<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1997
Commission file number 0-25796
STORMEDIA INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 77-0373062
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
385 REED STREET, SANTA CLARA, CALIFORNIA 95050-3118
(Address of principal executive offices)
(Zip Code)
(408) 327-8400
(Registrant's telephone number, including area code)
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
--- ---
As of May 2, 1997, 13,408,358 shares of the Registrant's Class A Common
Stock, $0.013 par value, and 4,362,001 shares of the Registrant's Class B Common
Stock, $0.013 par value, were issued and outstanding.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations -- Three Months Ended March 28, 1997
and March 29, 1996 ...................................................................... 3
Condensed Consolidated Balance Sheets -- As of March 28, 1997 and December 31, 1996 ......... 4
Condensed Consolidated Statements of Cash Flows -- Three Months Ended
March 28, 1997 and March 29, 1996 ....................................................... 5
Notes to Condensed Consolidated Financial Statements ........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................. 19
Item 2. Changes in Securities ......................................................................... 19
Item 3. Defaults Upon Senior Securities ............................................................... 19
Item 4. Submission of Matters to a Vote of Securities Holders ......................................... 19
Item 5. Other Information ............................................................................. 20
Item 6. Exhibits and Reports on Form 8-K .............................................................. 20
SIGNATURES ................................................................................................... 21
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 28, 1997 MARCH 29, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 34,100 $61,156
Cost of sales 39,004 44,047
-------- -------
Gross profit (4,904) 17,109
Operating expenses:
Research and development 3,190 3,708
Selling, general, and administrative 2,339 2,050
-------- -------
Total operating expenses 5,529 5,758
Operating earnings (loss) (10,433) 11,351
Interest income (expense), net (562) 485
-------- -------
Earnings (loss) before income tax expense (benefit) (10,995) 11,836
-------- -------
Income tax expense (benefit) (1,676) 2,367
Net earnings (loss) $ (9,319) $ 9,469
======== =======
Earnings (loss) per share:
Primary $ (0.52) $ 0.52
======== =======
Fully diluted $ (0.52) $ 0.52
======== =======
Shares used in per share computation:
Primary 17,787 18,305
======== =======
Fully diluted 17,787 18,309
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 28, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents and short-term investments $ 42,219 $ 47,711
Accounts receivable, less allowances of $1,150 at March 28,
1977 and $1,177 at December 31, 1996 24,916 31,047
Inventories 14,694 14,848
Prepaid expenses 6,834 6,794
Deferred income taxes 2,819 2,819
-------- --------
Total current assets 91,482 103,219
Plant and equipment, net 141,083 137,162
Deferred income taxes 17 17
Deposits and other assets 1,434 1,338
-------- --------
$234,016 $241,736
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable $ 26,696 $ 25,234
Current portion of long-term debt 5,017 5,014
Accrued salaries and benefits 4,759 4,151
Income taxes payable 932 2,556
Other accrued expenses $ 2,858 $ 1,952
-------- --------
Total current liabilities 40,262 38,907
Deferred income taxes 245 245
Long-term debt, less current portion 45,017 45,024
Equity:
Common stock, par value $.013 per share 234 233
Additional paid-in capital 124,936 124,686
Retained earnings 23,322 32,641
-------- --------
Total equity 148,492 157,560
-------- --------
$234,016 $241,736
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 28, 1997 MARCH 29, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (9,319) $ 9,469
Adjustments to reconcile earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 7,142 3,029
Net loss on sale of plant and equipment 263 --
Changes in operating assets and liabilities:
Accounts receivable 6,131 (9,251)
Inventories 154 (546)
Prepaid expenses (40) (689)
Other assets (96) (219)
Trade accounts payable 1,462 13,405
Accrued liabilities 1,514 (577)
Income taxes payable (1,624) 2,339
-------- --------
Net cash provided by operating activities 5,587 16,960
-------- --------
INVESTING ACTIVITIES
Acquisition of plant and equipment (11,325) (27,909)
Sale (purchase) of short-term investments, net (250) 12,626
-------- --------
Net cash used in investing activities (11,575) (15,283)
-------- --------
FINANCING ACTIVITIES
Payment of debt obligations (4) (106)
Proceeds from issuance of Class A Common stock, net of
issuance costs 250 173
Settlement of put options -- (311)
Repurchase of Class A Common Stock -- (7,216)
-------- --------
Net cash provided by (used in) financing activities 246 (7,460)
-------- --------
Decrease in cash and cash equivalents (5,742) (5,783)
Cash and cash equivalents at beginning of period 23,788 37,407
-------- --------
Cash and cash equivalents at end of period $ 18,046 $ 31,624
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 566 $ --
======== ========
Cash paid for income taxes $ 21 $ --
======== ========
Non-cash financing and investing activities:
Tax benefit arising from early dispositions of stock issued
upon exercise of stock options $ -- $ 901
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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STORMEDIA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THREE MONTHS ENDED MARCH 28, 1997 AND MARCH 29. 1996
IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed 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, the condensed consolidated
financial statements include all adjustments which are necessary for a fair
presentation. Operating results for the three months ended March 28, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997 or any other interim period. The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's audited financial statements included in its Annual Report on Form
10-K for the year ended December 31, 1996 which was filed with the Securities
and Exchange Commission on March 25, 1997.
NOTE 2 - BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 28, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Inventories:
Raw materials $ 5,518 $ 6,586
Work-in-process 4,213 5,638
Finished goods 4,963 2,624
--------- --------
Total inventories $ 14,694 $ 14,848
========= ========
Plant and equipment:
Land $ 220 $ 220
Building and leasehold improvements 32,689 32,009
Machinery and equipment 102,449 95,982
Construction-in-progress 35,690 32,161
--------- --------
$ 171,048 $160,372
Less allowance for depreciation and
amortization (29,965) (23,210)
--------- --------
Plant and equipment, net $ 141,083 $137,162
========= ========
</TABLE>
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ materially from those set forth in such
forward-looking statements as a result of the factors set forth under "Factors
Affecting Operating Results" and other risks detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission.
OVERVIEW
During 1996, the Company sold its disks primarily to Seagate Technology,
Inc. ("Seagate") and Maxtor Corporation ("Maxtor"), representing 72% and 24% of
net sales, respectively. In November 1995, the Company entered into a multi-year
Supply Agreement with Maxtor (the "Maxtor Supply Agreement") pursuant to which
Maxtor agreed to purchase specified volumes over a four-year period. In June
1996, Maxtor repudiated the Maxtor Supply Agreement and caused the Company to
experience excess capacity while it sought to qualify in additional products
with new and existing customers. While Seagate and other customers have taken a
portion of this capacity, during the first quarter of 1997, the Company
continued to experience excess manufacturing capacity as it sought to qualify
its products in new and existing customers' product programs. During the three
months ended March 28, 1997, sales to Seagate represented 56% of net sales.
Recently, the Company has qualified its products in the product programs
of both new and existing customers. In December 1996, the Company entered into a
multi-year agreement with Micropolis(s) Pte Ltd., a manufacturer of digital
audio/video disk drives (the "Micropolis Agreement"). Under the terms of the
Micropolis Agreement, the Company will set up and operate a 15,000 square foot
thin film manufacturing facility (the "Micropolis Facility") within Micropolis'
400,000 square foot disk drive manufacturing plant in Singapore. Micropolis has
agreed to purchase all of the disks manufactured at the Micropolis Facility
through December 31, 1999. The Company believes that the Micropolis Agreement
will result in savings for both companies in areas such as packaging, transport
and response time. The Company expects that the Micropolis Facility will begin
furnishing Micropolis with a portion of its thin film requirements in the third
quarter of 1997. In addition, the Company has agreed to supply Micropolis with
specified volumes of products from its other facilities until the Micropolis
Facility is completed. During the three months ended March 28, 1997, sales to
Micropolis represented 21% of net sales. The Company also qualified a product
with Iomega Corporation ("Iomega"), and sales of this product represented 14%
of net sales for the three months ended March 28, 1997. While the Company
expanded its customer base during the first quarter of 1997, some product
qualifications that were expected to be completed were not and, as a result, net
sales were negatively impacted by the decrease in unit volume. The Company is in
various stages of product qualifications with other potential customers and
expects to commence shipping under certain of these programs in the second
quarter of 1997. However, the qualification of new products is a costly and time
consuming process and there can be no assurance that the Company will
successfully continue to find new customers or successfully qualify its products
in their product programs on a timely basis.
The Company's gross margins have fluctuated and will continue to fluctuate
quarterly and annually based upon a variety of factors such as the level of
utilization of the Company's production capacity, changes in product mix,
average selling prices, demand or manufacturing yields, increases in production
and engineering costs associated with initial production of new programs,
changes in the cost of or limitations on availability of materials and labor
shortages. During 1996 and the three months ended March 28, 1997, the Company
reported a gross margin of 17.3% and (14.4%), respectively. The Company's gross
margins were lower during the first quarter of 1997 from levels experienced in
1996 primarily due to the continuing under-utilization of production capacity
from previous levels, the Seagate Supply Agreement, which is calculated based
upon a pricing formula which results in gross margins that are capped, and the
increase in capacity due to the Company's Singapore manufacturing facility which
is dedicated to manufacturing products for Seagate (the "Dedicated Facility")
becoming fully operational.
The Company expects that a substantial portion of the Company's shipments
in the first half of 1997 will be of new products, including high performance
magneto resistive (MR) disks. Generally, new products have higher average
selling prices than more mature products but initially have lower manufacturing
yields and generally are initially produced in lower
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<PAGE> 8
quantities than more mature products. There can be no assurance that the
Company's gross margins will not be negatively impacted by the introduction of
these and other new products in the first half of 1997.
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<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 28, 1997 MARCH 29, 1996
-------------- --------------
<S> <C> <C>
Net sales...................................................................... 100.0% 100.0%
Cost of sales.................................................................. 114.4 72.0
----- -----
Gross profit.......................................................... (14.4) 28.0
Operating expenses:
Research and development....................................................... 9.3 6.1
Selling, general, and administrative........................................... 6.9 3.4
----- -----
Total operating expenses.............................................. 16.2 9.4
----- -----
Operating earnings (loss)............................................. (30.6) 18.6
Interest income (expense) net.................................................. (1.6) 0.8
----- -----
Earnings (loss) before income tax expense...................................... (32.2) 19.4
Income tax expense (benefit)................................................... (4.9) 3.9
----- -----
Net earnings (loss)............................................................ (27.3%) 15.5%
===== =====
</TABLE>
1997 COMPARED TO 1996
Net Sales
Net sales decreased 44.2% to $34.1 million for the three months ended
March 28, 1997 from $61.2 million for the three months ended March 29, 1996. The
decrease in net sales was primarily due to a decrease in unit volume and
secondarily due to a slight decrease in average selling prices. The Company's
principal customers during the first quarter of 1997 were Seagate Technology,
Inc. ("Seagate"), Micropolis (S) Pte Ltd. ("Micropolis") and Iomega Corporation
("Iomega") sales to which represented 56%, 21% and 14%, respectively, of
net sales. The Company's customers during the first quarter of 1996 were
Seagate and Maxtor.
Net sales for the three months ended March 28, 1997 as compared to the
three months ended March 29, 1996 were negatively impacted by the failure of
Maxtor and Hyundai to purchase the volumes committed under the Maxtor Supply
Agreement. In June 1996, Maxtor notified the Company that it did not intend to
purchase the full committed volumes required by the Maxtor Supply Agreement.
Maxtor subsequently terminated the Maxtor Supply Agreement. In September 1996,
the Company filed a lawsuit in the United States District Court of Northern
California, San Jose Division, against Hyundai Electronics Industries Co., Ltd.,
seeking damages caused by Hyundai's alleged breach of the volume purchase
contract among the Company, Hyundai, and its wholly-owned subsidiary, Maxtor
Corporation. The Company continues to seek additional customers to utilize the
manufacturing capacity as it seeks to qualify its products in additional product
programs of both new and existing customers.
Although the Company expanded its customer base during the first quarter
of 1997, some product qualifications that were expected to be completed were
not. As a result, net sales were further negatively impacted by the delay in new
product qualifications. These qualification problems are being addressed and the
Company expects to increase net sales during the remainder of 1997.
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<PAGE> 10
Gross Profit
The Company's gross profit decreased 128.7% to $(4.9) million for three
months ended March 28, 1997 from $17.1 million for the three months ended March
29, 1996. Gross profit as a percentage of net sales for the three months ended
March 28, 1997 was (14.4%) as compared to 28.0% for the three months ended March
29, 1996.
The principal factors contributing to the decrease in gross profit for
three months ended March 28, 1997 as compared to the three months ended March
29, 1996 were decreased unit volumes as a result of the failure of Maxtor to
purchase the volumes committed to under the Maxtor Supply Agreement and the
resulting under-utilization of production capacity. In addition, the
introduction of new products with lower manufacturing yields contributed to
lower gross margins. The Company expects gross margins in 1997 will remain at
levels below those experienced in 1995 and the first half of 1996. Additionally,
the purchase price of disks under the Seagate Supply Agreement is calculated
based upon a pricing formula which have resulted in capped gross margins that
are generally lower than the Company's gross margins experienced in 1995 and in
the first half of 1996. In an effort to replace the volume created by Hyundai's
termination, the Company has been accelerating qualification and production of
new products with significantly lower yields and lower gross margins. The
Company expects that a substantial portion of its shipments in 1997 will be of
new products. New products, including high performance MR disks, often initially
have lower manufacturing yields, initially are produced in lower quantities than
more mature products and, as a result, initially have lower gross margins.
Manufacturing yields and gross margins generally improve as the product matures
and production volumes increase.
Research and Development
Research and development expenses decreased 14.0% to $3.2 million for the
three months ended March 28, 1997 from $3.7 million for the three months ended
March 29, 1996, increasing as a percentage of net sales to 9.3% for the three
months ended March 28, 1997 from 6.1% for the three months ended March 29,
1996. The decrease in research and development expense was due principally to
the reduction of experimentation related to first and second generation MR
disks. The increase as a percentage of net sales was due primarily to the
reduced level of net sales.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased 14.1% to $2.3
million for the three months ended March 28, 1997 from $2.1 million for the
three months ended March 29, 1996, increasing as a percentage of net sales to
6.9% for the three months ended March 28, 1997 from 3.4% for the three months
ended March 29, 1996. The increase in selling, general & administrative expense
is due principally to the expanded operations in Singapore and higher legal
fees. The increase as a percentage of net sales was due primarily to the
reduced level of net sales.
Interest, Net
Interest, net for the three months ended March 28, 1997 was $0.6 million
expense compared to $0.5 million income for the three months ended March 29,
1996. The change was primarily attributable to lower net cash levels during the
three months ended March 28, 1997 as compared to the three months ended March
29, 1996.
Income Tax Expense (Benefit)
The Company's effective tax rate (which includes federal and state income
tax expense) decreased to 15.0% for the three months ended March 28, 1997 from
20.0% for the three months ended March 29, 1996, primarily due to increased
earnings in Singapore. The Company has been granted a seven year tax holiday in
Singapore which expires in 1999, with the possibility of a three year extension.
The benefit of the Company's income tax holiday in Singapore is the primary
factor contributing to the lower tax rate.
Liquidity and Capital Resources
Cash and cash equivalents and short-term investments of $42.2 million as
of March 28, 1997 decreased $5.5 million from December 31, 1996, primarily due
to acquisition of plant and equipment offset by changes in working capital.
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<PAGE> 11
During the three months ended March 28, 1997, the Company generated $5.6
million from operating activities. Sources included $7.1 million of depreciation
and amortization, $6.1 million decrease in accounts receivable, offset by a net
loss of $9.3 million. The decrease in accounts receivable was principally due to
lower net sales level for the three months ended March 28, 1997.
The Company used $11.6 million in investing activities for the three
months ended March 28, 1997. Investing activities consisted primarily of
investments of $11.3 million for capital expenditures for facilities expansion
for its Singapore operations, including its substrate facility.
Capital expenditures are expected to approximate $35 million during 1997,
primarily for the completion of the substrate facility in Singapore and
maintenance capital in both Singapore and Santa Clara. The Company had
approximately $6.1 million of noncancelable purchase commitments for plant and
equipment outstanding at March 28, 1997.
The Company's principal sources of liquidity at March 28, 1997 consisted
of $42.2 million in cash and cash equivalents and short-term investments and a
$25.0 million revolving credit facility with a bank group led by CIBC Wood
Gundy, an affiliate of Canadian Imperial Bank of Commerce, and Banque Nationale
de Paris (the "Banks"), all of which were available to be borrowed at March 28,
1997. The Banks funded a $50.0 million Term Loan Facility in August 1996. The
facility has a three-year term and is secured by the Company's assets located in
Singapore and guaranteed by the parent. From time to time, the Company has been
granted waivers of certain financial covenants from the Banks. There can be no
assurance that the Banks will continue to provide such waivers. Should the
Company be in noncompliance with such financial covenants in the future, the
inability to receive such waivers could put the Company in default under its
Bank facilities. A default under its Bank facilities would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company believes that the existing cash balances, cash flow from
operations and funds available under its revolving credit facility with the
Banks will be sufficient to meet the Company's operating and capital expenditure
requirements for the next twelve months. If the Company decides to expand its
facilities further or sooner than presently contemplated or requires capital for
other purposes, it may require additional debt or equity financing. There can be
no assurance that such funds will be available to the Company or, if available,
will be available on favorable terms. If the Company is unable to obtain
sufficient capital, it could be required to curtail its capital equipment,
working capital and research and development expenditures which could adversely
affect the Company's future years' operations and competitive position.
FACTORS AFFECTING OPERATING RESULTS
Dependence on a Limited Number of Customers. During 1996, the Company sold
its disks primarily to Seagate Technology, Inc. ("Seagate") and Maxtor
Corporation ("Maxtor"). Aggregate shipments to Seagate and Maxtor in 1995 and
1996 represented 99% and 98% respectively, of net sales. During the first
quarter of 1997, shipments to Seagate, Micropolis and Iomega represented 56%,
21% and 14%, respectively, of net sales. As discussed above, Maxtor has
terminated the Maxtor Supply Agreement. The Company continues to seek additional
customers to utilize the manufacturing capacity in which it has been
manufacturing products for Maxtor. While Seagate and other customers have taken
a portion of this capacity, the Company continues to have excess manufacturing
capacity as it seeks to qualify its products in additional product programs of
both new and existing customers. Qualification is a costly and time consuming
process and there can be no assurance that the Company will continue to qualify
products with its present customers, successfully find new customers or
successfully qualify its products in their product programs on a timely basis or
with acceptable yields. Accordingly, the Company expects Maxtor's failure to
purchase committed volumes and its termination of the Maxtor Supply Agreement to
continue to negatively impact its results of operation's at least for the first
half of 1997.
Given the relatively small number of independent high performance disk
drive manufacturers, the Company's dependence on a few customers will continue
in the future. The Company's existing and several of its potential customers are
expanding their ability to produce thin film disks internally and, as a result,
could reduce the level of purchases or cease purchasing from the Company, could
sell thin film disks in competition with the Company or might not sustain or
increase
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<PAGE> 12
their level of orders as the Company increases its capacity. The significant
reduction in purchases by Maxtor and its repudiation of the Maxtor Supply
Agreement has and will materially adversely affect the Company's operating
results at least for the first half of 1997. The loss of any of the Company's
current customers or of any significant future customer, the inability to design
into new customers' products, or a significant reduction in the level of orders
for any reason would materially adversely affect the Company's business,
operating results and financial condition. Additionally, due to the lengthy
product qualification process, changes in customers or product mix could have a
material adverse effect on the Company's business, results of operations and
financial condition during any such transition. Consequently, the loss of
Seagate or one or more of the Company's current or potential customers through
consolidations, adverse financial or market circumstances or otherwise, would
have a material adverse effect on the Company's business, results of operations
and financial condition.
