-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UPdtFa1wTStXPMvEqPx0/snUAG44TV7ce5pzxR6oAnEk8juf8w9Z3VriTMYV/nFb c9u1ZrhaohFuTF3ROoGF7w== 0000898430-96-000755.txt : 19960308 0000898430-96-000755.hdr.sgml : 19960308 ACCESSION NUMBER: 0000898430-96-000755 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951229 FILED AS OF DATE: 19960307 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROPOLIS CORP CENTRAL INDEX KEY: 0000718865 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 953093858 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12046 FILM NUMBER: 96532386 BUSINESS ADDRESS: STREET 1: 21211 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187093300 MAIL ADDRESS: STREET 1: 21211 NORDHOFF STREET CITY: CHATSWORTH STATE: CA ZIP: 91311 10-K405 1 FORM 10-K FOR THE FISCAL YEAR ENDED 12/29/95 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 1995 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-12046 MICROPOLIS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-3093858 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21211 NORDHOFF STREET, CHATSWORTH, CALIFORNIA 91311 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 709-3300 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF CLASS TITLE OF CLASS -------------- -------------- Common Stock, $1.00 par value 6% Convertible Subordinated Debentures due 2012
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X . The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 2, 1996 was approximately $47,715,015. The number of shares outstanding of registrant's common stock as of February 2, 1996: 15,580,413. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement") are incorporated by reference to Part III of this Form 10-K Report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MICROPOLIS CORPORATION ANNUAL REPORT ON FORM 10-K DECEMBER 29, 1995 TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business ..................................................................... 1 Item 2. Properties ................................................................... 8 Item 3. Legal Proceedings............................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders........................... 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 9 Item 6. Selected Financial Data ...................................................... 10 Management's Discussion and Analysis of Financial Condition and Results of Item 7. Operations.................................................................... 11 Item 8. Financial Statements and Supplementary Data................................... 18 Changes in and Disagreements with Accountants on Accounting and Financial Item 9. Disclosure.................................................................... 38 PART III Item 10. Directors and Executive Officers of the Registrant ........................... 38 Item 11. Executive Compensation ....................................................... 39 Item 12. Security Ownership of Certain Beneficial Owners and Management................ 39 Item 13. Certain Relationships and Related Transactions................................ 39 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 40
PART I ITEM 1. BUSINESS Micropolis Corporation was incorporated in California in December 1976. In April 1987, the Company was reincorporated in Delaware. Unless the context otherwise indicates, the terms "Micropolis" and "Company" refer to Micropolis Corporation and its consolidated subsidiaries. Micropolis is a designer and manufacturer of information storage products and systems. The Company sells these products and systems directly to original equipment manufacturers ("OEMs") and systems integrators and through independent distributors and value-added resellers ("VARs") for resale to end users. The Company's storage subsystems and video systems business (the "Systems Business") offers storage subsystem products known as the Raidion and Microdisk, a line of video servers which provide video-on-demand for up to 64 individual users, and a line of low cost digital video disk recorders which allow real-time record and playback of video material. All of the Systems Business products incorporate certain of the disk drives described below. The Company's disk drive business (the "Drive Business") designs and manufactures disk drives exclusively in the 3 1/2-inch and 5 1/4-inch form factors, with capacities ranging in 1995 from 2 Gigabytes ("GB") to 9 GB. RECENT DEVELOPMENTS On January 24, 1996, the Company entered into a definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation ("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation ("ST"), to sell substantially all of the Company's assets (other than cash and accounts receivable) related to the Company's hard disk drive business to STC (the "Sale"). The Purchase Agreement is filed as an exhibit and described in detail in the section "Terms of the Asset Purchase Agreement" in the Company's Proxy Statement filed March 7, 1996, which is incorporated herein by reference. In addition, the Company and STC have entered into an OEM supply agreement effective upon consummation of the Sale. Among other things, the OEM Supply Agreement allows the Company after the Sale to buy at prices equal to or slightly lower than the most favored OEM customer of STC. The Company must offer all its disk drive business and requirements to STC on a right-of-first-refusal basis, subject to the ability of STC to meet certain delivery and other standards. The agreement has an initial two-year term, after which it may be renewed annually by mutual agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." PRODUCTS The Company's product lines focus on two main markets: data and video