference therein of our report dated January 27, 1995, with
respect to the financial statements of Asahi Komag Company, Ltd., which report
is included in the Komag, Incorporated Annual Report (Form 10-K) for the year
ended January 1, 1995, filed with the Securities and Exchanges Commission.
CHUO AUDIT CORPORATION
Tokyo, Japan
July 17, 1995