Specifically, Seagate currently produces a portion of its own thin film
disk requirements internally and historically has produced a majority of its
requirements. Seagate's expressed corporate strategy has been to significantly
increase its internal capacity to manufacture disks through construction of a
disk manufacturing facility in Singapore, which was completed in September 1996.
In February 1996, Seagate also completed its merger with Conner Peripherals,
Inc. ("Conner") and acquired Conner's internal disk production capacity, which
supplied substantially all of Conner's disk requirements. In addition, prior to
the merger, Conner had stated its intention to double its internal disk capacity
through a newly established facility in Singapore and this facility has begun
producing disks. Seagate's increased internal disk manufacturing capacity as
described above may reduce Seagate's disk needs from external suppliers. If
Seagate were to reduce the level of orders from the Company as a result of the
expansion of its internal disk production, an acquisition of, or the
establishment of a strategic relationship with, another disk supplier or
otherwise, or if Seagate were to begin selling disks in competition with the
Company, the Company's business, results of operations and financial condition
would be materially adversely affected.
Rapid Changes in Customer and Product Mix. Due to the rapid and frequent
development of new disk drive products, it is common in the industry for the
relative mix of customers and products to change rapidly, even from quarter to
quarter. For example, in the fourth quarter of 1996 sales to Seagate represented
approximately 95% of net sales, while in the first quarter of 1997 sales to
Seagate, Micropolis and Iomega represented approximately 56%, 21% and 14% of
net sales respectively. In addition, the Company's unit sales of MR disks
represented 0% of units sold in the first quarter of 1996 compared to 70% of
units sold for the comparable quarter of 1997. At any one time the Company
typically supplies disks in volume for only five to ten disk drive products,
with the mix of such products shifting continually. Disk drive manufacturers
demand a variety of thin film disks with differing design, performance and cost
characteristics. Thin film disk suppliers, such as the Company, are required to
work closely with such manufacturers in order to develop products that will be
used in the manufacturers' designs. Thin film disk suppliers seek to have their
products "designed in" to a particular disk drive and to be qualified as a
primary supplier for new programs. The design-in process is ongoing, lengthy and
frequent and the Company must compete for participation in each product program
including those of existing customers. As discussed above, Maxtor has terminated
the Maxtor Supply Agreement. The Company is seeking additional customers to
utilize the manufacturing capacity in which it had been manufacturing products
for Maxtor. While Seagate and other customers have taken a portion of this
capacity, the Company continues to have excess manufacturing capacity as it
seeks to qualify its products in product programs of both new and existing
customers. Qualification is a costly and time consuming process and there can be
no assurance that the Company will successfully find new customers or
successfully qualify its products in their product programs on a timely basis or
with acceptable yields. In the event the Company's products do not become
designed into or qualified in a particular disk drive program on a timely basis,
the Company could be excluded as a supplier of disks for such program entirely
or could become a secondary source of supply for such program, which typically
results in lower sales and lower gross margins. Consistent inability to become
designed into a disk drive program would have a material adverse effect on the
Company's business and results of operations.
Consolidation Within the Disk Drive Industry. Consolidation within the
disk drive industry has reduced the number of potential customers to whom the
Company could market its products. In addition to the Seagate acquisition of
Conner, Quantum Corporation ("Quantum") closed all of its manufacturing
operations in the United States and overseas and transferred all manufacturing
production to Matsushita Kotobuki Electronics of Japan ("MKE"), its long-term
contract manufacturing partner. While Quantum was a customer of the Company in
1994, MKE has never been a significant customer of the Company. Additionally,
during 1995 Maxtor was acquired by Hyundai, which is buildup a manufacturing
facility to manufacture disks for Maxtor disk drives.
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<PAGE> 13
Given the relatively small number of independent hard disk drive manufacturers
who require an independent source of thin film disks, as well as the
consolidations and changes which have occurred and are continuing to occur in
the industry, there can be no assurance that the Company's efforts to diversify
its customer base will be successful. If they are not successful, the Company
will continue to be dependent on a relatively limited number of customers, the
loss of, or the reduction in orders by, any one of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Uncertainties Associated with Supply Agreement with Seagate. In June
1995, the Company entered into a Supply Agreement with Seagate (the "Seagate
Supply Agreement,') pursuant to which the Company has established the Dedicated
Facility in Singapore to manufacture disks for Seagate. The Company has expended
significant financial and management resources to construct and operate at such
facility. While Seagate will be required to purchase the disks manufactured at
the Dedicated Facility through March 31, 1999, each of the products manufactured
at the Dedicated Facility must be qualified by Seagate before products can be
delivered to Seagate. During the first quarter of 1997, the levels purchased
from Seagate dropped and Seagate shifted its purchases to the Dedicated Facility
because of the favorable pricing provisions of the Seagate Supply Agreement
which resulted in significant excess capacity. To the extent that purchases from
Seagate do not increase from its current levels, particularly as it increases
its own internal disk manufacturing capacity, the Seagate Supply Agreement and
Dedicated Facility has not resulted in increased sales to Seagate and absent
additional orders from other customers to replace volumes shifted from other
facilities, has resulted in significant excess capacity for the Company with
resulting adverse impacts on the Company's results of operations. If the Company
fails to replace volumes in its other facilities with purchases from other
customers, the Company's business results of operations and financial condition
would be materially adversely affected. See "--Variability in Gross Margins and
Operating Results."
Uncertainties Associated with Agreement with Micropolis. In December
1996, the Company entered into a multi-year agreement with Micropolis, a
manufacturer of digital auto/video disk drives. Under the terms of the
Micropolis Agreement, the Company will set up and operate a 15,000 square foot
thin film manufacturing facility (the "Micropolis Facility") within Micropolis'
400,000 square foot disk drive manufacturing plant in Singapore. Micropolis has
agreed to purchase all of the disks manufactured at the Micropolis Facility
through December 31, 1999. In addition, the Company has agreed to supply
Micropolis with specified volumes from its other facilities until the Micropolis
Facility is completed. During the three months ended March 28, 1997, sales to
Micropolis represented 14% of net sales. The Company believes that the
Micropolis Agreement will result in savings for both companies in areas such as
packaging, transport and response time. While the Company has set up two other
manufacturing facilities in Singapore, this will be the first time in the
industry and for the Company to build a manufacturing facility in a customer's
manufacturing plant and each product must still be qualified by Micropolis. The
Company expects that the Micropolis Facility will begin furnishing Micropolis
with a portion of its thin film requirements in the third quarter of 1997. While
construction of the Micropolis Facility to date has been on schedule, there can
be no assurance that the Company will be able to complete the Micropolis
Facility within budget or on a timely basis. Additionally, the Company currently
has manufacturing capacity located in Singapore that is under-utilized. To the
extent that the Company continues to build additional facilities, the
under-utilized capacity for the Company will not be reduced unless the Company
significantly increases its sales. Continued under-utilized capacity will
adversely impact the Company's gross profits and results of operations.
Variability in Gross Margins and Operating Results. The Company's gross
margins have fluctuated and will continue to fluctuate quarterly and annually
based upon a variety of factors such as the level of utilization of the
Company's production capacity, changes in product mix, average selling prices,
demand or manufacturing yields, increases in production and engineering costs
associated with initial production of new programs, changes in the cost of or
limitations on availability of materials and labor shortages. During 1995, 1996,
and the first quarter of 1997, the Company reported a gross margin of 27.0%,
17.3% and (14.4)%, respectively. The Company's gross margins in the first
quarter of 1997 continued to be lower than the levels experienced in 1995 and
1996 primarily due to Maxtor's termination of the Maxtor Supply Agreement and
the resulting under-utilization of production capacity. While the Company has
taken steps to reduce its costs and expenses, its operations have a high level
of fixed costs and expenses. Operating below capacity has had a significant
impact on gross margins. Additionally, the purchase price of disks under the
Seagate Supply Agreement is calculated based upon a pricing
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<PAGE> 14
formula which have resulted in capped gross margins that are generally lower
than the gross margins previously experienced by the Company. Accordingly,
because output from the Dedicated Facility has accounted for an increasing
portion of the Company's total revenues and the Company has continued to have
excess production capacity, the Company's overall gross margins have declined.
This adverse impact is exacerbated by Seagate's shift of its purchase orders to
the Dedicated Facility from the Company's other facilities rather than increases
its level of purchases from the Company. If sales form the Dedicated Facility
continue to account for an increasing portion of the Company's total revenues
and the Company continues to have excess production capacity, the Company's
business, results in operations and financial condition would be materially
adversely affected.
Generally, new products, which have been designed into its customers'
products, have higher average selling prices than more mature products.
Therefore, the Company's ability to introduce new products, which have been
designed into its customers' products, in a timely fashion is an important
factor in its ability to maintain gross and operating margins. Moreover,
manufacturing yields and production capacity utilization impact the Company's
gross margins. New products often initially have lower manufacturing yields, are
produced in lower quantities than more mature products and generally have lower
gross margins. The Company expects that a substantial portion of its shipments
in the first half of 1997 will be of new products and will negatively impact the
Company's overall yield at least for that period. Manufacturing yields also vary
depending on the complexity and uniqueness of product specifications. 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 product prices, small variations in manufacturing yields and
productivity generally have a significant impact on gross margins. Additionally,
decreasing demand for the Company's products generally results in reduced
average selling prices and low capacity utilization which, in turn, adversely
affects gross margins and operating results. Despite the Seagate Supply
Agreement, a significant portion of the Company's business is also characterized
by short term orders and shipment schedules which typically can be modified or
rescheduled without significant penalty to the customer. Therefore, the Company
typically plans its production and inventory based on forecasts of customer
demands, which often fluctuate substantially. These factors have caused and will
continue to cause fluctuations in the Company's gross margins and results of
operations. See "--Dependence on a Limited Number of Customers" and
"Uncertainties Associated With Agreement With Micropolis."
Dependence on Intensely Competitive Hard Disk Drive Industry; Risk of
Excess Industry Capacity. The demand for the Company's thin film disks depends
solely upon the demand for hard disk drives. This market is characterized by
short product life cycles and rapid technological change and has experienced
large fluctuations in product demand. The disk drive industry also has been
characterized by periods of oversupply, reductions in customer forecasts, price
erosion and reduced production levels. The effect of these cycles on suppliers,
including thin film disk manufacturers, has been magnified by hard disk drive
manufacturers' practice of ordering components in excess of their needs during
periods of rapid growth, which increases the severity of the drop in the demand
for components during periods of contraction. The effect of these cycles may be
magnified by increased disk production capacity. Over the past year, the
Company's principal customers and many of its competitors and potential
customers engaged in substantial efforts to increase disk manufacturing capacity
in light of the imbalance between previously existing levels of demand for disks
and existing industry capacity. These efforts are resulting in significant
additional capacity in the industry. To the extent industry capacity exceeds
demand, the Company will continue to experience increased levels of competition
which could materially adversely impact the Company's business, results of
operations, and financial condition. In addition, in the event of an oversupply
of disks, customers who have developed an internal supply of disks are likely to
utilize their internal capacity prior to purchasing disks from independent
suppliers such as the Company.
Rapid Technological Change. The thin film disk industry is characterized
by rapid technological change, short product life cycles, and price erosion.
Product lives are typically six to twelve months in duration. Although the
Company is continually developing new products and production techniques, there
can be no assurance that the Company will be able to anticipate technological
advances and develop products incorporating such advances in a timely manner,
with acceptable yields or to compete effectively against competitors' new
products. In addition, there can be no assurance that the Company's new products
can be produced in full volume at reasonable yields or that the Company will
develop new products or processes which ultimately are adopted by the industry.
The Company's operating results and financial condition could be materially
adversely affected if these efforts are not successful or if the technologies
that the Company has chosen not to develop prove to be competitive alternatives.
See "--Variability in Gross Margins and Operating Results."
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<PAGE> 15
Intense Competition. The disk drive industry and thin film disk industry
are both characterized by intense competition. The Company's primary competitors
are Akashic Memories Corporation, Fuji Electric Company Ltd., HMT Technology
Corporation, Hoya Corporation, Komag Incorporated, Mitsubishi Kasei Corporation
and Showa Denko K.K. among independent disk manufacturers. Most of these
companies have significantly greater financial, technical and marketing
resources than the Company. IBM and several disk drive manufacturers, including
Seagate and Western Digital Corporation, currently produce thin film disks
internally for their own use. Seagate's expressed corporate strategy is to be
vertically integrated for a majority of its disk drive components and to pursue
sales to third parties of its disk drive components. Hyundai is building a
manufacturing facility for use in Maxtor disk drives supplementing Maxtor's
current supplier base. These companies could increase their internal production
to supply their requirements and cease purchasing from independent disk
suppliers. Moreover, these companies could make their products available for
distribution in the market as direct competitors of the Company. Additionally,
other disk drive manufacturers, such as Quantum, may decide to produce disks for
internal use. Any of these changes would reduce the already small number of
current and potential customers and increase competition for the remaining
market. Such competition could materially adversely affect the Company's
business and results of operations. See "-- Dependence on a Limited Number of
Customers" and "-- Consolidation Within the Disk Drive Industry."
Dependence on Suppliers. The Company relies on a limited number of
suppliers and, in some cases, a sole supplier, for certain materials used in its
manufacturing processes, including glass/ceramic substrates, plating chemicals,
tapes, slurries, certifier beads, sputter targets and certain other materials.
In addition, the Company relies on a single source for most of its equipment. In
the past, the Company has had to provide financial assistance to equipment
vendors in order to maintain sources for such equipment. Shortages may occur in
the future or supplies could be available only with lead times of approximately
three to six months. Changing suppliers for certain materials such as the lube
or buffing tape used in the Company's products would require that the product be
requalified with each customer. Requalification could prevent early design-in
wins or could prevent or delay continued participation in disk drive programs
into which the Company's products have been qualified. In addition, long lead
times of three to six months are required to obtain many materials. Regardless
of whether these materials are available from established or new sources of
supply, these lead times could impede the Company's ability to respond quickly
to changes in demand. Any limitations on the supply of components, materials or
equipment could disrupt or limit the Company's production volume and could have
a material adverse effect on the Company's business, results of operations and
financial condition. Further, a significant increase in the price of one or more
of these components could adversely affect the Company's results of operations.
Risks Associated With New Substrate Facility. The Company has begun
operations at its substrate manufacturing facility in Singapore and expects it
to become fully operational in early 1997. This facility continues to require
the expenditure of significant management resources. In addition to the usual
risks of establishing a new manufacturing facility, such as the completion of
the buildings, installation of equipment, implementation of systems, procedures
and controls and the hiring and training of qualified personnel, there are
unique risks associated with this facility. First, the Company is vertically
expanding its business to include the process of grinding aluminum blanks which
occurs prior to the nickel plating process. While the Company believes it has
the expertise to establish this process, it has incurred delays and lower yields
than expected during its start-up phase. Second, the facility is being
established in Singapore and will be the first facility of this type in
Singapore. There can be no assurance that the Company will not continue to
experience delays and other start-up difficulties or that once the facility is
fully operational that it will produce high quality and low cost aluminum
substrates. Manufacturing and other problems which occur in connection with the
commencement and expansion of operations at this facility could materially
adversely affect the Company's results of operations and financial condition.
Future Capital Needs. The disk industry is capital intensive and the
Company expects to require significant additional financial resources over the
next several years for capital expenditures, working capital and research and
development. The Company spent approximately $78.1 million on capital
expenditures during 1996 for expansion of its facilities including investments
in the Dedicated Facility, the new Singapore substrate facility and other
capital expenditures. Capital expenditures are expected to approximate $35
million during 1997, primarily for the completion of the substrate facility, the
Micropolis Facility and maintenance capital in Singapore and Santa Clara,
California. The Company believes it will be able to fund these expenditures from
a combination of existing debt financing, cash balances and cash from
operations. If these funds are insufficient to finance the Company's
requirements, the Company would be required to seek additional debt
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<PAGE> 16
or equity financing. There can be no assurance that such financing will be
available to the Company or, if available, will be available on favorable terms.
Dependence on Personnel. The Company's future operating results depend in
significant part upon the continued contributions of its officers and personnel,
many of whom would be difficult to replace. At present the Company does not have
employment agreements with any employee. The Company maintains a $4.0 million
key person life insurance policy (with $3.0 million of proceeds payable to the
Company) on the life of its Chairman of the Board and Chief Executive Officer,
William J. Almon, but not on the lives of other key persons. The loss of any of
its officers or other key personnel could have a material adverse effect on the
business, financial condition and results of operations of the Company. In
addition, the production of thin film disks requires employees skilled in highly
technical and precise production processes with expertise specific to thin film
disk production. The Company's future operating results depend in part upon its
ability to attract, train, retain and motivate other qualified management,
technical, manufacturing, sales and support personnel for its operations both in
California and in Singapore. Competition for such personnel is intense,
especially since many of the Company's competitors are located near the
Company's facilities in Santa Clara, California. There can be no assurance that
the Company will be successful in attracting or retaining such personnel. Hiring
qualified personnel in Singapore is made more difficult because Singapore has
substantially full employment at the present time and because the Company was
the first manufacturer of thin film disks and is the first manufacturer of
substrates with operations in Singapore. The loss of the services of existing
personnel as well as the failure to recruit, train and retain additional
personnel in a timely manner could have a material adverse effect on the
Company's business, results of operations and financial condition.
Intellectual Property and Proprietary Rights. The Company regards elements
of its manufacturing process, product design and equipment as proprietary and
seeks to protect its proprietary rights through a combination of employee and
third party non-disclosure agreements, internal procedures and, increasingly,
patent protection. The Company has had five U.S. patents issued to
it, and has seventeen additional patent applications
(three of which are provisional applications) pending in the United States. The
Company intends to file additional U.S. applications as appropriate for patents
covering its products and manufacturing processes. There can be no assurance
that patents will be issued with respect to any of the Company's allowed patent
applications, that patents will be issued or be allowed with respect to any of
the Company's other pending applications, or that claims allowed on any existing
or future patents will be sufficiently broad to protect the Company's
technology. There can also be no assurance that any patents now or hereafter
held by the Company will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection to the
Company. In addition, the laws of certain foreign countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Although the Company continues to implement protective measures and
intends to defend its proprietary rights, there can be no assurance that these
measures will be successful. The Company believes, however, that, because of the
rapid pace of technological change in the disk and disk drive industries, the
legal protections for its products are less significant factors in the Company's
success than the innovative skills, experience and technical competence of its
employees.
The Company has from time to time been notified of, or has otherwise been
made aware of, claims that it may be infringing upon patents or other
proprietary intellectual property owned by others. If it appears necessary or
desirable, the Company may seek licenses under such patents or proprietary
intellectual property. Although patent holders commonly offer such licenses, no
assurance can be given that licenses under such patents or proprietary
intellectual property will be offered or that the terms of any offered licenses
will be acceptable to the Company. The Company has been contacted by IBM
concerning the Company's interest in licensing a patent. Based upon an opinion
of its patent counsel, the Company believes that no license is required because
the Company does not believe that it is practicing any invention covered by the
IBM patent. There can be no assurance, however, that IBM will not pursue its
claim. Additionally, Virgle L. Hedgcoth has allegedly patented certain disk
preparation techniques (the "Hedgcoth Patents") and has asserted that the
Company is infringing such patents. Mr. Hedgcoth has since asserted patent
infringement claims against certain disk drive manufacturers, including one
customer of the Company who has demanded that the Company defend and indemnify
it in the patent litigation. The Company believes that the Hedgcoth Patents are
not valid because of prior commercial activities by other companies utilizing
the technology covered. However, should Mr. Hedgcoth prevail in such litigation
and elect to pursue the Company, the Company would be forced to either litigate
any infringement claims, execute a license, if available, or design around the
patents, which the Company believes is possible, and may be required to
indemnify its customers. The
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<PAGE> 17
failure to obtain a key patent license or a license to key proprietary
intellectual property from a third party could cause the Company to incur
substantial liabilities and possibly to suspend the manufacture of the products
utilizing the patented or proprietary invention either of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Environmental Issues. The Company's operations and manufacturing processes
are subject to certain federal, state, local and foreign environmental
protection laws and regulations. These laws and regulations relate to the
Company's use, handing, storage, discharge and disposal of certain hazardous
materials and wastes, the pre-treatment and discharge of process waste waters,
and the control of process air pollutants. The Company has from time to time
been notified of minor violations concerning its waste water discharge permits,
air quality regulations and hazardous material regulations. The Company has
implemented corrective action plans to remedy these violations and has put in
place procedures to effectuate continued compliance with these laws and
regulations. The Company has also initiated safety programs and training of
personnel on safe storage and handling of hazardous materials and wastes. The
Company believes that it is in compliance in all material respects with
applicable environmental regulations and does not anticipate any material
capital expenditures for environmental related matters. Environmental laws and
regulations, however, may become more stringent over time and there can be no
assurances that the Company's failure to comply with either present or future
regulations would not subject the Company to significant compliance expenses,
production suspensions or delay, restrictions on expansion at its present
locations or the acquisition of costly equipment.