storage/server products (the "Systems Business") and high capacity disk drives (the "Drive Business"). Systems Business RAID The Company's Systems Business competes in the non-captive local area network ("LAN")-based redundant array of inexpensive disks ("RAID") market. RAID is a large-scale storage technology that replaces one high-capacity hard disk drive with an array of smaller, less expensive drives. The RAID concept provides protection of data against the possibility of failure of any one drive in the array by storing redundant information on different drives within the array (mirroring), or by separating and distributing data flow with parity check blocks across multiple drives within the array. If data is lost or corrupted, the array can automatically reconstruct the lost or corrupted data from the remaining data blocks using the associated parity blocks and continue with uninterrupted operation. 1 The LAN-based RAID market is estimated by industry sources to grow to approximately $725 million in 1997. The growth in this market has been attributable in large measure to the trend toward requiring mainframe level functionality on LAN-based systems, the introduction by personal computer- based server manufacturers of symmetrical multiprocessor servers and a significant increase in multimedia personal computers capable of displaying video compressed using the Motion Picture Experts Group ("MPEG") standard. Competition in this market is resulting in increased levels of system integration and product enhancements, and decreased costs for comparable performance. Increased system integration is achieved by preconfiguring systems to include everything needed to "plug and play" and testing them in a systems environment before shipment. Certain competitors (the "captive" market) have introduced network file servers already configured for their own RAID products. Other competitors offer RAID products with built-in functionality such as tape backup devices. However, the growth in the non-captive market could still be substantial. The Company believes end users and systems integrators value having the choice of supplying or buying a RAID product tailored to their specific application or need at a reasonable cost. The Company offers both software and hardware-based RAID products. In some instances, software RAID products are favored over hardware products due to the perceived cost differences between hardware and software, and software solutions require more overhead from the system. In other cases, software solutions are favored, for example, on single user desktop systems where cost and performance are important and the user has more processing power. In situations where systems operations are very central processing unit ("CPU") intensive, users would prefer a hardware RAID solution so that the computational effort can be offloaded from the CPU. The Company's Systems Business RAID products consist of the Raidion line of fault-tolerant disk arrays, and the Microdisk. The Raidion line encompasses a software-based array known as the Model LS (featuring 5 1/4-inch drives) and the Model LT (featuring 3 1/2-inch drives), and a hardware-based array which incorporates a proprietary disk array controller known as Gandiva. The Gandiva controller card in the Company's current hardware RAID products performs the basic interface between the host computer and the drive array as well as the RAID fault tolerance, array maintenance and management functions. The software-based Raidion products have been optimized for use on the Novell Netware and IBM OS/2 operating systems. The hardware-based Raidion has been optimized to work with a greater number of operating systems, including Netware, OS/2, Microsoft Windows NT, Apple Macintosh and UNIX. The Microdisk product consists of an external storage device in a modular housing. The systems described above accounted for 17% of total revenues in 1995. The Company recently announced RAIDIONplus, an extension of the current Gandiva array controller that improves performance, redundancy, array management capability and has features that will allow RAIDIONplus to be used in applications from on-line transaction processing (OLTP) to multimedia. RAIDIONplus provides features such as dynamic expansion, adaptive caching, and a Fast 20 Wide Small Computer System Interface ("SCSI") interface, advanced dial in/dial out and network array management, and removable non-volatile dynamic random-access memory. Video Servers The Company offers a line of video servers which use hard disk drives to store and retrieve audio and full motion video signals. Such video servers, which can replace video cassette recorder systems, are used to play back video material that has been previously digitally encoded and compressed; they are marketed in the hospitality, multimedia and cable TV markets. Video server applications in the hospitality market include displaying digitally encoded and compressed movies to guests in hotels, aircraft and cruise ships. Multimedia applications include corporate training, campus training and video libraries. Video servers in the cable TV market are designed to insert local cable TV advertisements in a video stream. The Company's initial video server, installed in hotels, was introduced in early 1994, with product deliveries beginning in June 1994. The Company's AV Server 50, 100 and 200, enable up to 16, 32 and 64 users, 2 respectively, to randomly select and view, with video cassette recorder-like functionality, video material on demand from an on-disk library of up to 60 full length movies. During 1995, sales of these servers were made primarily to the hospitality industry and cable headends for local commercial insertion. Sales in 1995 represented