The Company's Santa Clara, California facility is located near major
earthquake faults. Disruption of operations at any of the Company's production
facilities for any reason, including work stoppages or natural disasters such as
fire, floods or earthquakes, would cause delays in or an interruption of
production and shipment of products and would negatively affect the Company's
business, results of operations and financial condition.
Risks of International Sales and Manufacturing. In 1995, 1996 and the
first quarter of 1997, international sales (sales delivered to customers in the
Far East and Ireland, including foreign subsidiaries of domestic companies)
accounted for over 95% of the Company's net sales, and the Company anticipates
that international sales will continue to represent the substantial majority of
its net sales. Accordingly, the Company's operating results are subject to the
risks inherent in international sales, including compliance with or changes in
the law and regulatory requirements of foreign jurisdictions, fluctuations in
exchange rates, tariffs or other barriers, exposure to taxes in multiple
jurisdictions and transportation delays and interruptions. Although presently
all of the Company's sales are made in U.S. dollars, including sales from its
Singapore facility, a portion of the Company's expenses must be paid in
Singapore dollars. Future international sales may be denominated in foreign
currencies. Gains and losses on the conversion to U.S. dollars of accounts
receivable and accounts payable arising from international operations may
contribute to fluctuations in the Company's results of operations. Additionally,
the Company's international business may be materially adversely affected by
fluctuations in currency exchange rates, increases in duty rates, exchange or
price controls or other restrictions on foreign currencies and difficulties in
obtaining export licenses. Moreover, the Company's efforts to expand its
manufacturing operations are concentrated in Singapore. This expansion requires
the Company to implement and monitor new systems, procedures and controls and to
attract, train, motivate and manage qualified employees effectively. These risks
are exacerbated by the distance of the Singapore facilities from the Company's
California headquarters, the fact that the Company was the first thin film disk
manufacturer and is the first substrate manufacturer with a facility in
Singapore and the fact that Singapore has substantially full employment. These
risks will increase as production increases at the Singapore facilities. Due to
the anticipated expansion of the Company's manufacturing operations in
Singapore, the impact of the foregoing factors on the Company's business,
results of operations and financial condition could be material and adverse.
Volatility of Stock Price. The trading price of the Company's Class A
Common Stock has been volatile since the Company's initial public offering in
May 1995 and has been and is likely to continue to be subject to wide
fluctuations in response to a variety of factors, including quarterly variations
in operating results, revised earnings estimates, volume purchase agreements,
announcements of new facilities, new customers, consolidations in the industry,
technological innovations or new products by the Company or its competitors,
developments in patents or other intellectual property rights, general
conditions in the computer industry, comments or recommendations issued by
analysts who follow the Company, its competitors or the disk drive industry and
general economic and market conditions. In addition, it is possible that from
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<PAGE> 18
time to time the Company's operating results may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Class A Common Stock could be materially adversely affected. Additionally, the
stock market in general, and the market for technology stocks in particular,
have experienced extreme price volatility in recent years. Volatility in price
and volume has had a substantial effect on the market prices of many technology
companies for reasons unrelated or disproportionate to the operating performance
of such companies. These broad market fluctuations could have a significant
impact on the market price of the Class A Common Stock.
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<PAGE> 19
STORMEDIA INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
STORMEDIA INCORPORATED V. HYUNDAI ELECTRONICS INDUSTRIES CO., ET AL.
On July 23, 1996, the Company was informed by Maxtor Corporation that it
intended to terminate a November 17, 1995 Volume Purchase Agreement between
Maxtor and Hyundai Electronics Industries Co. Ltd., on the one hand, and the
Company. Prior to such notification, Maxtor had failed to purchase in the
Company's second quarter the disks required to be purchased by it under the
Volume Purchase Agreement. As a consequence of Maxtor and Hyundai's breach of
the Volume Purchase Agreement, the Company on September 25, 1996 filed suit in
the United States District Court for the Northern District of California against
Hyundai, C.S. Park, K.S. Yoo and Mong Hun Chung alleging breach of the Volume
Purchase Agreement and fraud. The Complaint seeks damages in excess of $206
million. The Court denied motions to dismiss filed by defendants Park and Yoo,
each of whom is expected therefore to answer the complaint. Defendants Hyundai
and Chang have moved to dismiss for insufficient service of process. The court
is scheduled to hear that motion on June 20, 1997. The Company intends to
vigorously prosecute its claim.
MAXTOR CORPORATION V. STORMEDIA, INC., ET AL.
On December 19, 1996, Maxtor Corporation filed an action in Colorado state
court for the County of Boulder against the Company, its subsidiary, StorMedia
International Limited, and William J. Almon alleging breach of contract, breach
of warranty, fraud and negligent misrepresentation. The action alleges that the
Company's products failed to meet certain of Maxtor's requirements under the
November 17, 1995 Volume Purchase Agreement. The action seeks compensatory
damages of $100 million. The Colorado state court stayed all proceedings in that
action in favor of the above-described federal action against Hyundai.
WEREZBERGER, ET AL. V. STORMEDIA INCORPORATED
On September 18, 1996, a purported securities class action complaint,
Werczberger, et al. v. StorMedia, Inc. et al., No. CV760825, was filed in the
Superior Court of the State of California in the County of Santa Clara. The
Complaint alleges that StorMedia and certain of its officers and directors
violated California state securities laws by making false and misleading
statements of material fact about StorMedia's prospects between November 27,
1995 and August 9, 1996 and, in particular, allegedly false statements regarding
volumes of disks to be purchased by Maxtor and Hyundai pursuant to the contract
that is the subject of the two above-described actions. The action is
purportedly brought on behalf of all persons who purchased StorMedia stock
during that period. The Complaint seeks an unspecified amount of damages. The
court granted Mr. Almon's demurrer and denied the Company's demurrer. The Court
of Appeals has accepted a writ petition challenging the Superior Court's denial
of the Company's demurrer. Defendants intend to continue to defend the case
vigorously.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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<PAGE> 20
a. On April 24, 1997, the Annual Meeting of Stockholders of the Company
was held in Santa Clara, California. An election of Directors was
held with a slate of four candidates, William J. Almon, John A.
Downer, Francis J. Lunger and Mark S. Rossi being elected to the
Board of Directors of the Company. The slate of candidates received
11,085,286 affirmative votes of shares represented and voting, 21,030
shares were instructed and 47,350 shares were withheld from all
nominees. Votes withheld from any nominee and broker non-votes were
counted for purposes of determining the presence or absence of a
quorum.
Additionally, the stockholders ratified the appointment of KPMG Peat
Marwick LLP as independent auditors of the Company for the fiscal
year ending December 31, 1997. There were 11,142,127 shares voted in
favor of the ratification, 6,550 shares voted against the
ratification and 4,989 shares abstained. The affirmative vote of the
holders of a majority of the Class A Common Stock represented in
person or by proxy and entitled to vote at the Annual Meeting ("Votes
Cast") was needed in order to approve the foregoing proposals. Votes
Cast against the proposals were counted for purposes of determining
(i) the presence of absence of a quorum for the transaction of
business and (ii) the number of Votes Cast with respect to each such
proposal. An abstention had the same effect as a vote against the
proposal. Broker non-votes were counted for purposes of determining
the presence or absence of a quorum, but were not counted as Votes
Cast.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
10.44* Agreement dated December 17, 1996 between the Company and
Micropolis (S) Pte Ltd.
11.1 Statement regarding computation of earnings (loss) per
share
27.1 Financial Data Schedule
* Confidential treatment has been requested.
b. Reports on Form 8-K
None
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<PAGE> 21
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.
STORMEDIA INCORPORATED
(Registrant)
Date: May 12, 1997 By: /s/ Stephen M. Abely
-------------------------------------
Stephen M. Abely, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
------- ----
<S> <C>
10.44 Agreement dated December 17, 1996 between the Company and Micropolis (S) Pte Ltd. .......
11.1 Statement regarding computation of per-share earnings ...................................
27.1 Financial Data Schedule .................................................................
</TABLE>
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<PAGE> 1
EXHIBIT 10.44
AGREEMENT
This Agreement (this "Agreement") is entered into by and between StorMedia
Incorporated, a company incorporated in Delaware, United States of America
("StorMedia-US") and its subsidiary, StorMedia International Limited, a company
incorporated in the Cayman Islands having a branch in Singapore ("SMIL")
(hereinafter collectively referred to as "StorMedia"), on the one hand and
Micropolis (S) Pte Ltd., a company incorporated in Singapore (hereinafter
referred to as "Micropolis"), on the other hand, effective as of December 17,
1996.
BACKGROUND
A. StorMedia is in the business of designing, manufacturing and selling
thin film aluminum and glass substrate disks ("Disks") for hard disk drives and
sells such Disks to manufacturers of disk drives such as Micropolis.
B. Micropolis wishes to secure a supply of thin film disks and to purchase
quantities of such Disks from StorMedia.
C. Micropolis and StorMedia desire to enter into this Agreement to provide
for the establishment by SMIL of a manufacturing operation (the "Business") at
Micropolis' facility located at 5 Serangoon North Avenue 5, Singapore (the
"Facility") to produce Disks for sale solely to Micropolis.
D. To this end, StorMedia and Micropolis further desire that SMIL have an
exclusive, nonrevocable license to use a portion of the Facility and the
non-exclusive, nonrevocable license to use certain common areas of the Facility
for StorMedia's operation of the Business without cost to SMIL. The parties
hereto also desire that Micropolis shall construct certain improvements in the
Facility also at no cost to StorMedia to enable StorMedia to operate the
Business in accordance with certain specifications provided by StorMedia.
E. The parties acknowledge and agree that this Agreement and the parties'
obligations hereunder is conditional upon the receipt by Micropolis of a written
consent from Jurong Town Corporation ("JTC"), a body corporate incorporated
under the Jurong Town Corporation Act of Singapore, to the above arrangements
between Micropolis, as licensor of the Premises (as defined below), and SMIL, as
licensee of the Premises, as a condition of the Building Agreement (as defined
below).
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH
IS HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:
SECTION I.
ESTABLISHMENT OF THE MANUFACTURING FACILITY.
<PAGE> 2
I.1 License to Use Premises. Throughout the term of this Agreement,
Micropolis shall grant, and SMIL shall take, a license and the authority to
enter upon the premises consisting of approximately 1704.38 square meters of
space located on the first floor of the Facility as more particularly set forth
on Exhibit A attached hereto (the "Premises") for the purposes hereinafter
mentioned. The Premises shall consist of office and manufacturing space in
addition to a receiving, shipping and storage area. SMIL shall also have the
license to use such areas and facilities within and about the Facility as are
necessary to run the Business and to have access to the Premises (the "Common
Areas"). SMIL's use of the Premises and Common Areas shall be subject to and in
accordance with the following:
(a) Condition Precedent. The parties acknowledge that this Agreement
and their obligations hereunder is conditional upon the receipt of all necessary
governmental, regulatory and other approvals and/or consents (including, but not
limited to, the written consent from JTC referred to in Recital E above as a
condition in the Building Agreement) which may be required in connection with
the license to be granted in respect of the Premises and the arrangements made
between the parties pursuant to this Agreement, and where such approvals and/or
consents are obtained subject to any conditions (including, but not limited to,
the payment of any sub-letting, sub-licensing and/or administrative fee (if any)
by whatever name called payable by Micropolis to JTC (together with all goods
and services tax payable thereon)), that such conditions are acceptable to
Micropolis, and if they are required to be fulfilled within a certain period or
by or on a certain date, are fulfilled within such period or on or before such
date.
(b) Use of Premises. SMIL may use the Premises only for the purposes
of installing StorMedia's Trade Fixtures (as defined below) and operating the
Business therefrom in accordance with any guidelines and/or rules and
regulations imposed by Micropolis and/or JTC to which the employees of
Micropolis are equally subject.
(c) Operation of Business. StorMedia shall not do anything in or
about the Premises or the Facility which will cause any damage or structural
injury to the Facility or Common Area. SMIL shall not commit or permit any waste
or nuisance in or about the Premises. SMIL's use of the Common Areas shall be
subject to and in accordance with reasonable rules and regulations established
by Micropolis to which the employees of Micropolis are equally subject.
(d) Compliance With/No Violation of Laws. StorMedia and its
employees shall comply in all respects with, and SMIL and its employees shall
not use the Premises in any manner, which violates any applicable law, statute,
ordinance, regulation, or other requirement of any governmental authority having
jurisdiction over the parties or the Premises (collectively, "Laws") or any term
or condition of the Building Agreement. Each of the parties agrees to indemnify
the other against all actions, proceedings, costs, claims or demands which may
be brought or made by reason of the failure of that party or its employees to
comply with the Laws and/or the terms and conditions of the Building Agreement.
In the event of any conflict or inconsistency between the Building
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Agreement and this Agreement in respect of matters set out in Section 1, the
provisions of the Building Agreement shall prevail.
(e) Vacate the Premises. Within three (3) months following the
earlier of (i) December 31, 1999, as the same may have been extended, and (ii)
the earlier termination of this Agreement pursuant to Section 3.2 hereof
(whether as result of a breach hereof by StorMedia or Micropolis), SMIL shall
vacate and surrender the Premises to Micropolis in the same condition as it
existed on the date that all of the Initial Improvements (as defined below)
shall have been installed, reasonable wear and tear, and damage by acts of God,
excepted.
(f) No Assignment and Subletting. For the avoidance of doubt,
StorMedia shall not assign, grant a license or part with or share the possession
or occupation of the Premises or any part thereof nor permit any other party or
person by way of license or otherwise to occupy the Premises or any part thereof
without the prior written consent of Micropolis and JTC.
(g) Building Agreement. The term "Building Agreement" shall mean the
Building Agreement dated February 28, 1995 as set forth in Exhibit B attached
hereto made between JTC of the one part and Micropolis Limited (the "Original
Lessee") of the other part pursuant to which JTC agreed to grant to the Original
Lessee the license and authority to enter upon the Facility for inter alia the
construction of the building thereon and the installation of equipment,
machinery, fixtures and fittings therein, and such expression shall, where the
context so requires, include (i) the lease (as set out in the First Schedule to
the Building Agreement) and any other documents(s) (including , but not limited
to, all supplemental lease(s), assurance(s) or document(s) of title in respect
of the Facility) to be executed between the parties thereto upon the completion
of the Facility and the satisfactory compliance by the Original Lessee of the
terms and conditions contained in the Building Agreement and references to
"Building Agreement" shall be references to such agreement as assigned by the
Original Lessee to Micropolis pursuant to the Deed of Assignment, and references
to the "Original Lessee" shall be references to Micropolis, as its assignee, and
(ii) all correspondences between JTC and Micropolis and/or the Original Lessee
and/or StorMedia in respect of the Facility and/or the Premises as applicable to
the terms of this Agreement.
(h) Deed of Assignment. The term "Deed of Assignment" shall mean the
Deed of Assignment dated March 29, 1996 as set forth in Exhibit C attached
hereto made between Micropolis (formerly referred to as "ST Chatsworth Pte Ltd")
of the one part and the Original Lessee of the other part pursuant to which the
Original Lessee has assigned to Micropolis all its rights, title and interest
under the Building Agreement, which assignment has been consented to by JTC
subject to such stipulations, terms and conditions and covenants contained in
the Building Agreement.
(i) Initial Improvements. The term "Initial Improvements" shall mean
those improvements described on Exhibit D attached hereto to be constructed by
Micropolis in accordance with Section 1.2(a) of this Agreement.
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(j) Trade Fixtures. The term "Trade Fixtures" shall mean all
equipment, furniture, inventory, tools and anything affixed to the Premises by
StorMedia for the purpose of conducting the Business in the Premises, which at
all times shall remain the property of and be owned by StorMedia.
I.2 Construction of Initial Improvements, Operation of Business and
Installation and Removal of StorMedia's Trade Fixtures. The Initial Improvements
shall be constructed and paid for in accordance with the following:
(a) Availability of Completed Premises. Micropolis will provide
floor space within the Facility with the layout shown on Exhibit A attached
hereto. This floor space will be provided at no cost to SMIL and will include
such facilitation for the clean room, warehouse and office areas as specifically
set forth in Exhibit D attached hereto. Micropolis has engaged Taiki-sha Ltd. to
construct the aforesaid floor space in accordance with specifications provided
by SMIL, and Micropolis has agreed to bear the costs and expenses in respect
thereof as set out, in the letter dated ___________, 1996 from Taiki-sha Ltd. to
Micropolis set out in Exhibit E attached hereto. Any additional costs incurred
by Micropolis due to subsequent modifications or additions to such
specifications made by SMIL shall be paid by SMIL. Micropolis will employ its
best endeavors to ensure that the above floor space and facility will be
completed and available for SMIL on or prior to March 31, 1997.
(b) Establish the Business. StorMedia will procure and provide all
necessary manufacturing equipment, tools and materials for the production of
Disks. SMIL will use reasonable care to install and operate such equipment and
tools, and to operate and manage the Business, within the floor space provided
by Micropolis in accordance with any guidelines and/or rules and regulations
imposed by Micropolis and/or JTC to which the employees of Micropolis are
equally subject.
(c) Operate the Business. StorMedia will employ its best endeavors
to ensure that the Business will be set up and operating at volume production
within three (3) months from the date on which Micropolis makes the facilitized
designated floor space and Facility available to SMIL, but in no event earlier
than [*] to produce Disks solely for Micropolis, subject to Section 2.1(b)(ii)
in accordance with the terms of this Agreement.
(d) Removal of Trade Fixtures. Upon the expiration or earlier
termination of this Agreement or such earlier time as and when such items are no
longer necessary for the operation of the Business, SMIL shall have the right to
remove at its cost any part or all of the Trade Fixtures installed by StorMedia,
provided that StorMedia repairs all damage to the Premises caused by such
removal in the same condition as it existed on the date that all of the Initial
Improvements shall have been installed, reasonable wear and tear and damage by
acts of God excepted. SMIL shall have the right to modify or replace some or all
of the Trade Fixtures at any time and from time to time, so long as any such
modification or replacement does not materially and adversely affect the ability
of SMIL to fulfill its supply obligations under this Agreement and is in
accordance with any guidelines and/or
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rules and regulations imposed by Micropolis and/or JTC to which the employees of
Micropolis are equally subject.
I.3 Maintenance of the Premises and Facility, Services and Utilities.
(a) Maintenance and Repair. Micropolis, at Micropolis' cost, shall
clean and maintain in reasonably good condition and repair and replace when
necessary the Premises. SMIL, at SMIL's cost, shall be responsible for the
repair, maintenance and replacement of SMIL's Trade Fixtures and will employ its
best endeavors to ensure that the Premises are properly utilized on an ongoing
basis by its employees.
(b) Services. Micropolis, at Micropolis's cost, shall furnish to the
Premises the janitorial service sufficient to maintain the Premises in a
reasonable clean and sanitary condition. Micropolis, at Micropolis' cost, also
shall provide reasonable security service to StorMedia insofar as it relates to
the Common Areas and areas having access to the Premises.
(c) Utilities. Micropolis shall furnish to the Premises HVAC
service, electricity, water, plumbing, sewer and other services, at the
reasonable levels required by SMIL for the operation of the Business. Micropolis
will bear such utilities costs for water and power as may be required to operate
the Business, such water and power provided by Micropolis not exceeding the
following:
Water - The amount of water set
forth in the Taiki-sha letter attached
hereto as Exhibit E.
Power - One (1) MVA
provided that the costs for such water and power at prevailing utilities rates
shall not exceed [*] per month. SMIL shall pay for any such utilities costs
exceeding [*] per month.
In addition, Micropolis will make available to SMIL such existing
telecommunication access as it shall require in order that SMIL may make and
receive local telephone calls within Singapore and, at the expense of SMIL, the
capability of having long distance service. SMIL may use Micropolis' lease-line
facilities solely for the purposes of voice and data transmission, subject to
availability by Micropolis and provided SMIL pays for all additional costs
incurred over and above fixed costs incurred by Micropolis for such facilities.
I.4 Taxes. Micropolis shall pay before delinquency all real property
taxes, assessments (including, but not limited to, assessments for public
improvements or benefits), and other charges imposed by any governmental or
quasi-governmental authority, which are levied or assessed against the Facility
and/or the real property on which it is located. SMIL shall pay, before
delinquency, all taxes, assessments and charges levied or imposed by any
governmental or quasi-governmental
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authority, which are levied or assessed upon or against SMIL's Trade Fixtures
and personal property installed or located on or within the Premises.
I.5 Indemnification. Each party hereto shall defend, indemnify, protect
and hold harmless the other and its employees and agents with competent counsel
reasonably satisfactory to such other party, from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage to the extent resulting from the negligent act or omission of such party
or the employees, agents or contractors of such party arising from or out of any
occurrences in, upon or at the Premises or the use of the Premises or any part
thereof.
SECTION II.
PURCHASE AND SUPPLY COMMITMENT
II.1 Purchase and Supply Commitment. In consideration for the grant of
license to use the Premises by Micropolis to SMIL, SMIL agrees to supply to
Micropolis and Micropolis agrees to purchase from SMIL an aggregate of [*]
Disks per quarter on the Schedule set forth below. To the extent such Disks
cannot be produced at the Premises, or if additional quantities of Disks are to
be ordered in excess of the capacity of the premises, StorMedia shall use its
best efforts to supply Disks from other StorMedia factories to meet the volumes
required under this Section II. The parties shall negotiate the terms and
conditions of any Disks ordered by Micropolis in excess of the volumes set forth
below.
(a) Supply From the Premises. SMIL will produce Disks suitable for
usage in Micropolis' high end and desk-top range of drives for the [ * ]
product families, respectively (or such other product families as the parties
shall agree to in writing) on the Premises. SMIL agrees to supply to Micropolis
the volume of Disks per quarter from such production below in accordance with a
long term schedule to be agreed and finalized between the parties, with such
availability commencing in the third quarter of 1997 and at prices not
significantly different from the following guidelines:
<TABLE>
<CAPTION>
1996 ------------1997------------ ------------1998------------
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price (US$/unit)
[*] - - -
[*] - - -
</TABLE>
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been requested with respect to the omitted portions.
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<TABLE>
Volume (Disks 000s)
<S> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
Provided that Micropolis shall have the discretion to determine the mix of
the product families to be made available within each quarter and such
requirement shall be indicated in the three (3) month forecast referred to in
Section 2.2 below. For the avoidance of doubt, the said forecast shall specify,
for example:
Either (i) [*]
(ii) [*]
(iii) [*]
[*]
With respect to future product families, in the event that such Disks cannot be
produced by SMIL due to limitations of the Premises and/or the Trade Fixtures,
each of the parties shall provide the necessary modifications and/or additions
to the Premises and/or Trade Fixtures (as the case may be), as the parties
mutually agree in order to meet the product requirements on a timely basis.
(b) Shortfall. A shortfall of [*] of production by SMIL and/or
purchase from Micropolis from the volumes indicated in paragraph (a) above for
each quarter shall not be construed as a breach of this Agreement. In the event
of a shortfall in excess of [*] either party may notify the other of such
deviation and such deviation must be cured within 30 days of such notice,
failing which such shortfall will constitute a breach and the provisions of
Section 3.2 shall apply in such event. Without prejudice to the foregoing:
(i) in the event of a shortfall in excess of [*]
in the quantities produced by SMIL from the quantities
ordered by Micropolis, Micropolis shall have the right
to purchase, and StorMedia shall supply to Micropolis,
such quantities of Disks from StorMedia's other factory
facilities at prices which would otherwise apply to the
Disks ordered in order to remedy such shortfall; or
(ii) subject to Section 2.4(b), in the event of a
shortfall in excess of [*] in the quantities purchased
from Micropolis from the committed quantity, SMIL shall
have the right to produce and
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sell such quantities of Disks, not purchased by
Micropolis pursuant to paragraph (a) above, to any
third party.
(c) Supply From Other Facilities. In addition to such Disks supplied
from the Premises, StorMedia agrees to supply to Micropolis additional Disks as
may be required by Micropolis from StorMedia's other factory facilities,
commencing in the fourth quarter of 1996 for [*] and the first quarter of 1997
for [*] Disks, and at prices based on indicated volumes not significantly
different from the following guidelines:
<TABLE>
<CAPTION>
1996 ------------------1997------------------ -------------------1998-------------------
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price (US$/unit)
[*]
</TABLE>
II.2 Rolling Forecasts.
(a) Forecasts. Micropolis and StorMedia will develop a procedure to
use in periodically forecasting Disk demand which shall require that Micropolis
shall provide StorMedia with at least a three (3) month rolling forecast setting
forth its estimated requirements for delivery by month for Disks. Purchase
orders must be placed forty-five (45) days in advance of the date as of which
the Disks are to be delivered from the Facility or from another facility of
StorMedia (the "Delivery Date"). Micropolis may request a Delivery Date with a
shorter lead time and StorMedia shall use its best efforts to meet such date.
This forecast shall be updated monthly. Based on Micropolis' projected quarterly
demand for the Disks for either or both [ * ] product families of drives (or
such other product families as the parties shall agree in writing) and upon
delivery of purchase orders, SMIL will produce such Disks first at the Premises
in such quantities as will support the projected demand.
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(b) Orders. Micropolis will issue purchase orders to StorMedia at
least forty-five (45) days in advance of the requested delivery date. Micropolis
agrees to purchase on an "as produced basis" all output from the Premises so
long as the production is based on such purchase orders and in so far as the
Disks meet Micropolis' specifications and functional requirements in Section
2.4. Such purchase orders shall state the quantities, Disk descriptions,
requested delivery dates and shipment instructions. The acceptance by StorMedia
of an order shall be indicated by written acknowledgment thereof by StorMedia.
II.3 Price and Payment.
(a) Price. [*]
Prices for Disks produced in StorMedia's other factory facilities
will be based on market and negotiated quarterly but will not be significantly
different from the prices indicated in Section 2.1(b) above. The purchase price
of the Disks purchased hereunder shall be set forth on the purchase orders
delivered pursuant to Section 2.2(b) above.
(b) Payment. Payment shall be made in U.S. dollars net forty-five
(45) days from the date of SMIL's invoice. For Disks manufactured at the
Premises, delivery terms are FOB StorMedia's Premises. For Disks shipped from
any factory other than the Facility, the delivery term is FOB StorMedia's
factory.
II.4 Specifications.
(a) Compliance with Specifications. Micropolis' obligation set forth
in Section 2.1 to purchase Disks from StorMedia is contingent upon StorMedia's
Disks meeting Micropolis' initial specifications at the time of qualification
and ongoing specifications and functional requirements as agreed to by the
parties. SMIL undertakes to use reasonable efforts to ensure that Disks produced
in the Premises will meet specifications and functional requirements as agreed
to by the parties.
(b) Qualification. Micropolis shall be given reasonable time from
the time of delivery of the prototype Disks by StorMedia to Micropolis to test,
qualify and accept such disks in order to ensure that such Disks comply with the
provisions of Section 2.4 (a) above. The parties shall agree on a timetable for
such initial qualification.
II.5 General Terms and Conditions. The general terms and conditions of
sale and purchase of the Disks shall be those set forth on Exhibit F attached
hereto. The terms of this Agreement shall prevail over any inconsistent terms
set forth in such Exhibit F.
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SECTION III.
TERM AND TERMINATION
III.1 Term. This Agreement shall become effective upon the date of
execution hereof and shall remain in force until December 31, 1999 (the
"Termination Date"). If Micropolis wishes to renew this Agreement, it shall so
notify StorMedia in writing on or prior to June 30, 1999. The parties shall
promptly discuss in good faith the proposed terms of such renewal. If the
parties have not agreed to such terms prior to December 1, 1999, this Agreement
shall terminate on the Termination Date, provided that StorMedia shall have a
period up to three (3) months following the Termination Date or any other
termination pursuant to this Section III, at its own cost and expense, to remove
its Trade Fixtures from the Premises and, surrender the Premises in accordance
with Section 1.1(e) hereof.
III.2 Termination for Breach. If either party breaches any material term
or condition of this Agreement and fails to cure that breach within thirty (30)
days or such longer period as the parties may agree after receiving written
notice of the breach, the other party shall have the right to terminate this
Agreement by delivery of written notice of termination after the end of such
thirty (30) day-period without prejudice to any other rights or remedies
available to the non-defaulting party under this Agreement or applicable law.
III.3 Termination for Insolvency. If either party becomes the subject of a
voluntary or involuntary petition in bankruptcy or of any proceeding relating to
insolvency, receivership, liquidation or composition for the benefit of
creditors and in the case of StorMedia, if that petition or proceeding is not
dismissed with prejudice within sixty (60) days after filing, the other party
may terminate this Agreement on thirty (30) days' notice.
III.4 Effect of Termination. The provisions of Sections 1.1(d), 1.1(e),
1.2(d), 3.1 and 4 hereof shall survive any termination or any expiration of this
Agreement. All other rights and obligations of the parties shall cease upon
termination of this Agreement, subject in all events to the proviso clause of
Section 3.1 above.
SECTION IV.
CONFIDENTIALITY
IV.1 Confidential Information.
(a) Definition. As used in this Section 4.1, the term "Confidential
Information" shall mean any information disclosed by one party to the other
pursuant to this Agreement which is in
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written, graphic, machine readable or other tangible form and is marked
"Confidential", "Proprietary" or in some other manner to indicate its
confidential nature. Confidential Information may also include oral information
disclosed by one party to the other pursuant to this Agreement, provided that
such information is designated as confidential at the time of disclosure and
reduced to a written summary by the disclosing party, within thirty (30) days
after its oral disclosure, which is marked in a manner to indicate its
confidential nature and delivered to the receiving party. In addition, all
technical and confidential information exchanged prior to the date hereof shall
be subject to the terms of this Section IV after the date hereof.
(b) No Disclosure or Use. Each party shall treat as confidential all
Confidential Information of the other party, shall not use such Confidential
Information except as expressly set forth herein or otherwise authorized in
writing, shall implement reasonable procedures to prohibit the disclosure,
unauthorized duplication, misuse or removal of the other party's Confidential
Information and shall not disclose such Confidential Information to any third
party except as may be necessary and required in connection with the rights and
obligations of such party under this Agreement, and subject to confidentiality
obligations at least as protective as those set forth herein. Without limiting
the foregoing, each of the parties shall use at least the same procedures and
degree of care which it uses to prevent the disclosure of its own confidential
information of like importance to prevent the disclosure of Confidential
Information disclosed to it by the other party under this Agreement, but in no
event less than reasonable care.
(c) Permissible Disclosure. Notwithstanding the above, neither party
shall have liability to the other with regard to any Confidential Information of
the other which:
(i) was generally known and available in the public domain at
the time it was disclosed or becomes generally known and available in the public
domain through no fault of the receiver;
(ii) was known to the receiver at the time of disclosure as
shown by the files of the receiver in existence at the time of disclosure;
(iii) is disclosed with the prior written approval of the
discloser;
(iv) was independently developed by the receiver without any
use of the Confidential Information and by employees or other agents of the
receiver who have not been exposed to the Confidential Information, provided
that the receiver can demonstrate such independent development by documented
evidence prepared contemporaneously with such independent development;
(v) becomes known to the receiver from a source other than the
discloser without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights; or
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(vi) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body; provided, that the
receiver shall provide prompt, advanced notice thereof to enable the discloser
to seek a protective order or otherwise prevent such disclosure.
IV.2 Use of Confidential Information. StorMedia and Micropolis each agree
that at all times, and notwithstanding any termination, expiration, or
cancellation hereunder, it will use the Confidential Information for no purpose
other than pursuing the transactions and relationship contemplated by this
Agreement.
IV.3 Return of Materials. Upon termination, cancellation or expiration of
this Agreement, or upon written request of the other party, each party shall
promptly return to the other all documents or other tangible materials
representing the other's Confidential Information and all copies thereof.
IV.4 No License. The parties recognize and agree that nothing contained in
this Agreement shall be construed as granting any property rights, by license or
otherwise, to any Confidential Information of the other party disclosed pursuant
to this Agreement, or to any invention or any patent right that has issued or
that may issue, based on such Confidential Information.
IV.5 Term of Nondisclosure Obligation. Notwithstanding the term of this
Agreement, the obligations of StorMedia and Micropolis hereunder with respect to
any Confidential Information shall continue for a period of three (3) years
after the Termination Date.
IV.6 Injunctive Relief. If either party breaches any of its obligations
with respect to confidentiality and unauthorized use of Confidential Information
hereunder, the other party shall be entitled to equitable relief to protect its
interest therein, including but not limited to injunctive relief, as well as
money damages.
IV.7 Publicity. All publicity regarding the announcement of this Agreement
shall be coordinated by both parties. Neither party shall disclose the terms of
this Agreement without the prior written approval of the other party, except as
required as a matter of law.
SECTION V.
LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CON SEQUENTIAL,
INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF
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THE POSSIBILITY OF SUCH DAMAGES, ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE
PREMISES AND THE PRODUCTS PROVIDED PURSUANT TO THIS AGREEMENT; PROVIDED,
HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY TO A BREACH OF THE CONFIDENTIALITY
OBLIGATIONS UNDER SECTION IV ABOVE.
SECTION VI.
MISCELLANEOUS
VI.1 Governing Law and Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of Singapore. The parties agree that
the United Nations Convention on Contracts for the International Sale of Goods
shall apply to this Agreement, provided that in the event of any conflict
between the United Nations Convention and the terms of this Agreement, the
latter shall apply. The Parties hereby submit to the non-exclusive jurisdiction
of the Courts of Singapore.
VI.2 No Partnership or Joint Venture. StorMedia and Micropolis are not
partners or joint venturers and neither shall hold the other out as being a
partner or joint venturer of the other.
VI.3 Force Majeure. If the performance of this Agreement or any
obligations hereunder is prevented, restricted or interfered with by reason of
fire or other casualty or accident, strikes or labor disputes, war or other
violence, any law, order, proclamation, ordinance, demand or requirement of any
government agency, or any other act or condition beyond the control of the
parties hereto, the party so affected upon giving prompt notice to the other
party shall be excused from such performance during such prevention, restriction
or interference. Only the obligations affected by any of the above events during
such prevention, restriction or interference shall be suspended. The party
relying on such event must assume full responsibilities under this Agreement as
soon as such event ceases to exist.
VI.4 Assignment. Neither party may assign or delegate this Agreement or
any of its rights or duties under this Agreement without the prior written
consent of the other, except to a person or entity into which it has merged or
which has otherwise succeeded to all or substantially all of its business and
assets, and which has assumed in writing or by operation of law its obligations
under this Agreement.
VI.5 Authority. Each party represents that all corporate action necessary
for the authorization, execution and delivery of this Agreement by such party
and the performance of its obligations hereunder has been taken.
VI.6 Notices. All notices, demands and other communications required or
permitted to be given or made hereunder shall be in writing and shall be mailed
by registered or certified mail, postage prepaid, or otherwise delivered by
hand, by messenger or by facsimile, addressed to the intended
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recipient thereof at its address and facsimile number as set forth below or at
such other address or facsimile number as either party may from time to time
notify the other in writing.
To StorMedia: StorMedia Incorporated
390 Reed Street
Santa Clara, CA 95050
Facsimile No: (408) 727-4928
Attn: Stephen M. Abely
StorMedia International Limited
390 Reed Street
Santa Clara, CA 95050
Facsimile No: (408) 727-4928
Attn: Stephen M. Abely
With a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94302
Facsimile No: (415) 493-6811
Attn: Judith M. O'Brien
To Micropolis: Micropolis (S) Pte Ltd
5, Serangoon North Avenue 5
Singapore 554916
Facsimile No: 4859824/4859853
Attn: Jenny Ong
With a copy to: Singapore Technologies Pte Ltd
89 Science Park Drive
Block C #02-09/12 The Rutherford
Singapore 118261
Facsimile No: 8724839
Attn: Lee Chuen Ling
Any such notice, demand or communication shall be deemed to have been duly
served (if given or made by facsimile) immediately or (if given or made by
letter) forty-eight (48) hours after posting or (if made or given to or from an
address outside Singapore) ten (10) days after posting and in proving the same,
it shall be sufficient to show that the envelope containing the same was duly
addressed, stamped and posted.
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<PAGE> 15
VI.7 Export Controls. Any and all obligations of either party to provide
software, technical information, technical assistance, any media in which any of
the foregoing is contained, training and related technical data (collectively,
"Data") to the other party outside the United States shall be subject in all
respects to such United States laws and regulations as shall from time to time
govern the license and delivery of technology and products abroad by persons
subject to the jurisdiction of the United States, including the Export
Administration Act of 1979, as amended, any successor legislation, and the
Export Administration Regulations issued by the Department of Commerce,
International Trade Administration, Bureau of Export Administration. StorMedia
shall be responsible for obtaining any export license or other approvals and/or
consents in respect of or in relation to the foregoing matters.
VI.8 Partial Invalidity. If any paragraph, provision, or clause thereof in
this Agreement shall be found or be held to be invalid or unenforceable in any
jurisdiction in which this Agreement is being performed, the remainder of this
Agreement shall be valid and enforceable and the parties shall negotiate, in
good faith, a substitute, valid and enforceable provision which most nearly
effects the parties' intent in entering into this Agreement.
VI.9 Counterparts. This Agreement may be executed in two (2) or more
counterparts, all of which, taken together, shall be regarded as one and the
same instrument.
VI.10 Waiver. The failure of either party to enforce at any time any
provision of this Agreement on or before sixty (60) days following the date that
such party first had notice, or should have had notice, of the non-compliance
with such provision by the other party shall be deemed to be a waiver of the
default with respect to such non-compliance and a forbearance of such party's
right to terminate this Agreement on account thereof.
VI.11 Entire Agreement. The terms and conditions herein contained
constitute the entire agreement between the parties and supersede all previous
agreements and understandings (including the binding letter of intent between
the parties dated October 2, 1996), whether oral or written, between the parties
hereto with respect to the subject matter hereof (except for confidentiality and
nondisclosure agreements governing the exchange of information prior to the
Effective Date which shall continue to govern periods prior to the Effective
Date) and no agreement or understanding varying or extending the same shall be
binding upon either party hereto unless in a written document signed by the
party to be bound thereby.