approximately 1% of total revenues. Video Disk Recorders The Company is currently developing a line of low cost digital video disk recorders which also use hard disk drives to store and retrieve audio and full motion video signals. Video disk recorders utilize built-in encoding and compression circuitry, allowing real time record and playback of video material. Applications for video disk recorders include professional video editing of video for audio, non-linear editing, linear editing, graphics and animation and other general post-production activities. For further information regarding the Systems Business, see Management's Discussion and Analysis--StreamLogic. Drive Business (Business proposed to be sold pursuant to the Purchase Agreement described above) The core of the Drive Business' product offerings historically has consisted of high-performance, high-capacity Winchester disk drives used in mission critical, network file server and multimedia applications. In 1995, these disk drives comprised 80% of the Company's total revenues. These drives are primarily available with the industry standard SCSI interface. The Company currently offers a line of disk drive products that is code-named "Javelin." This series of products encompasses the Taurus 2, a 3 1/2-inch, 1-inch high, 2 GB drive with a rotational speed of 7200 rpm; the Capricorn 4, a 3 1/2-inch, full-height, 4.3 GB drive with a rotational speed of 7200 rpm, and the Scorpio 9, a 5 1/4-inch, full-height, 9 GB drive with a rotational speed of 5400 rpm. Increased rotational speeds enable the drive to demonstrate faster access times and otherwise increased performance. The Javelin series of disk drives is characterized by a high degree of commonality in technology. These drives possess a greater degree of integration of hardware and software features across all three platforms than in previous models. The Javelin series, which began shipping in the third quarter of 1994, represented 72% of the Company's 1995 total revenues. The Company is in the process of developing a new line of disk drive products code-named "Omega" which are expected to be available in the first quarter of 1996. This series of products encompasses the Taurus 4, a 3 1/2- inch, 1-inch high, 4 GB drive with a rotational speed of 7200 rpm; the Capricorn 9, a 3 1/2-inch, full-height, 8.7 GB drive with a rotational speed of 7200 rpm, and the Scorpio 21, a 5 1/4-inch, full-height, 21 GB drive with a rotational speed of 5400 rpm. Like the Javelin series, the Omega series of disk drives possess a similar degree of commonality in technology with a high degree of integration of hardware and software features across all three platforms. In addition, the Omega series incorporates the use of magneto- resistive ("MR") head technology which doubles storage capacity. In addition, the Company sells disk drives that have been optimized for specific market niches. Included among these drives are the Company's "AV" drives, where the internal firmware has been modified to make these drives uniquely appropriate to large block data types, such as audio and video files. PRODUCT DEVELOPMENT Micropolis' approach to product development is best characterized as being market driven, using a technology strategy that incorporates the latest reliably available components and software. Being market driven means that Micropolis' engineers work closely with its sales force and with its customers to determine the appropriate prioritization of new product development efforts, as well as to establish product specifications. In general, this approach is designed to reduce time to market with products which have a broader set of potential customers. 3 The technology strategy utilizes a basic set of mechanics and develops that set of mechanics from its initial capacity to higher capacities by further developing the electronic and head/media technology. For example, the Company's Aquarius 2 Series 1.7 GB, full-height 3 1/2-inch disk drive began with an 8-disk, 16-head mechanical assembly. That same basic set of mechanics is still being employed today in the newer 10 platter, 4.3 GB drive known as the Capricorn 4. The storage subsystems and video systems products share such common components as the Company's hard disk drives and the Gandiva array controllers. Future market trends in the LAN-based RAID industry are likely to favor products emphasizing: low cost, optimization for application-specific environments, effective fault tolerance, high performance hardware and software interfaces, scalability of product and effective service and support. The information storage business is characterized by rapidly changing technology and user needs which require the continual development and introduction of new products. Although the Company believes its strategy of focus and specialization in the high-performance segment of the market, and an increased emphasis on time to market, improves the rate of new product introduction, no assurance can be given that the Company will be able to complete successfully the design or introduction of its new products in a cost-effective and timely manner, or that such products will perform to specifications. The introduction of new products also requires the Company to manage its inventory carefully to minimize inventory obsolescence. The failure to achieve any of these objectives could have, and has had, a material adverse effect on the Company's financial position and results of operations. Research and development expenses for fiscal 1995, 1994, and 1993 were $42,469,000, $43,648,000, and $36,112,000, respectively. In 1995, approximately one-third of the Company's research and development expenses were incurred by the ongoing Systems Business. The Company