VI.12 Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
VI.13 Exhibits. The parties agree that the Exhibits hereto shall be read
with and form part of this Agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the date first above
written.
MICROPOLIS (S) PTE LTD STORMEDIA INCORPORATED
By: By:
Name: Joe Chen Name: William J. Almon
----------- ------------------
Title: President Title: Chairman
----------- ------------------
STORMEDIA INTERNATIONAL LIMITED
By:
Name: William J. Almon
---------------------
Title: Chairman
---------------------
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<PAGE> 17
EXHIBIT A
DIAGRAM OF PREMISES AND SPACE PLAN
[MAP]
<PAGE> 18
EXHIBIT B
BUILDING AGREEMENT
JTC (L) 3729/1356 PT. 1/KM/ZMY
BUILDING AGREEMENT RELATING TO PRIVATE LOT A14269
MUKIM NO. 18 ANG MO KIO AREA: 17,930 SQUARE METRES
BETWEEN
JURONG TOWN CORPORATION
AND
MICROPOLIS LIMITED
<PAGE> 19
BUILDING AGREEMENT FOR LAND
AT PRIVATE LOT A14269 IN YIO CHU KANG
(INLAND)
THIS AGREEMENT is made the 28th day of February 1995 BETWEEN JURONG TOWN
CORPORATION a body corporate incorporated under the Jurong Town Corporation Act
and having its Head Office at Jurong Town Hall, Jurong Town Hall Road, Singapore
(hereinafter called "the Owner" which expression shall include its
successors-in-title and assigns of the one part AND MICROPOLIS LIMITED a foreign
company incorporated in the Cayman Islands and having its Singapore registered
office at
5004 Ang Mo Kio Avenue 5, #01-11,
Singapore 2056
(hereinafter called "the Licensee" which expression shall include its
successors-in-title) of the other part.
WHEREBY IT IS AGREED as follows:
1. For the period of two (2) years from 1st day of October 1994 (hereinafter
referred to as "the date hereof") or for such further period as may be extended
by the Owner, the Licensee shall have the Licence and authority to enter upon
all that piece of land known as Private Lot A14269 forming part of Government
Survey Lots 7634, 9419, 10979 and 12500, Mukim No. 18, Ang Mo Kio and situated
in the Republic of Singapore as shown on the plan annexed hereto and estimated
to contain an area of 17,930 square metres more or less subject to survey
(hereinafter called "the said land") for the construction of factory building
and other structures therein and for the installation of equipment fixtures and
fittings thereat for the purpose of the manufacture of disk drives, related
sub-assemblies, storage systems and related electronic/information technology
products only in accordance with the stipulations hereinafter contained and for
no other purpose whatsoever.
2. The Licensee hereby agrees to perform and observe the following stipulations:
(i) To hold the said land until the same shall be comprised in a lease
to be granted as hereinafter provided as licensee upon the same
terms relating to the lease referred to in clause 2(ii) herein at
the same rent and subject to the same covenants and stipulations so
far as applicable as if a lease thereto has been actually granted
and so that the Owner shall have all the remedies by whatsoever
means for rent in arrears that are incidental to the relationship of
landlord and tenant but so that nothing herein contained shall be
construed as creating a legal demise or any greater interest in the
licence than a tenancy at will.
(ii) To pay in advance as from the date hereof a licence fee calculated
at the same rate and on the dates specified as for the rent reserved
in the lease of the said land set out in the First Schedule hereto
as if such lease has actually been granted.
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<PAGE> 20
(iii) To pay on the Owner's behalf to the Comptroller of Property Tax an
amount equivalent to the sum payable by the Owner as property tax in
respect of the said land improvements and structures thereon during
the said period or of such extended period (if any) permitted under
clause 3(c) hereof by way of additional licence fee or for the
period prior to the issue of the lease to be granted under clause 4
herein.
(iv) To pay interest at the rate of 8.5% per annum or such higher rate as
may be determined from time to time by the Owner in respect of any
outstanding amount payable by the Licensee under this Agreement from
the date such amount becomes due until payment in full is received
by the Owner.
(v) To pay to the Owner all survey fees and other charges including
those payable to and claimed by the relevant Government Planning
Authorities for the survey of the said land for the purpose of
sub-division of the land of which the said land forms part and the
preparation and issue of a Certificate of Title PROVIDED THAT the
Owner shall have the right to employ his own surveyor to carry out
the said survey in which event the Licensee shall bear all costs
incurred.
(vi) At his own cost and expense -
(a) to engage a professional engineer to carry out soil
investigations to advise on the soil conditions and to design
structurally sound buildings proposed to be erected taking
into consideration the condition of the said land; and
(b) to execute such work as may be required to be done in respect
of the state and condition of the said land (especially its
ground levels, topography and soil conditions) which state and
condition the Licensee shall be deemed to have full knowledge.
(vii) Without prejudice to sub-clause (vi) above to submit within three
(3) months from the date hereof firstly to the Owner for his
approval and then to the relevant Government Planning and Building
Authorities full and complete plans elevations and specifications of
the buildings proposed to be erected on the said land in accordance
in every way with the requirements under the Planning Act and the
Local Government Integration Act PROVIDED THAT the Owner may give or
refuse his approval at his absolute discretion.
(viii)At his own cost to commence erection on the said land either within
six (6) months from the date hereof or within one (1) month from the
date of approval of the plans by the relevant Government Building
Authorities, whichever is the earlier, and in a substantial and
workman-like manner with the best materials of their available kinds
and in conformity in every respect with the plans, elevations,
sections and specifications approved by the Owner and the relevant
Government Building Authorities to finish the warehousing building,
structures and other appurtenances including the installations of
all equipment, fixtures and fittings so as to be completely fit for
immediate occupation and operation within the said period of two (2)
years from the date hereof PROVIDED
-3-
<PAGE> 21
ALWAYS THAT in the planning, erection, construction and completion
of the said buildings, to develop to a gross plot ratio of not less
than 2.0 and not more than 2.5 AND PROVIDED FURTHER THAT the
Licensee shall not install or use any electrical installation,
machine or apparatus that may cause or causes heavy power surge,
high frequency voltage and current, air borne noise, vibration or
any electrical or mechanical interference or disturbance whatsoever
which may prevent or prevents in any way the service or use of any
communication system or affects the operation of other equipment,
installations, machinery, apparatus or plants of other Licensees.
(ix) At his own cost to take such steps and execute such works upon the
said land as may be necessary for the protection of shores and
embankments if any and for the prevention of earth-slip erosion of
soil and failure of slopes expeditiously in a workman-like manner
and to the satisfaction of the Owner and other relevant governmental
and statutory authorities.
(x) If the Licensee shall fail to complete the said buildings works and
installations and to commence operations within the period specified
in clause 2(viii) or within any extended period under clause 3(c)
hereof the Licensee shall pay to the Owner a sum calculated at the
rate of $50.00 per day as liquidated damages for the period during
which the said buildings shall so remain or have remained
incomplete.
(xi) To remove and replace any materials brought on the said land or used
in any of the said buildings, works or installations which the Owner
shall require to be removed as being inferior or unfit and to make
good any workmanship which he shall consider imperfect and if the
Licensee fails to remedy such defects the Owner may enter upon the
said land and remedy such defects at the expense of the Licensee
after expiry of fourteen (14) days' notice being given to the
Licensee to do so.
(xii) Not to erect or build or permit or suffer to be erected or built any
building, structure or installation other than those conforming with
the plans elevations sections and specifications approved by the
Owner and the relevant Government Building Authorities nor to make
any alterations in the external elevation of any of the said
buildings when erected without the prior consent in writing of the
Owner.
(xiii)In the erection and completion of the said buildings, structures and
installations to do all acts and things required by and to perform
the works in conformity with all respects with the provisions of any
laws or regulations made thereunder and to pay and keep the Owner
indemnified against all claims and other payments whatsoever which
during the progress of the works may become payable in respect of
the said works or of anything done under the authority herein
contained and from time to time to discharge and pay all claims,
assessments and outgoings now or at any time hereafter be chargeable
against the Owner under any law or otherwise in regard to the said
land, the said buildings or any structures or installations thereon.
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<PAGE> 22
(xiv) Not to do or permit or suffer to be done in or upon the said land or
any part thereof anything which in the opinion of the Owner may be
or become a nuisance or annoyance or cause damage or inconvenience
to the Owner or to the Licensees or occupiers of any adjoining or
neighboring premises or whereby any insurance for the time being
effected on the premises under sub-clause (xix) herein may be
rendered void or voidable or be in any way affected.
(xv) Not to sell or dispose of any earth, clay, gravel or sand from the
said land or permit or suffer any of the same to be removed except
so far as shall be necessary for the execution of the said works
PROVIDED nevertheless that the Licensee may use for the purpose of
the said works any of the approved materials if so required.
(xvi) Not without the prior consent in writing of the Owner to remove or
permit or suffer to be removed until after completion of the said
buildings in accordance with the provisions herein contained any
building materials (other than inferior or unfit materials removed
for the purpose of being replaced by proper materials) or plant
which shall be brought upon the said land for the purpose of the
said works.
(xvii) Not without the prior consent in writing of the Owner to affix or
exhibit or erect or paint or permit or suffer to be affixed or
exhibited or erected or painted on or upon any part of the exterior
of the said land or of the external walls or rails or fences thereof
any nameplate, signboard, placard, poster or other advertisement or
hoarding.
(xviii) Not at any time to deposit or make up or manufacture or permit or
suffer to be deposited made up or manufactured upon the said land
any building or other materials except such as shall be actually
required for the buildings to be erected on the said land in
accordance with this Agreement and as soon as the buildings
hereinbefore agreed to be erected shall be completed at his own
expense to remove from the road or footpath adjoining the said land
or the ground intended to be used for such road or footpath all
building and other materials and waste whatsoever.
(xix) As soon as any of the said buildings shall have reached a height of
five (5) feet above ground level to insure the same to the full
value thereof in the joint names of the Owner and the Licensee
against loss or damage by fire in some insurance office approved by
the Owner and shall increase such insurance proportionately as the
said buildings approach completion and to keep the same so insured
until a lease shall be granted as hereinafter provided and to pay
all premiums thereof at least seven (7) days before the expiry date
of such insurance policy and to produce to the Owner or his agent
without demand the policy or policies of such insurance and the
receipt for each such payment and in the event the said buildings or
any part thereof are destroyed or damaged by fire then to forthwith
give to the Owner written notice of such destruction or damage and
to forthwith cause all monies received by virtue of any such
insurance to be forthwith laid out in rebuilding and reinstating the
buildings to the satisfaction of the Owner and to make up any
deficiency thereof out of his own monies, but the rebuilding and
reinstatement shall in any
-5-
<PAGE> 23
event commence and be completed within the period specified by the
Owner PROVIDED ALWAYS THAT if the Licensee shall at any time fail to
keep the premises insured as aforesaid the Owner may without being
under any obligation to do so do all things necessary to effect or
maintain such insurance and any monies expended by him for that
purpose shall be repayable by the Licensee on demand and be
recovered forthwith from the Licensee as a debt.
(xx) Not to assign, sublet, grant a license, or part with or share his
interest under this Agreement, or the possession or occupation of
the said land, or any part thereof EXCEPT THAT, subject to the
Owner's prior written consent, which consent shall not be
unreasonably withheld, the Licensee may mortgage his interest under
this Agreement by way of assignment to secure the repayment of such
sum or sums as the Licensee may require for the purpose of erecting
or completing the building or other structure to be built on the
said land in accordance with the provisions of this Agreement
PROVIDED THAT the Licensee shall thereafter continue to be liable
for the observance and performance of the several stipulations
herein contained until the grant of the lease as hereinafter
provided.
(xxi) Not to permit or suffer any person to occupy, reside or make use of
any building erected on the said land before a Temporary Occupation
Permit or a Certificate of Statutory Completion issued by or except
with the permission of the relevant Governmental and Statutory
authority.
(xxii) To make reasonable provision against and be responsible for all
loss, injury and damage to any person (including loss of life) or
property including that of the Owner for which the Licensee may be
held liable arising out of or in connection with the occupation and
use of the said land and the structures erected thereon and to
indemnify the Owner against all proceedings, claims, costs and
expenses which he may incur or for which he may be held liable as a
result of any act, neglect or default of the Licensee, his servants,
contractors, or agents or their respective servants.
(xxiii) To make good and sufficient provision for the safe and efficient
disposal of all waste including but not limited to pollutants
generated at the said land to the requirements and satisfaction of
the Owner and other relevant Governmental and Statutory authorities
PROVIDED THAT in the event of any default by the Licensee under this
covenant the Owner may carry out such remedial measures as he thinks
necessary and costs and expenses incurred thereby shall be
recoverable forthwith from the Licensee as a debt.
(xxiv) Subject always to clause 2(xx) hereinbefore appearing, to give to
the Owner written notice of every change of name within one month
from the date of each change.
(xxv) To construct an internal drainage system to the satisfaction of the
Owner to ensure that all surface water collected is discharged into
the public drains and will not flow into adjoining properties.
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<PAGE> 24
(xxvi) To construct and complete a permanent culvert within nine (9) months
from 1st day of October 1994 or any extension thereof as may be
approved by the Owner and in connection thereof to submit plans to
and to obtain the prior approval in writing of the Owner for the
construction of a temporary crossing.
(xxvii) Within one (1) month of the completion of the permanent culvert
mentioned in sub-clause (xxvi) above to remove the temporary
crossing and to reinstate any roads, roadside curbs, drains, turfing
or the like damaged by the Licensee, his servants, contractors
subcontractors, or agents or their respective servants to the
satisfaction of the Owner and the relevant Governmental and
Statutory authorities.
(xxviii) Within one (1) month of the completion of the construction of the
said buildings ad related civil works to reinstate any damage caused
to the roads, roadside curbs, drains, turfing and the said permanent
culvert by the Licensee his servants, contractors, subcontractors,
or agents or their respective servants to the satisfaction of the
Owner and the relevant Governmental and Statutory authorities.
(xxix) To place with the Owner a deposit of $5,000.00 which shall be
forfeited in the event of any breach of any of the provisions in
sub-clauses (xxvi), (xxvii) and (xxviii) herein without prejudice to
the rights and remedies of the Owner contained in this Agreement and
the Lease.
(xxx) At his own cost to plant and maintain trees and landscape the said
land in accordance with all the requirements of the Parks and
Recreation Department, Ministry of National Development and other
relevant Governmental and Statutory authorities.
(xxxi) At his own cost to execute such work as may be necessary to diver
existing utility services such as pipes, cables and the like (if
any) to the requirements and satisfaction of the Owner and other
relevant Governmental and Statutory authorities.
(xxxii) If the Licensee shall at any time be found to have encroached upon
any area beyond the allocated boundaries of the said land, the
Licensee shall at his own costs and expense, but without prejudice
to any other right or remedy the Owner may have against him,
immediately or within the time specified (if any) by the Owner
rectify and remove the encroachment to the satisfaction of the Owner
and pay to the Owner such compensation as may be specified by the
Owner. If, however, the Owner in his absolute discretion permits the
Licensee to regularize and retain the encroached area or any part
thereof upon such terms and conditions as may be stipulated by the
Owner and any other relevant Governmental and Statutory authorities,
the Licensee shall pay licence fee on the encroached area with
retrospective effect from the date hereof, and the Licensee shall
also pay all survey fees, amalgamation fees, legal fees (including
solicitor and client costs and expense), and all other costs and
charges relating thereto.
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<PAGE> 25
(xxxiii) If any damage of whatsoever nature or description shall at any time
occur or be caused to the said land or any building or structure or
installation thereon, or any part thereof, to forthwith give to the
Owner written notice of the damage and to remedy the damage to the
satisfaction of the Owner within such time as the Owner may specify,
all at the cost of the Licensee.
(xxxiv) Not to keep or allow to be kept any livestock or other animals on
the said land or any part thereof.
(xxxv) The license fees and other taxable sums payable by the Licensee
under or in connection with the Licence herein shall be exclusive of
the goods and services tax (hereinafter called "tax") chargeable by
any government, statutory or tax authority calculated by reference
to the amount of the license fees and any other taxable sums
received or receivable by the Owner from the Licensee and which tax
is payable by the Licensee. The Licensee shall pay the tax and the
Owner acting as the collecting agent for the government, statutory
or tax authority shall collect the tax from the Licensee together
with the rent hereinbefore reserved without any deduction and in
advance without demand on the 1st day of each of the months of
January, April, July and October, and in the manner and within the
period prescribed in accordance with the applicable laws and
regulations.
(xxxvi) At all times and at his own cost and expense, to comply with and
observe any height restriction on buildings and structures at the
said land which may be imposed by any governmental or statutory
authority and to ensure that the maximum height for all buildings
and structures on the said land shall not exceed 36 metres AGL.
(xxxvii) The building facade fronting Serangoon North Avenue 5 shall be
aesthetically-designed.
(xxxviii) Without prejudice to Clauses 2(xii) and 2(xiii) hereinbefore
appearing, the Licensee shall not place, construct or erect or
permit the placing, construction or erection of any building,
structure or equipment whatsoever on the 3.0 metre-wide sewer
easement and buffer situated within the boundary of the said land as
shown on the plan annexed hereto.
(xxxix) The Licensee accepts that as infrastructure development, which shall
include a permanent road, public sewer, water pipes and street
lighting for the whole of Yio Chu Kang area of which the said land
forms only a part, is being carried out by the Owner and is targeted
for completion on or about January 1995 a the earliest, the Licensee
shall meanwhile at his own cost make temporary arrangements with the
relevant governmental and statutory authorities to obtain public
utilities for the Licensee's own needs.
(xl) The Licensee accepts the said land with full knowledge that the
proposed permanent road and service road shown on the said plan
annexed hereto have yet to be constructed and further accepts and
agrees at all times to permit the Owner, its contractors,
subcontractors, and their workmen to enter upon the said land facing
the said proposed
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<PAGE> 26
permanent road for purposes of a working area to carry out and
complete the said infrastructure development.
(xli) The Licensee has to liaise with the Owner's contractors before
placing the temporary crossing to the said land along the proposed
road and at his own costs to shift its position from time to time so
as not to impede the Owner's infrastructure development program.
(xlii) The Owner shall not be liable to the Licensee or any other person
for any claim, demand, action, proceeding, inconvenience, damage,
loss, costs whatsoever that may arise in respect of or in connection
with Clauses 2(xxxix) to 2(xli) above.
(xliii) That access to the said land shall be confined only to Serangoon
North Avenue 5.
(xliv) Without prejudice to the generality of Clause 2(ix) herein,
(a) the Licensee shall construct and complete a retaining wall on
the boundary of the said land along Sungei Tonkang as part of
slope protection works (hereinafter referred to as "the said
retaining wall");
(b) the Licensee shall notify the Owner within two weeks of
completion of the construction of the said retaining wall
together with an audited statement of the cost of construction
of the said retaining wall (hereinafter referred to as "the
said requisite notice") PROVIDED ALWAYS THAT no compensation
shall be payable under Clause 2(xliv) (c) herein by the Owner
and/or claimable by the Licensee if the said requisite notice
is not duly given;
(c) if the said retaining wall shall have been completed to a
reasonably acceptable standard and upon due confirmation of
the same by the Owner's Technical Services Group, the Owner
shall compensate the Licensee for the cost of the construction
of the said retaining wall up to a maximum of S$720,000/-
(Dollars Seven hundred and twenty thousand only) (hereinafter
referred to as "the said compensation") PROVIDED ALWAYS THAT
the said compensation shall be paid to the Licensee by
deducting the same amount in full or in installments from the
license fees that have or will become due.
3. It is hereby mutually agreed that until the Licensee has performed all his
obligations herein contained, the Owner shall possess the rights and powers
following:
(a) The right for himself and his agents with or without workmen
or others at all reasonable times to enter upon the said land
to view the state and progress of the said buildings and works
and to inspect and test the materials and workmanship in
connection therewith and for any other reasonable purpose
including the construction and installation of sewers, drains,
pipes and cables on or leading from any adjoining or
neighboring land of the Owner as may be required by the Owner.
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<PAGE> 27
(b) Full right and liberty in case any of the said buildings and
other structures or installations hereby agreed to be erected
be not completed and fit for immediate occupation within the
period hereinbefore limited (time in this respect shall be of
the essence of the contract) and in accordance in every way
with the stipulations hereinbefore contained or in case the
Licensee shall in any other way fail to perform and observe
any of the stipulations on his part herein contained or if any
charging order writ of seizure and sale or its equivalent made
in respect of the said land or any structure thereon shall be
enforced without the written consent of the Owner having first
been obtained by the Licensee or by the person in whose favor
the charging order writ of seizure and sale or its equivalent
shall have been made, to re-enter upon and take possession of
the said land and all buildings structures fixtures plant
material and effects whatsoever thereon with power to hold and
dispose thereof as if this Agreement had not been entered into
and without making to the Licensee any compensation or
allowance for the same and this Agreement shall thereupon
determine but without prejudice to any right of action or
other remedy of the Owner for the recovery of any license fee
or monies due to him from the Licensee or in respect of any
breach of this Agreement PROVIDED ALWAYS THAT if the said land
has been assigned by way of mortgage, the provisions of this
clause shall not take effect until the Owner has served upon
the mortgagee notice in writing specifying the breach and the
mortgagee has failed to remedy such breach.
(c) PROVIDED nevertheless that notwithstanding any such default as
aforesaid in completing the said buildings and works the Owner
may in his discretion give notice in writing to the Licensee
of his intention not to enforce the stipulations herein
contained and may fix any extended period for the completion
of the said works in substitution for the said period of two
(2) years hereby fixed for such completion and thereupon the
obligations hereunder of the Licensee to complete the said
works and to accept a lease hereinafter mentioned shall be
taken to refer to such substituted period.
(d) Without prejudice to the generality of clause 3(b) hereof full
right and liberty in the event that the Licensee has failed to
either:
(1) develop the said land to the gross plot ratio specified
in clause 2(viii), or
(2) fulfil the investment criterion as stipulated in Clause
4
with full and absolute discretion to the Owner to either:
(i) re-enter upon and take possession of the said land or any part thereof
and all buildings, structures, fixtures, plant, material and effects
whatsoever thereon with power to hold and dispose thereof as if this
Agreement had not been entered into and without making to the Licensee
any compensation or allowance for the same and this Agreement shall be
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<PAGE> 28
thereupon determined but without prejudice to any right or action or
other remedy of the Owner or recovery of any license fee or monies due
to him from the Licensee or in respect of any breach of this Agreement,
or
(ii) reduce the term of lease proportionately as the actual amount invested
bears with the required fixed investment on the said land as stipulated
in clause 4 in which event the Licensee shall execute such documents as
the Owner shall deem necessary and in connection therewith, pay all
costs disbursements fees and charges legal or otherwise as provided in
clause 5.
PROVIDED ALWAYS that if the said land has been assigned by way of mortgage, the
provisions of this sub-clause (d) shall not take effect until the Owner had
served upon the Mortgagee notice in writing specifying the breach and the
Mortgagee has failed to remedy such breach.
4. If the said buildings and works shall have been completely finished to the
satisfaction of the Owner and the relevant Government Building Authorities (to
be evidenced by their certificates in writing to that effect) within the said
period of two (2) years or of such extended period (if any) as aforesaid and if
the Licensee shall have performed and observed all the stipulations herein on
his part contained other than such as may have been waived as aforesaid and if
the Licensee's investment shall have been the sum of $1000 per square metre of
the gross building floor area on building and civil works (of which at least
1.5% thereof up to a maximum of $300,000 must be on landscaping) and the minimum
sum of $500 per square metre of the said land on plant and machinery within
three (3) years from 1st day of October 1994 (due proof of such investment shall
be produced to the satisfaction of the Owner on or before 31st day of March
1998) then the Owner shall grant and the Licensee shall accept and execute a
counter-part of one good and sufficient lease or sub-lease of the said land and
premises together with the buildings so erected thereon with their appurtenances
for the term of thirty (30) years from the 1st day of October 1994 at the rent
and in the form containing the reservation exceptions covenants conditions and
provisions set forth in the FIRST SCHEDULE hereto with such modifications as
circumstances may render necessary and such other covenants, conditions or
stipulations to be performed by the Licensee governing or regulating the use of
the said land as the Owner thinks fit with a view to preserving the value
thereof or protecting the interests of the licensees or occupiers of land or
premises adjacent to the said land from any dangerous or obnoxious or otherwise
harmful activities which may be carried out by the Licensee whether or not such
activities are carried out by the Licensee whether or not such activities are
incidental to the Licensee's trade PROVIDED THAT until such lease is executed
the Licensee shall be deemed to be the Lessee of the said land as though a lease
has been executed at the same rent and subject to the covenants and conditions
contained in the First Schedule.
5. The Licensee shall pay all costs disbursements fees and charges legal or
otherwise including stamp and registration fees in connection with the
preparation stamping and issue of this Agreement and the Lease herein agreed to
be granted and any prior accompanying or future documents or deeds supplementary
collateral or in any way relating to this Agreement and the lease.
-11-
<PAGE> 29
6. The Licensee shall pay all costs and fees legal or otherwise, including the
Owner's costs as between solicitor and client, in connection with the
enforcement of the covenants and conditions of this Agreement and the lease.
7. The Licensee may, at any time during the said period of two (2) years and any
extensions thereof granted under clause 3(c) and subject to the prior written
consent and the conditions of consent of the Owner, terminate this Agreement or
surrender part of the said land PROVIDED ALWAYS THAT such termination or
surrender shall be without prejudice to any right or remedy of the Owner which
may have accrued prior to such termination or the surrender AND PROVIDED FURTHER
THAT the Licensee shall in addition to the license fee (which at the discretion
of the Owner may be apportioned for the period commencing from the date hereof
up to the date of delivery of vacant possession of the said land or part thereof
to the Owner) survey fees, property tax and other charges specified herein pay
to the Owner as liquidated damages a sum made up of firstly an amount equivalent
to three (3) months' license fee, secondly an amount equivalent to one (1)
additional year's property tax and thirdly an amount of $500 being
administrative costs or such other sum as may be determined from time to time by
the Owner, AND PROVIDED FURTHER THAT before the delivery of vacant possession as
aforesaid if the Owner shall so desire the Licensee shall at the cost and
expense of the Licensee render the said land or part thereof as the case may be
to its original state and condition.
-12-
<PAGE> 30
IN WITNESS WHEREOF the parties hereto have hereunto set their respective
hands or seals the day and year first above written.
SIGNED on behalf of
THE JURONG TOWN CORPORATION
By: SWEE KEE SIONG
Deputy Chief Executive Officer
in the presence of: -
----------------------------
KANNAN MALINI
The Common Seal of
MICROPOLIS LIMITED
was hereunto affixed
in the presence of: -
Signature:
---------------------------------------
Name:
Designation:
Signature:
---------------------------------------
Name:
Designation:
-13-
<PAGE> 31
ACKNOWLEDGMENT
State of
--------------------------------------------------------------------
County of
--------------------------------------------------------------------
On before me,
--------- ------------------------------------------------------
personally appeared
---------------------------------------------------------
- ------------------------------------------------------------------------------
[ ] personally known to me - OR - [ ] proved to me on the basis of
satisfactory evidence to be the
person(s) whose name(s) is/are
subscribed to the within instrument
and acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
----------------------------------
Signature of Notary
- ------------------------------------------------------------------------------
CAPACITY CLAIMED BY SIGNERS DESCRIPTION OF ATTACHED DOCUMENTS
[ ]CORPORATE OFFICER BUILDING AGREEMENT
- ----------------------- ------------------------------------
Title Title or Type of Document
- ----------------------- ------------------------------------
Title Number of Pages
SIGNERS ARE REPRESENTING:
------------------------------------
Date of Document
MICROPOLIS LIMITED
- --------------------------- ------------------------------------
Signer(s) Other than Named Above
-14-
<PAGE> 32
THE FIRST SCHEDULE ABOVE REFERRED TO
FORM 19
THE LAND TITLES ACT
(CHAPTER 157)
OFFICE USE ONLY
LEASE
(WITH RESERVATION OF EASEMENT)
DESCRIPTION
OF LAND
Reference to
Land Register Town Description of Land
Volume Folio Sub-division Mukim Lot (whether whole or part)
------ ----- ------------ ----- --- -----------------------
THE LESSOR
LESSOR
JURONG TOWN CORPORATION, a body corporate OFFICE USE ONLY
incorporated under the Jurong Town Corporation Act
and having its office at Jurong Town Hall, Jurong
Town Hall Road, Singapore 2260.
(the registered proprietor) HEREBY LEASES the registered
estate or interest in the land above described to
THE LESSEE
LESSEE
MICROPOLIS LIMITED OFFICE USE
ONLY
-15-
<PAGE> 33
TERM OF LEASE as tenant for the term of thirty (30) years commencing the 1st
day of October 1994, in consideration of the minimum
investment by the Lessee of $1,000 per square metre of the
gross building floor area on building and civil works (of
which at least 1.5% thereof up to a maximum of $300,000 must
be on landscaping) and $500 per square metre of the demised
premises on plant and machinery, (hereinafter referred to as
"the fixed investment criteria") and YIELDING and PAYING
therefor from the 1st day of July 1995 the yearly rent of
Dollars Nine hundred and eighty thousand seven hundred and
seventy-one only ($980,771) to be paid by equal quarterly
installments on the first day of each of the months of
January, April, July and October in every year of the said
term without any deduction and in advance without demand at
the office of the Lessor or at such other office as the Lessor
may designate calculated at the rate of $54.70 per square
metre per annum (hereinafter referred to as "the Initial
Rent") of the demised premises having an area of 17,930 square
metres (hereinafter referred to as "the preliminary survey
area", which may at any time be adjusted on completion of
final survey, if any, and in which event if the area adjusted
exceeds five square metres more, or less, than the preliminary
survey area the rental paid or payable by the Lessee shall
accordingly also be adjusted and be paid and payable or
refunded as the case may be in respect of the full difference
between the preliminary survey area and the final survey area,
with retrospective effect from the commencement of the said
term of the Lease herein), which rate shall be subject to
revision on the 1st day of July 1996 at the rate based on the
market rent on the date of such revision determined in the
manner following but so that the increase shall not exceed
7.6% of the Initial Rent. The yearly rent so revised on the
1st day of July 1996 shall be subject to revision on the 1st
day of July of every year thereafter at the rate based on the
market rent on the respective dates determined in the manner
following but so that the increase shall not exceed 7.6% of
the annual rent for each immediately preceding year. The
market rent in this context shall mean the rent per square
metre per annum of the demised premises excluding the
buildings and other structures erected thereon and shall be
determined by the Lessor on or about the dates mentioned (and
payable retrospectively with effect from the dates mentioned
if determined after the dates mentioned) and the decision of
the Lessor shall be final.
AND RESERVING to the Lessor as APPURTENANT TO
DESCRIPTION
OF LAND
<TABLE>
<CAPTION>
Reference to
Land Register Town Description of Land
Volume Folio Sub-division Mukim Lot (whether whole or part)
------ ----- ------------ ----- --- -----------------------
<S> <C>
18
</TABLE>
-16-
<PAGE> 34
a RIGHT OF PASSAGE AND RUNNING of water, soil, electricity, power,
gas, telephone communication and other similar amenities from the
adjoining and neighboring premises thereon through sewers, drains,
pipes, channel, cables and ducts upon or under the land hereinafter
described and to make connections with such sewers, drains, pipes,
channels, cables and ducts or any of them for the purpose of
exercising the said right of passage and of running the aforesaid
amenities over the land hereinafter described.
DESCRIPTION OF
LAND
(Reservation of right
of passage and
running of amenities
over land hereby
transferred)
<TABLE>
<CAPTION>
Reference to Whole or part
Land Register Town (If part only give
Volume Folio Sub-division Mukim Lot details)
- ------ ----- ------------ ----- --- --------
<S> <C>
18
</TABLE>
SUBJECT TO:
PRIOR PRIOR ENCUMBRANCE
ENCUMBRANCES
NIL
AND the following:
COVENANTS AND CONDITIONS
(a) the covenants, conditions and powers implied by law in instruments
of lease (or to such of them as are not hereinafter expressly
negatived or modified);
(b) the covenants and conditions set forth in the Memorandum of Lease
filed in the Registry of Titles and numbered as ML I/30809F with the
exception of covenants 1(x) and 1(xxv) of ML I/30809F.
SPECIAL COVENANTS AND CONDITIONS
1. (x) As often as any building or structure on the demised premises or any
part thereof shall be destroyed or damaged as aforesaid forthwith to
give to the Lessor written notice of such destruction or damage and
forthwith to cause all monies received by virtue of such insurance
to be laid out in rebuilding and reinstating the same to the
satisfaction of the Lessor and in accordance with the plans and
specifications approved by the Lessor and in accordance with the
laws, bylaws regulations and planning schemes of every relevant
governmental and statutory authority prevailing at the time, and in
case the monies so received shall be insufficient for that purpose
then to make up the deficiency out of his own
-17-
<PAGE> 35
monies PROVIDED THAT the rebuilding and reinstatement shall in any
event commence and be completed within the period specified by the
Lessor.
(xxv) Subject always to Clause 1(xi) of ML I/30809F, to give to the Lessor
written notice of every change of name within one month from the
date of each change.
(xxxvi)Not to use or permit or suffer the demised premises or any part
thereof to be used otherwise than for the manufacture of disk
drives, related subassemblies, storage systems and related
electronic/information technology products only except with he prior
consent in writing of the Lessor. In giving its consent, the Lessor
may in its absolute discretion require, inter alia, the Lessee to
meet the fixed investment criteria and to show due proof within such
period of time as the Lessor may stipulate, and in the event of the
non- observance thereof, the Lessor shall be entitled to exercise
its rights under clause 3(c) of ML I/30809F. For the avoidance of
any doubt, the words "meet" in this clause and "met" in clause (xi)
shall include the maintenance of the fixed investment criteria and
if it has not been maintained then that it be met.
(xxxvii)Without prejudice to clause 1(viii) of ML I/30809F to ensure that
the gross plot ratio shall not be less than 2.0 and not more than
2.5.
(xxxviii)Not to keep or allow to be kept any livestock or other animals at
the demised premises or any part thereof.
(xxxix)At the Lessee's own cost and expense and subject to the Lessor's
prior written approval, to execute such works as may be deemed
necessary by the Lessee in respect of the state and condition of the
demised premises (especially its ground levels, topography and soil
conditions) which state and condition the Lessee shall be deemed to
have full knowledge.
(xl) without prejudice to the generality of Clauses 1(iii) and 1(vii) in
ML I/30809F, the rent and other taxable sums payable by the Lessee
under or in connection with this lease shall be exclusive of the
goods and services tax (hereinafter called "tax") chargeable by any
government, statutory or tax authority calculated by reference to
the amount of rent and any other taxable sums received or receivable
by the Lessor from the Lessee and which tax is payable by the
Lessee. The Lessee shall pay the tax and the Lessor acting as the
collecting agent for the government, statutory or tax authority
shall collect the tax from the Lessee together with the rent
hereinbefore reserved without any deduction and in advance without
demand on the 1st day of each of the months of January, April, July
and October, and in the manner and within the period prescribed in
accordance with the applicable laws and regulations.
(xli) At all times and at his own cost and expense, to comply with and
observe any height restriction on buildings and structures at the
demised premises which may be imposed by any governmental or
statutory authority and to ensure that the maximum height for any
building and structures on the demised premises shall not exceed 36
metres AGL.
-18-
<PAGE> 36
(xlii) Without prejudice to the generality of Clause 1(vii) of ML I/30809F,
the Lessee shall not place, construct or erect or permit the
placing, construction or erection of any building, structure or
equipment whatsoever on the 3.0-metre wide sewer easement and buffer
situated within the boundary of the demised premises shown on the
plan annexed hereto.
(xliii)That the access to the demised premises shall be confined only to
Serangoon North Avenue 5.
2.A The Lessor further covenants with the Lessee that he shall grant to the
Lessee a lease of the demised premises for a further term of thirty (30) years
(hereinafter referred to as "the further term") from the expiry of the said term
upon the same terms and conditions and containing like covenants as are
contained in this lease with the EXCEPTION of the present covenant for renewal
PROVIDED THAT:
(i) the Lessee shall have made a minimum investment of $1,000/- per
square metre of the gross building floor area on building and civil
works of which at least 1.5% of the building cost up to a maximum or
$300,000/- must be on landscaping and $500/- per square metre of the
demised premises on plant and machinery, (also referred to as "the
fixed investment criteria") within three (3) years from the 1st day
of October 1994 and due proof of such investment is produced to the
satisfaction of the Lessor on or before the 31st day of March 1998;
(ii) Subject to clause 1(viii) of ML I/30809F, there shall be a gross
plot ratio of not less than 2.0 and not more than 2.5;
(iii) at the time due proof of such investment is produced and at the
expiry of the said term, there be no existing breach or
no-observance of any of the covenants and conditions herein
contained on the part of the Lessee to be observed or performed;
(iv) the rental payable for the further term shall be as set out
hereunder;
(a) the yearly rent for the further term shall be at the rate
based on the market rent at the commencement of the further
term (hereinafter referred to as "the Second Initial Rent")
which rate shall however be subject to a revision on the 1st
day of October 2025 to a rate based on the market rent on the
date of such revision determined in the manner following but
so that the increase shall not exceed 7.6% of the Second
Initial Rent;
(b) the yearly rent so revised on the 1st day of October 2025
shall be subject to revision on the 1st day of October of
every year thereafter at the rate based on the market rent on
the respective dates determined in the manner following but so
that the increase shall not exceed 7.6% of the annual rent for
each immediately preceding year;
-19-
<PAGE> 37
(c) the yearly rent for the further term shall be payable by equal
quarterly installments without any deductions and in advance
without demand on the 1st day of each of the months of
January, April, July and October in every year of the further
term at the office of the Lessor or at such other office as
the Lessor may designate the 1st of such payments to be made
on or before the commencement of the further term;
(d) for the purposes of (a) and (b) above, the market rent shall
mean the rent per square metre per annum of the demised
premises excluding the buildings and other structures erected
thereon and shall be determined by the Lessor on or about the
dates mentioned (and payable retrospectively with effect from
the dates mentioned if determined after the dates mentioned)
and the decision of the Lessor shall be final;
(v) if required by the Lessor, the Lessee shall within four (4) months
from the commencement of the further term and at his own cost and
expense, carry out and complete such improvements to the landscaping
at the demises premises as may be stipulated in writing by the
Lessor;
(vi) the Lessee shall six (6) months before the expiry of the said term
submit, for the approval of the Lessor and the relevant governmental
and statutory authorities, plans for the upgrading of the exterior
of buildings on the demised premises to the same highest quality of
new buildings which the Lessor will be building at that time, and
the lessee shall expeditiously do all acts and things necessary to
obtain the approval, all the cost and expense of the Lessee; and
(vii) the Lessee shall at his own cost and expense complete within
eighteen (18) months from the commencement of the further term, the
upgrading of the buildings in accordance with the plans approved by
the Lessor and the relevant governmental and statutory authorities
and to the satisfaction of the Lessor.
3. This Lease shall be interpreted in accordance with the laws of Singapore and
any legal proceedings, actions or claims arising from or in connection with this
Lease herein shall be commenced in and heard before the courts of Singapore and
the Lessee agrees to submit itself to the jurisdiction of the courts of
Singapore.