anticipates its 1996 research and development expenses related to the Systems Business will decrease slightly from those of 1995. The Company plans to focus on development of video servers for hospitality and cable head-ends, professional video editing disk recorders, bundled storage for Internet and Web servers, corporate IntraNet digital output servers, and bundled RAID subsystems for LANs. The Company plans to discontinue funding of Tulip Memory Systems and has made other expense cuts in the engineering area. MANUFACTURING Systems Business Micropolis manufactures its storage subsystems products on production lines at its Chatsworth, California headquarters and at its Singapore facility. The Company anticipates discontinuing manufacturing Systems Business products at the Singapore facility in 1996. The Company's video systems products are manufactured at the Chatsworth, California headquarters. Drive Business The Company's manufacturing strategy is to rely principally on outside vendors to supply high-level subassemblies and component parts, in contrast to certain of its principal competitors, which are substantially vertically integrated. The Company's manufacturing operations consist primarily of the assembly of head positioner assemblies ("HPAs") and the final assembly and testing of disk drives. 4 Micropolis maintains two principal manufacturing sites, both located in Southeast Asia. The labor-intensive manufacture of HPAs takes place in the Company's Bangkok facility, which was established in 1988. The Company's Singapore facility established in 1986 accounts for substantially all final production and test of the Company's disk drives. In addition, Micropolis maintains a pilot production line at its Chatsworth, California headquarters. This line is employed to assemble new products used in evaluation testing by its customers prior to their transfer to the offshore operations. During 1995, the Company manufactured approximately 211 thousand disk drives. The Company is currently constructing a new manufacturing facility in Singapore to replace the current leased facility. The new facility is expected to be completed in the second quarter of 1996. The Company believes that its current facilities are adequate for its near-term production requirements. Micropolis has made a substantial investment in automating disk drive production at its Singapore facility. The Company believes that its investment in automation will result in both quality and process yield improvements. A team of experienced production automation engineers, located in Singapore, focuses on identifying processes where automation can be particularly useful and developing new procedures with a goal of long-term savings. General Manufacturing Considerations Continued improvement in disk drive, storage subsystem and video systems manufacturing process capabilities and reduced materials and manufacturing costs are critical factors affecting the Company's financial position and results of operations. The Company continues to change the manufacturing processes for many of its products and must carefully manage the transfer of production of its newer disk drive products to its overseas operations. There can be no assurance that such changes and transfers will be implemented in a cost-effective and timely manner. Delays or problems encountered in any of the foregoing could have a material adverse effect on the Company's financial position and results of operations. In addition, if for any reason the Company were to have a prolonged interruption in any of its manufacturing facilities, the Company's financial position and results of operations could be materially adversely affected. The Company's manufacturing process requires high volumes of high quality components. Several of the critical components used in the Company's products are available only from single or limited sources. The Company has had and continues to have difficulties in obtaining certain components, and there can be no assurance that such difficulties will not occur in the future. A prolonged interruption or reduction in supply of quality components, rework costs associated with defective components or the inability to obtain continued reduction in component prices would adversely affect the Company's financial position and results of operations and could damage customer relationships. The Company has experienced such supply interruptions, rework costs and increased component prices, particularly during 1995. Such component and manufacturing problems have adversely affected the Company's financial position and results of operations. MARKETING The Company's direct sales force sells Micropolis disk drives to OEMs, distributors and VARs. The Company maintains eight domestic sales offices. In 1995, approximately 25% of total sales were made to OEMs, with the remainder to independent distributors and VARs. The Company's OEM customers include Avid Technology, Stratus Computer, Ericsson Telecom AB and Xerox Corporation. The Company's distribution customers include Tech Data Corporation, Ingram Micro Corporation, Alliance Peripheral Systems, Megabyte EDV, Hammer Distribution Ltd. and Peripheral Technology Group. International operations are an important element of the Company's sales mix. In 1995, sales to customers outside of North America comprised approximately 39% of total sales. The Company currently maintains a European sales network of five offices which support sales in Europe to both U.S. and European-based OEMs 5 and European-based independent distributors. The Company has deployed its sales and marketing efforts in the Asia/Pacific region with four offices. In addition, the Company maintains a service and support operation in England. The