-20-
<PAGE> 38
DATE OF LEASE
------------------------------------------
EXECUTION THE COMMON SEAL OF )
BY LESSOR JURONG TOWN CORPORATION )
was hereunto affixed in )
the presence of :- )
-------------------------------
CHIEF EXECUTIVE OFFICER
-------------------------------
SECRETARY
EXECUTION THE COMMON SEAL OF )
BY LESSEE )
was hereunto affixed in )
the presence of :- )
-------------------------------
-------------------------------
I,
a duly authorized officer of the Jurong Town corporation,
under Section 31 of the Jurong Town Corporation Act (Cap 150)
for and on behalf of the Lessor hereby certify that this
instrument is correct for the purposes of the Land Titles Act.
I,
the Solicitor of the Lessee hereby certify that this
instrument is correct for the purposes of the Land Titles Act.
-21-
<PAGE> 39
BELOW THIS LINE FOR OFFICE USE ONLY
Special Remarks Endorsing Instruction
First Schedule:
Second Schedule:
EXAMINED REGISTERED ON
Date:
REGISTRAR OF TITLES
Initials of
Signing
Officer
-22-
<PAGE> 40
ML I/30809F
OFFICE USE ONLY
THE LAND TITLES ACT
(CHAPTER 157)
$
M E M O R A N D U M
To the Registrar of Titles
On behalf of the JURONG TOWN CORPORATION, a body corporate incorporated under
the Jurong Town corporation Act and having its office at Jurong Town hall,
Jurong Town Hall Road, Singapore, the Registered proprietor.
I, GLORIA ONG SIEW CHOO, certify that this memorandum (comprising seven pages),
contains the provisions which are deemed to be incorporated in any instrument in
which the abovementioned corporation is named as a lessor and such instrument
has reference to this memorandum.
Signature
Authorized Officer
LODGED BY: Filed in the REGISTRY OF TITLES
Jurong Town Corporation ON 26TH JUNE, 1990
Jurong Town Hall
Jurong Town Hall Road
Singapore 2260 REGISTRAR OF TITLES
-23-
<PAGE> 41
SPECIAL COVENANTS AND CONDITIONS
1. The Lessee hereby covenants with the Lessor as follows:-
(i) To pay the yearly rent hereinbefore reserved on the days and in the
manner appearing in the reddendum.
(ii) To pay unto the Lessor on demand by way of additional rent a sum
equal to all such sums as the lessor may from time to time pay for
insuring and keeping insured the demised premises against loss or
damage by fire in case the Lessee shall make default in insuring and
keeping insured the demised premises pursuant to the covenant in
that behalf hereinafter contained PROVIDED ALWAYS THAT nothing
herein shall render it obligatory on the part of the Lessor to
insure and keep insured the demised premises or any part thereof.
(iii) To pay all rates taxes assessments and outgoings whatsoever which
now are or which at any time hereafter during the said term may be
imposed or charged upon or in respect of the demised premises or any
part thereof.
(iv) To repair and keep in tenantable repair the demised premises and
every part thereof throughout the said term.
(v) To pay a reasonable proportion of the expense of constructing,
repairing, rebuilding and cleansing all party walls, fences, sewers,
drains, pipes, water-courses and other things the use of which is
common to the demised premises and the occupiers of any adjoining or
neighboring premises and such proportion in the case of a dispute
shall be conclusively determined by the Lessor's surveyor for the
time being.
(vi) To permit the Lessor and his surveyors or agents with or without
workmen or others during the said term at reasonable times in the
day-time to enter upon the demised premises and every part thereof
to examine the state and condition of the same and of defects,
decays and wants of reparations and of all breaches of covenant
there found and the Lessor may thereupon serve on the lessee notice
in writing by leaving the same at or on the demised premises to or
for the Lessee to make good the same within such reasonable time as
specified in such notice.
(vii) To perform and observe all the obligations which the lessor of the
demised premises may be liable to perform or observe during the term
hereby created by any direction or requirement of any governmental
or statutory authority and if the Lessee shall fail to observe or
perform this covenant the lessor may in its absolute discretion
perform the same and all expenses and costs incurred thereby shall
be recoverable from the Lessee as a debt PROVIDED ALWAYS THAT the
lessor shall not be liable to the Lessee for any loss damage or
inconvenience caused thereby.
-24-
<PAGE> 42
(viii) Not to make or cause to be made any addition or alteration affecting
the elevation external structure or stability of the demised
premises or any part thereof without the prior written consent of
the Lessor and the relevant governmental and statutory authorities
PROVIDED THAT on the granting of such consent and without prejudice
to other terms and conditions which may be imposed the Lessee shall
give to the Lessor security that the proposed addition alteration or
rebuilding will in fact be carried out within a reasonable time.
(ix) Forthwith to insure and keep insured the demised premises against
loss or damage by fire to the full value thereof with a well
established insurance company approved by the Lessor and to make all
payments necessary for that purpose within seven days after the same
shall become payable and upon reasonable notice to produce to the
Lessor the Policy or policies of such insurance and the receipts for
all such payments.
(x) As often as the demised premises or any part thereof shall be
destroyed or damaged as aforesaid forthwith to cause all monies
received by virtue of such insurance to be laid out in rebuilding
and reinstating the same in accordance with the plans and
specifications approved by the Lessor and in accordance with the
existing laws, bylaws, regulations and planning schemes of every
relevant governmental and statutory authority prevailing at the time
and in case the monies so received shall be insufficient for that
purpose then to make up the deficiency out of his own monies
PROVIDED THAT the rebuilding and reinstatement shall in any event
commence and be completed within the period specified by the Lessor.
(xi) Not to demise, assign, mortgage, let, sublet or underlet or grant a
license or part with or share the possession or occupation of the
demised premises in whole or in part without first obtaining the
consent of the Lessor in writing. The restrictions contained in
Section 17 of the Conveyancing the Law of Property Act (Chapter 61)
shall not apply. In addition, the Lessor may in its absolute
discretion in giving the consent require, intr alia, that the fixed
investment criteria be met and due proof thereof be shown within
such period of time as the Lessor may stipulate, and in the event of
the non-observance thereof, the Lessor shall be entitled to exercise
its rights under Clause 3(c) herein.
(xii) Within six months of the devolution of the interest of the Lessee
not perfected by an assent to give notice thereof in writing with
particulars thereof to the Lessor and produce to the Lessor such
documentary evidence as may be required by the Lessor.
(xiii) Not to use the demised premises or any part thereof for any illegal
or immoral purpose and not to do or permit or suffer to be done upon
the demised premises anything which in the opinion of the Lessor may
be or become a nuisance, annoyance or cause damage or inconvenience
to the Lessor or his lessees or the occupiers of any adjoining or
neighboring premises or whereby any insurance for the time being
effected on the demised premises may be rendered void or voidable or
be in any way affected.
-25-
<PAGE> 43
(xiv) Not without the prior consent in writing of the Lessor to affix or
exhibit or erect or paint or permit or suffer to be affixed or
exhibited or erected or painted on or upon any part of the exterior
of the demised premises or of the external rails or fences thereof
any nameplate signboard placard poster or other advertisement or
hoarding
(xv) To make reasonable provision against and be responsible for all loss
injury or damage to any person or property including that of the
Lessor for which the Lessee may be held liable arising out of or in
connection with the occupation and use of the demised premises and
to indemnify the Lessor against all proceedings claims costs and
expenses which he may incur or for which he may be held liable as a
result of any act neglect or default of the Lessee his servants
contractors sub-contractors or agents.
(xvi) To pay interest at the rate of 8.5% per annum or such higher rate as
may be determined from time to time by the Lessor in respect of any
arrears of rent or other outstanding sums due and payable under this
Lease form the due dates thereof until payment in full is received
by the Lessor.
(xvii) AT the termination, by expiry or otherwise, of the term hereby
created, to yield up the demised premises to the Lessor in
tenantable repair in accordance with the Lessee's covenants herein
contained PROVIDED THAT, if so required by the Lessor and upon
notice thereof, the Lessee shall remove the fixtures and fittings,
or any part thereof, as may be specified by the Lessor and reinstate
the demised premises to the satisfaction of the Lessor and if the
Lessee shall fail to observe or perform this covenant the Lessor
shall execute such works and recover the costs thereof from the
Lessee as a debt.
(xviii)To make good and sufficient provision for the safe and efficient
disposal of all waste including but not limited to pollutants to the
requirements and satisfaction of the Lessor PROVIDED THAT in the
event of default by the Lessee under this covenant theLessor may
carry out such remedial measures as he thinks necessary and all
costs and expenses incurred thereby shall forthwith be recoverable
from the Lessee as a debt.
(xix) Not to do or omit or suffer to be done or omitted any act, matter or
thing in or on the demised premises in respect of the operations
business, trade or industry carried out or conducted therein which
shall contravene the provisions of any laws, bylaws, orders, rules
or regulations now or hereafter affecting the same but at his own
cost and expense to comply with all such provisions and at all times
hereafter to indemnify and keep indemnified the Lessor against all
actions, proceedings, costs, expenses, claims, fines, losses,
penalties and demands in respect of any act, matter or thing done or
omitted to be done in contravention of the said provisions.
(xx) To pay all costs disbursements fees and charges legal or otherwise
including stamp and registration fees in connection with the
preparation stamping and issue of this Lease and any prior
accompanying or future documents or deeds supplementary collateral
or in any way relating to this Lease.
-26-
<PAGE> 44
(xxi) To pay all cost and fees legal or otherwise including costs as
between solicitor and client in connection with the enforcement of
the covenants and conditions herein.
(xxii) To pay to the Lessor all survey fees and other charges including
those payable to and claimed by the relevant Government Planning
Authorities and other relevant governmental and statutory
authorities for the survey of the demised premises for the purpose
of subdivision of the land of which the demised premises forms part
and issue of this Lease and a Certificate of Title PROVIDED THAT the
Lessor shall have the right to employ his own surveyor to carry out
the said survey in which event the Lessee shall bear all costs
thereby incurred.
(xxiii)At his own cost to take such steps and execute such works upon the
demised premises as may be necessary for the protection of shores
and embankments if any and for the prevention of earthslip erosion
of soil and failure of slopes expeditiously in a workmanlike manner
and to the satisfaction of the Lessor.
(xxiv) To construct an internal drainage system within the demised premises
to the satisfaction of the Lessor to ensure that all surface water
collected thereon is discharged into the public drains.
(xxv) Not to effect a change of name except with the prior consent in
writing of theLessor PROVIDED THAT on every change of name the
Lessee shall pay to the Lesor a fee to be specified by the Lessor in
relation to such consent.
(xxvi) To perform and observe the covenants on the Lessor's part contained
in the Head Lease made between the President of the Republic of
Singapore and the Lessor so far as they are not varied herein and to
keep theLessor indemnified against all claims damages costs and
expenses in any way relating thereto.
(xxvii)To maintain the demised premises and every part thereof in a neat
and tidy condition, and forthwith to comply with the Lessor's
direction to remove and clear any materials, goods or articles o
whatever nature and description from the demised premises or such
part thereof as may be stipulated in writing by the Lessor.
(xxviii)At his own cost to plant and maintain trees and landscape the
demised premises in accordance with all the requirements of the
Parks and Recreation Department, Ministry of National Development
and other relevant governmental and statutory authorities.
(xxix) Not to install or use any electrical installation, machine or
apparatus that may cause or causes heavy power surge, high frequency
voltage and current, air borne noise, vibration or any electrical or
mechanical interference or disturbance whatsoever which may prevent
or prevents in any way the service or use of any communication
system or affects the operation of other equipment, installations,
machinery, apparatus or plants of other lessees in connection
therewith, to allow the Lessor or any authorized person to inspect
at all
-27-
<PAGE> 45
reasonable times, such installation, machine or apparatus in
the demised premises to determine the source of the interference or
disturbance and thereupon, to take suitable measures, at the
Lessee's own expense, to eliminate or reduce such interference or
disturbance to the Lessor's satisfaction, if it is found by the
Lessor or such authorized person that the Lessee's electrical
installation, machine or apparatus is causing or contributing to the
said interference or disturbance.
(xxx) To indemnify the Lessor against each and every claim, proceeding,
action, loss, penalty, damage, expense, cost and demand which may
arise in connection with clause (xxix) above.
(xxxi) At the Lessee's own cost to execute such works as may be necessary
to divert existing utility services such as pipes, cables and the
like (if any) to the requirements and satisfaction of the Lessor and
other relevant governmental and statutory authorities.
(xxxii)Subject to that clause in the special Covenants and Conditions of
this Lease which stipulates the specific use the Lessor permits for
the demised premises, the Lessee shall use and shall ensure that at
least sixty per centum (60%) of the total floor area of the demised
premises shall be used for purely industrial activities, and may use
the remaining floor area for ancillary stores and offices, neutral
areas, communal facilities and such other uses as may be approved in
writing by the Lesor and the relevant governmental and statutory
authorities PROVIDED THAT the governmental and statutory authorities
PROVIDED THAT the said ancillary offices shall not exceed
twenty-five per centum (25%) of the total floor area AND PROVIDED
FURTHER THAT the Lessee shall not use and occupy the demised
premises for the purpose of commercial office and storage unrelated
to the Lessee's approved industrial activity.
(xxxiii)If the Lessee shall at any time be found to have encroached upon
any area beyond the boundaries of the demised premises, the Lessee
shall at his own cost and expenses, but without prejudice to any
other right or remedy the Lessor may have against him, immediately
or within the time specified (if any) by the Lessor rectify and
remove the encroachment to the satisfaction of the Lessor and pay to
the Lessor such compensation as may be specified by the Lessor. If,
however, the Lessor in his absolute discretion permits the Lessee to
regularize and retain the encroached area or any part thereof upon
such terms and conditions as may be stipulated by the Lessor and any
other relevant governmental and statutory authorities, the Lessee
shall pay land rent on the encroached area with retrospective effect
from the date of commencement of the term hereby created, and the
Lessee shall also pay all survey fees, amalgamation fees, legal fees
(including solicitor and client costs and expenses), and all other
costs and charges relating thereto.
(xxxiv)If any damage of whatsoever nature or description shall at any time
occur or be caused to the demised premises or any part thereof, to
forthwith give to the Lessor written notice of the damage and to
remedy the damage to the satisfaction of the Lessor within such time
as the Lessor may specify, all at the cost of the Lessee.
-28-
<PAGE> 46
(xxxv) Not to keep or permit to be used or stored in the demised premises
or any part thereof any materials of a dangerous or explosive nature
without the prior consent in writing of the Lessor and to keep the
Lessor indemnified against all damages claims and action caused by
the use of storage of such materials whether or not the same is done
with the consent of the Lessor.
2. The Lessor hereby covenants with the Lessee that the Lessee paying the rent
hereinbefore reserved and performing and observing the covenants conditions and
agreement on the part of the Lessee hereinbefore contained shall peaceably hold
and enjoy the demised premises during the term hereby granted without any
interruption of or by the Lessor or any person lawfully claiming through under
or in trust for him.
3. PROVIDED ALWAYS and it is hereby agreed between the parties as
follows:
(a) That no estate or interest in the soil of the road and
footpath adjacent to the demised premises is or shall be
deemed to be included in the demise thereinbefore contained.
(b) That the Lessee shall not be entitled to any right of access
of light or air to the demised premises or any part thereof,
which would restrict or interfere with the user of any
adjoining or neighboring land for building or any other
purpose.
(c) That if the said rent hereby reserved or any part thereof
shall be unpaid for fourteen days after becoming payable
(whether the same shall have been formally demanded or not) or
if any of the covenants or obligations on the part of the
Lessee herein contained shall not be performed or observed or
if any charging order made in respect of the demised premises
shall be enforced by sale or by entry into possession without
the written consent of the Lessor having first been obtained
(Section 17 of the Conveyancing and Law of Property Act shall
also not apply in such event) by the Lessee or by the person
in whose favor the charging order shall have been made, then
and in any such case it shall be lawful for the Lessor or any
person or persons authorized by him in that behalf at any time
thereafter to re-enter upon the demised premises or any part
thereof in the name of the whole and thereupon the term hereby
created shall absolutely determine but without prejudice to
any right of action or remedy of the Lessor in respect of any
breach of any of the covenants or conditions by the Lessee
herein contained PROVIDED THAT if the demised premises have
been assigned by way of mortgage the provisions of this clause
shall not take effect until the Lessor has served upon the
mortgagee a notice in writing that such breach has occurred
and the mortgagee has failed to remedy such breach.
4. In this Lease where the context so requires or permits, words importing the
singular number or the masculine gender include the plural number or the
feminine gender and words importing persons include corporation and vice versa,
the expression "the Lessor" shall include its successors-in-title
-29-
<PAGE> 47
and assigns, the expression "the Lessee" shall include its successors-in-title
and permitted assigns (if any), where there are two or more persons included in
the expression "the Lessee" covenants expressed to be made by "the Lessee" shall
be deemed to be made by such persons jointly and severally, and except where
otherwise provided the expression "the demised premises" shall mean the land
hereby demised and all buildings, structures, fixtures and fittings therein.
-30-
<PAGE> 48
BELOW THIS LINE FOR OFFICE USE ONLY
Special Remarks Endorsing Instruction
First Schedule:
Second Schedule:
EXAMINED REGISTERED ON
Date:
REGISTRAR OF TITLES
Initials of
Signing
Officer
-31-
<PAGE> 49
EXHIBIT C
DEED OF ASSIGNMENT
THIS DEED OF ASSIGNMENT is made the 29th day of March One thousand
nine hundred and ninety-six (1996) between MICROPOLIS LIMITED, a foreign company
incorporated in the Cayman Islands and having its registered office in Singapore
at 5004 Ang Ma Kio Avenue 5 #01-11, Singapore 569872 (hereinafter called "the
Assignor") of the one part and S T CHATSWORTH PTE LTD (Company Registration No.
199600543C) a company incorporated in the Republic of Singapore and having its
registered office at 83 Science Park Drive #01-01/02 The Curie Singapore Science
Park, Singapore 118258 (hereinafter called "the Assignee") of the other part.
WHEREAS:
(1) By a Building Agreement dated the 28th day of February 1995 (hereinafter
called "the Building Agreement" which expression shall where the context so
requires, include the Lease and any other document(s) executed/to be executed
between the Assignor and JURONG TOWN CORPORATION relating to the said land) made
between JURONG TOWN CORPORATION, a body corporate incorporated under the Jurong
Town Corporation Act and having its Head Office at Jurong Town Hall, Jurong Town
Hall Road, Singapore 609431 (herein called "the Lessor") of the one part and the
Assignor of the other part, the Lessor agreed to grant to the Assignor the
license and authority to enter upon the land described in the Building Agreement
and more particularly described in the Schedule hereto (herein called "the said
land") for inter alia the construction of a building and for the installation of
equipment machinery fixtures and fittings (hereinafter collectively referred to
as the "Building") and upon completion of the Building and satisfactory
compliance by the Assignor of all the terms and conditions contained inter alia
in the Building Agreement, the Lessor will grant and the Assignor will accept
and execute a Lease (herein referred to as "the Lease" which expression shall
include all such supplemental lease(s), assurance(s) or document(s) of title) of
the said land together with the Building for the term of years and subject to
the terms and conditions contained in the format set out in the First Schedule
to the Building Agreement or otherwise.
AND WHEREAS the Assignor has agreed to assign to the Assignee all
its rights title and interest under the Building Agreement and to the Lease to
be issued by the Lessor for the consideration of Dollars Forty One Million
($41,000,000.00) and the Lessor has consented to the assignment subject to the
stipulations terms and conditions and covenants contained in the Building
Agreement and the Lessor's letter of approval dated ___________________ to the
Assignor's solicitors M/s Arthus Loke & Partners.
AND WHEREAS the Lease in respect of the said land has not yet been
issued to the Assignor.
-32-
<PAGE> 50
NOW THIS DEED WITNESSETH as follows:
1. In pursuance of the said agreement and in consideration of the sum of Dollars
Forty One Million ($41,000,000.00) paid by the Assignee to the Assignor (the
receipt whereof the Assignor hereby acknowledges) the Assignor as beneficial
owner and with the consent of the Lessor HEREBY ASSIGNS unto the Assignee:
(a) ALL its right title interest, benefits, advantages, permits,
licenses and remedies which the Assignor has in, under or
arising out of the Building Agreement and the full benefit and
advantages thereof and of all stipulations therein contained
to be performed on the part of the Lessor and of all rights
and remedies for enforcing the same;
(b) ALL THAT the right, title, estate and interest of the Assignor
of and in the said land and the Building;
(c) ALL THAT the full benefit and right of and to all moneys
whether by way of purchase price premium rents or otherwise as
shall have been paid by the Assignor to the Lessor under and
by virtue of the Building Agreement; and
(d) ALL THAT the right title and interest of the Assignor to a
grant from the Lessor of an Agreement to Lease/Lease of
sub-lease (whichever is applicable) in respect of the said
land and the Building for the terms of lease referred to in
the Building Agreement.
TO HOLD the same unto the Assignee its successors and assigns
absolutely.
2. The Assignor hereby covenants with the Assignee as follows:
(a) that the Assignor will do and execute all such acts and deeds
and procure from the Lessor the grant of such Agreement for
Lease/Lease or sub-lease in favor of the Assignee in the form
of Lease set out in the Second Schedule to the building
Agreement.
(b) that until such Agreement for Lease/Lease or sub-lease has
been granted to the Assignee as aforesaid the Assignor holds
and will hold all the rights, title, interest, benefits,
advantages, permits, licenses and remedies in and under the
Building Agreement and all the estate, rights, title and
interest of and in the said land and the Building in trust for
the Assignee its successors in title and assigns absolutely
and will at any time and from time to time when called upon at
the request of the Assignee execute and do all such acts deeds
matters and things as may be necessary to cause the said land
and the Building to be more effectually vested in the
Assignee, its successors in title and assigns and exercise all
rights ans remedies for the Assignee and on behalf of the
Assignee.
-33-
<PAGE> 51
5. In pursuance of the Building Agreement and for the consideration aforesaid
and with a view to giving protection to the rights and interests of the Assignee
herein the Assignor HEREBY IRREVOCABLY APPOINTS the Assignee to be the true and
lawful attorney for an in the name of or otherwise on behalf of the Assignor to
exercise all the rights and remedies vested in the Assignor under the Building
Agreement and for such purposes to do and execute all or any of the following
acts deeds matters and things that is to say:
(a) To exercise all rights and remedies for enforcing the Building
Agreement or in respect of any other matter or thing connected
with or relating to or concerning the said land.
(b) To commence and/or defend all legal proceedings brought
against and/or by the Lessor in connection with the Building
Agreement or in respect of the said land.
(c) To take delivery of and accept from the Lessor the Agreement
for Lease/Lease or sub-lease and/or such other assurance of or
documents of title to the said land in the name of the
Assignor or to the Assignee and to make all payments enter
into covenants and do all other things which may be necessary
for completing the same including all such applications and
notifications at the Registry of Deeds or the Registry of
Titles as may be necessary or desirable under any then
existing statute providing for the registration of title to
land.
(d) To execute such Agreement for Lease/Lease or sub-lease and/or
such other transfer or transfers or assurance or assurances or
other deeds assignments instruments and documents and to do
all such acts and things as may be necessary to effectually
transfer, perfect and vest the title to the said land in the
Assignee.
(e) To abandon any legal proceedings and to compromise or settle
or refer to arbitration all disputes or doubts which may arise
in connection with the Building Agreement and/or the said
land.
(f) To register this or any other instrument in such manner as the
Assignee may think fit and to bind the Assignor by way of
covenant or declaration which may be necessary in order to
carry out the objects of these presents.
AND the Assignor hereby gives and grants unto the Assignee full
power and authority to act in relation to the said land and Building as
effectually to all intents and purposes as if the Assignor had personally
performed the same.
And for the better doing performing and executing of the matters and
things aforesaid the Assignor hereby further grants unto the assignee full power
an authority to substitute and appoint in the place and stead of the Assignee
one or more attorney or attorneys of the Assignee all or any of the powers and
authorities hereby conferred and to revoke any such appointment from time to
time and to
-34-
<PAGE> 52
substitute or appoint any other or others in the place of such attorney or
attorneys as the Assignee may think fit.
AND the Assignor hereby declares that all acts deeds matters and
things executed or done by virtue of these presents by the Assignee or any
substitute or substitutes appointed by the Assignee shall be as good valid and
effectual to all intents and purposes whatsoever as if the same had been
executed done or made by the Assignor personally AND the Assignor hereby
covenants to allow ratify and confirm all and whatsoever which the Assignee or
any substitute or substitutes appointed by the Assignee shall do or cause to be
done by virtue of the authority and powers hereby conferred.
The Assignor hereby further declares that the power and authority
hereby conferred are given for valuable consideration and shall be and remain
irrevocable for a period expiring only on the registration of a lease by the
Lessor in the Assignee's favor with the appropriate authority or the vesting of
the said land and the building in the Assignees.
6. The Assignee for itself and its successors and assigns hereby
covenants with the Assignor:
(a) To punctually pay on due date the yearly rent or any revision
or revisions thereof and all other rents fees costs and
charges stipulated in the Building Agreement and the Lease in
favor of the Assignee.
(b) To perform fulfill and observe all the stipulations on the
part of the Assignor contained in the Building Agreement and
the Lease and will at all times hereafter save harmless and
keep indemnification the Assignor its successors-in-title from
and against all actions proceedings damages penalties costs
claims and demands by reason or on account of the
non-observance thereof or otherwise in relation thereto.
7. The Assignor hereby covenants with the Assignee that it has not done or
knowingly suffered or been party or privy to any act or thing whereby the
Assignor is prevented from assigning the benefit of the Building Agreement, and
all estate rights title and interest in the said land and Building and all
benefits thereof.
8. The Assignor hereby warrants that there are no breaches of any terms and
conditions of the Building Agreement and the Assignor shall at all times
hereafter save harmless and keep indemnified the Assignee its
successors-in-title and assigns from and against all actions proceedings damages
penalties costs claims and demands by reason or on account of any non-observance
of all or any of the terms stipulations conditions on the part of the Assignor
contained in the Building Agreement.
-35-
<PAGE> 53
IN WITNESS WHEREOF the Assignor and the Assignee have caused their
respective Common Seals to be hereunto affixed the day and year first above
written.
THE FIRST SCHEDULE ABOVE REFERRED TO
I, Tan Chen Chwee Jasmine, an Advocate and Solicitor of the Supreme Court in the
Republic of Singapore, practicing in Singapore hereby certify that on the 29th
day of March, 1996 the Common Seal of MICROPOLIS LIMITED was duly affixed to the
within written instrument at Singapore in my presence in accordance with the
regulations of the said Company (which regulations have been produced and show
to me).
WITNESS my hand this 29th day of March 1996.
/s/ Tan Chen Chwee Jasmine
I, Lucy Cheng Geok Leng, an Advocate and Solicitor of the Supreme Court in the
Republic of Singapore, practicing in Singapore hereby certify that on the 29th
day of March, 1996 the Common Seal of ST CHATSWORTH PTE LTD was duly affixed to
the within written instrument at Singapore in my presence in accordance with the
regulations of the said Company (which regulations have been produced and show
to me).
WITNESS my hand this 29th day of March 1996.
/s/ Lucy Cheng Geok Leng
-36-
<PAGE> 54
The Building Agreement dated 28 February 1995 made between the
Lessor and the Assignor in respect of the said Land.
THE SECOND SCHEDULE ABOVE REFERRED TO
ALL THAT piece of land known as Private Lot A14269 forming part of
Government Survey lots 7634, 9418, 10979 and 12500 of Mukim 18 Ang Mo Kio and
situated in the Republic of Singapore as shown on the plan annexed to the
Building Agreement and estimated to contain and area of 17,930 square metres
more or less subject to survey.
The Common Seal of MICROPOLIS )
LIMITED was hereunto affixed in the )
presence of: )
/s/ Illegible
-----------------------------------------
DIRECTOR
/s/ Illegible
-----------------------------------------
DIRECTOR/SECRETARY
The Common Seal of ST CHATSWORTH )
PTE LTD was hereunto affixed in the )
presence of: )
/s Illegible
-----------------------------------------
DIRECTOR
/s/ Illegible
-----------------------------------------
DIRECTOR/SECRETARY
-37-
<PAGE> 55
EXHIBIT D
INITIAL IMPROVEMENTS
[DIAGRAM OF FLOOR PLAN]
BLUE SKY - PLAN "A"
-38-
<PAGE> 56
EXHIBIT E
TAIKI-SHA LETTER
26th December 1996
Our Ref: A4004-B00/M6
Micropolis (5) Pte Ltd
5 Serangoon North Avenue 5
Singapore 554916
Attn: Mr K P Lau
Dear Sir:
OUR QUOTATION REFERENCE NO 4004-500/A2 DATED 19TH NOVEMBER 1996
FOR [illegible]
MICROPOLIS - DESIGN AND BUILD DISK MEDIAL FACILITIES
We agree to construct the abovementioned facilities in accordance with the
attached facility requirements and specifications provided by Stormedia
International Ltd dated December 1996. We further agree that the cost related to
such construction of the facilities are included in our quotation (Ref:
A4004-B00/Ad) dated 19 November 1996 to [illegible],
We shall use our best endeavours to complete the facilities by 28th February
1997.
Yours faithfully
/s/ YOSHIMOTO AKASAKI
- -----------------------
Yoshitomo Akasaki
General Manager
-39-
<PAGE> 57
STORMEDIA INTERNATIONAL LTD (SINGAPORE BRANCH)
CUSTOMER'S REQUIREMENTS
ELECTRICAL
1. Contractor to provide all electrical power, power point and
interconnections in accordance with local building codes and applicable
Clean Room specifications.
2. Contractor is to provide all power for the production equipment per
StorMedia's drawing and include back-up system and frequency converters
where defined.
Contractor to provide power for all facility utilities, lighting, air
conditioning and support functions as required for the production equipment and
the employees.
DEIONIZED (DD WATER SYSTEM)
Design Criteria
1. Output DI water capacity is based on 50 usgpm (point of use) flow rate at
output DI water capacity, with city water input at 75 usgpm (subject to PUB
water supply).
2. The plant is sized for 50 usgpm (point of use) flow rate at output DI water
capacity, with city water input at 75 usgpm (subject to PUB water supply).
3. Velocity in piping shall be maintained at 7.5 feet per second for 1 in.
dia. pipe or greater; and a 3 feet/sec for less than 1 inch piping to
ensure minimum "dead legs") to reduce 'bacterial' built-up in the
pipes.
4. No brass or bronze piping.
5. Water storage for city water shall be 103m (i.e. @ 75 usgpm 6 hours
storage).
6. Recycling of the waste water from the DI water system is currently not
considered feasible.
7. DI water usage: for all phases
* 4 nos. washers @ 10.0 usgpm
* 17 nos. texturing machin@ 2.0 usgpm
8. DI water system to be commissioned according to following requirements:
<PAGE> 58
Deionized water at the point of discharge from the DI pad will meet the
following requirements:
Resistivity : Sustained 18 - 18.3 Mohms at 25(degree)C as measured
with flow-through cell and
meter per ASTM-D-1125. Reported as megohm(s) per cm.
17 Mohms at 25(degree)C minimum cutoff point.
Bacteria (less than) 5 colonies per 100 ml tested per
absolute filters ASTM-F-6065T provided 2 u are used upstream of sample
sanitization and/or point and system recommendations are follows:
TOC : Total oxidizable carbon less than 20 ppb as measured by
an Anatel analyzer. Reported as parts per billion.
Particles : 1,000 ppb retained on 0.45u filter and analyzed at 125X.
Reported as parts per litre.
Silica : (less than)6 ppb. Reported as parts per billion.
Quality levels per criteria:
<TABLE>
<CAPTION>
ATTAINABLE ACCEPTABLE ALERT CRITICAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resistivity (greater than) 18 (greater than) 18 (less than) 17.5 (less than) 17
Bacteria (less than) 5 (less than) 8 10 (less than) 15
Particles (less than) 1000 (less than) 1500 2000 5000
TOC (less than) 20 (less than) 50 80 100
Silica (less than) 5 (less than) 8 10 20
Residue (less than) 0.1 (less than) 0.3 0.5 1
</TABLE>
Regenerated IUWC Mixed Bed resin will be rinsed at StorMedia's Campbell facility
to the following specifications:
<TABLE>
<S> <C>
Resistivity.................................... 18.0 - 18.3 Mohms
Silica......................................... 5 ppb or better
TOC............................................ 20 ppb or better
</TABLE>
<PAGE> 59
WASTE TREATMENT
Provide for utilities support for Texture Room waste. These discharges are
as follows:
<TABLE>
<CAPTION>
Texture Room Tapes
---------------------- ------------
<S> <C> <C>
Total (Ni) ppm 3 6
Dissolved (Ni) ppm 1 2
Total (SiC) ppm 0.5 0.5
TOC 1000 2000
pH 8.5 9.0
Conductivity 300 700
Flow (14 texture machine) 1 gpm combined * note
</TABLE>
* This can be combined with washer drains of 6.5 gpm x 4 machines to sewer
drain (must obtain prior approval from Ministry of Environment). If
approval is not obtained, a treatment plant must be provided. This plant is
subject to separate quotation. Space must be provided for future waste
treatment plant.
VACUUM PIPING SYSTEM
1. Housekeeping Vacuum
- Contractor to supply Central vacuum system with approx. 13
plug-in outlets spaced in the CR 10/100/10K Clean Rooms. A
minimum of 3 outlets in SVS area. Each outlets to provide 6
inches of Mercury vacuum.
2. Process Vacuum
- Gripper Vacuum (HV)
Motor 1.5kw, 3phase, 415volts, 50hz.
Nominal displacement: 40 m3/h
Ultimate pressure: 20mbar
Copper tubing is required in system.
Piping to run from ceiling into common dropper.
One vacuum pump to be connected to two cells.
One spare vacuum pump to be manifolded into supply system as
on-line back-up.
Vacuum pumps to be supplied and installed by Contractor.
<PAGE> 60
Total units: 9
- Robot Exhaust System (LV)
- Blower intake to be connected to Robot cavity via connection
at Robot
- Blower to provide 40 scfm @ 20 inch of water
- One blower to be connected to two test cells
- One blower to be manifolded into supply system as on-line
back-up
- Blowers to be supplied and installed by Contractor
Total units: 9
PROCESS COOLING
1. Process cooling for SVS sputtering machine. each SVS machine requires
100 usgpm 70(degree)F outlet, Delta 5(degree)F, 60 psig, process
cooling water.
2. Process cooling can be individually sized based on per SVS machine.
3. SVS process piping shall have a common feed with 22 nos. 1/2 inch dia.
tee-offs to 22 nos. secondary equipment within the SVS machine provided
by StorMedia.
4. Contractor to supply dual headers, one for each side of SVS. These
headers are to be 2.0 inch dia. copper pipe. Employer to define final
location of each header (located near floor level).
5. Contractor to supply dual header pipe for return to chiller package.
These headers are to be 2.0 inch dia. copper pipe. Employer to define
final location of each header.
(heading missing)
- ----------------------------------
1. Ionization for load area, lube/buff, test and packout area.
2. Telephone system include FIS direct line for modem.
3. PA / CCTV / Card Access
4. Intercom; (internal between cleanroom and production office)
5. Area for FIS, Equipment maintenance lab, Supervisor room, Spare stores,
Offices/Engrg.support, Incoming store and Locker room.
6. FIS network system
<PAGE> 61
7. Desiccant dryer
8. Special gases - Argon, plasma Ar/H2 and N2/Ar.
9. Earth pit or Clean earth Texture/Test area and sputter (Please takenote
that the clean earth for sputter must be by itself and not loop to other
source.)
10. Provide scupper drain below raise floor board at Texture/wash area.
HELIUM, ARGON, HYDROGEN
The piping shall be provided at machines shown in the utilities layout.
The piping material shall be stainless steel, 1/2 inch dia. with '0' ring seal,
sealed and purged.
Argon : Provide 3 nos. argon points, with one standby, for each sputtering
SVS machine, one manual and one auto-transfer.
Helium : Provide 3 nos. He points, with one standby, for each SVS machine.
NITROGEN
The piping shall be provided at machines shown in the utilities layout.
The piping material shall be copper.
COMPRESSED AIR (CDC) SYSTEM
1. Compressed air capacity of 300 cfm with filter of 0.2 um. Requires 100
psig minimum at "point of use".
2. The CDA system shall have 3 air compressors, oil flooded, oil-free
system, and with one acting as a standby.
3. CDA distribution : with a common ring mains or two ring mains. A bypass
manual valve to be provided to allow N2.
4. The CDA piping material shall be copper, and with bail valves.
<PAGE> 62
EXHAUST SYSTEM
1. Slurry prep. exhaust requirement
Brand : ELTA
Model : 500mm/150/10/10/ALU
10-30 Degree
1.1 to 1.5kw / 415 vols/3 phase/50hz.
2. Washers exhaust requirement.
Brand : colasit
Model : CMV 140 DD
SP mm 550 pa
Fan rpm 2800
Pos 5
Vent kw 0.55
Power 3/4 hp
(Remarks : 2 units require 1 unit for CR 100 washers and 1 unit for CR 10K
washers exhaust.)
CLEAN ROOM
1. The following areas shall be classified as Clean Room:
- Test Area
- Luber/Buffing
- SVS Sputtering
- Loading Area
- Wash/Texturing
- Gowning
- Pallet Room
- Target Build
2. Other than CR10 and CR100, the raised floor for texturing CR10K, shall be
used for utilities piping.
<PAGE> 63
EXHIBIT F
MICROPOLIS PURCHASE ORDER
[COPY OF STANDARD MICROPOLIS PURCHASE ORDER]
- 46 -
<PAGE> 1
Exhibit 11.1
STORMEDIA INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 28, MARCH 29,
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
PRIMARY:
Statement of operations data:
Net earnings (loss) $ (9,319) $ 9,469
======== ========
Weighted average number of common and dilutive equivalent shares used in
computations:
Common Stock 17,662 17,043
Stock options and other common stock equivalents 125 1,262
-------- --------
Shares used in computing net earnings (loss) per share 17,787 18,305
======== ========
Net earnings (loss) per share ($ 0.52) $ 0.52
======== ========
FULLY DILUTED:
Statement of operations data:
Net earnings (loss) $ (9,319) $ 9,469
======== ========
Weighted average number of common and dilutive equivalent shares used in
computations:
Common Stock 17,662 17,043
Stock options and other common stock equivalents 125 1,266
-------- --------
Shares used in computing net earnings (loss) per share 17,787 18,309
======== ========
Net earnings (loss) per share $ (0.52) $ 0.52
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1
<CASH> 42,219
<SECURITIES> 0
<RECEIVABLES> 26,066
<ALLOWANCES> 1,150
<INVENTORY> 14,694
<CURRENT-ASSETS> 91,482
<PP&E> 171,048
<DEPRECIATION> 29,965
<TOTAL-ASSETS> 234,016
<CURRENT-LIABILITIES> 40,262
<BONDS> 45,017
0
0
<COMMON> 234
<OTHER-SE> 148,258
<TOTAL-LIABILITY-AND-EQUITY> 234,016
<SALES> 34,100
<TOTAL-REVENUES> 34,100
<CGS> 39,004
<TOTAL-COSTS> 39,004
<OTHER-EXPENSES> 5,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 562
<INCOME-PRETAX> (10,995)
<INCOME-TAX> (1,676)
<INCOME-CONTINUING> (9,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,319)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