Company's sales force, which currently has offices in Chatsworth, San Jose and Irvine, California; Roswell and Lawrenceville, Georgia; Salem, New Hampshire; Branford, Connecticut; North Potomac, Maryland; Des Plaines, Illinois; Plano, Texas; Charlottesville, Virginia; Reading, England; Munich, Germany; Massy, France; Milan, Italy; Jarfalla, Sweden; Singapore; Tokyo, Japan; Taipei, Taiwan; and N. Sydney, Australia. In addition, members of senior management, together with engineering, operations and marketing executives, participate actively in sales to major OEM customers. Independent distributors are also used in the United States and for certain markets abroad. No customers accounted for more than 10% of total sales during 1995, 1994 or 1993. The Company generally warrants its products against defects for periods from one to five years. The Company provides for estimated future product warranty costs when products are shipped. In addition, the Company generally grants trade credit to its customers, typically on net 30 day terms. Historically, the Company has not experienced significant bad debt write-offs. The Company also has policies and/or contractual agreements which allow distributors to receive price protection credit under certain circumstances when the Company lowers its sales prices. In addition, the Company permits customers to return products under certain circumstances. The Company makes a provision for the estimated amount of price protection credits and for product returns that may occur under these programs and contracts in the period of sale. Direct shipments from Chatsworth and Singapore are denominated in United States dollars; sales by the European subsidiaries, except Germany, are denominated in local currency. Although export sales are subject to certain restrictions, including approval by the Office of Export Administration of the United States Department of Commerce, such restrictions have not limited such sales. BACKLOG AND VARIABILITY OF DEMAND The Company's total order backlog at February 2, 1996 was approximately $13.8 million compared with approximately $25.5 million at February 3, 1995. The decrease in backlog was primarily attributable to low bookings for the Company's Javelin class drives. The Systems Business order backlog at February 2, 1996 was approximately $1.9 million compared with approximately $1.8 million at February 3, 1995. Backlog includes orders for which a delivery schedule has been specified by the customer and which the Company has agreed to ship within six months. Lead time for the release of purchase orders varies from month to month. For this reason and because changes in delivery schedules and cancellation of orders occur, the Company's backlog on a particular date may not be representative of future sales. The Company's customers place orders based on their own internal forecasts. If demand falls below forecast, the customer may cancel or reschedule shipments previously ordered from the Company, a process that may be exacerbated by customers' inventory management practices. Accordingly, the Company may, at any time and with limited notice, experience a significant downturn in demand for its products. The Company's expectations of future net sales are based largely on its own estimate of future demand and not on firm customer orders. The Company's net sales may also be affected by its distributors' decisions as to the quantity of the Company's products to be maintained in their inventories. The Company's expenditures are based in part on management's estimate of future sales. If orders and net sales do not meet expectations, the Company generally will not be able to reduce expenses commensurately in the near term and therefore profitability would be adversely affected. COMPETITION The data and video storage industry is intensely competitive and characterized by significant price erosion over the life of a product. The Company believes that being first to market with new products is a critical element in the achievement of desired gross margins. Being first to market provides initial price advantages to the Company and the opportunity to accelerate learning and cost reduction curves due to increased production volumes. During 1994 and 1995, the Company experienced significant price erosion related to several of its 6 products as a result of increased competition. Such pricing pressures negatively impacted the Company's operating results for 1994 and 1995. In the high-performance market in which the Company competes, the principal dimensions of competition are generally data storage capacity, data transfer rate, average access time, form factor, timely delivery in quantity, reliability and price. Virtually all of the Company's competitors are much larger in size and have access to greater financial and other resources than the Company. The Company believes that its future success hinges on its ability to bring cost and feature-competitive products to market on a timely basis. Systems Business The Systems Business products face competition from companies offering standard computer systems with video server specific software, and those offering specially designed video server systems. Competitors offering standard computer systems with video server specific software include Digital Equipment Corporation, International Business Machines, Silicon Graphics Inc., Sun Microsystems and Hewlett Packard Company. Competitors offering specially designed video server systems include Sony corporation, Optibase Inc., Sea Change, and The Network Connection Inc. The Company believes its video server systems offer significant price advantages, longer market presence and a more suitable overall solution for the applications targeted. Drive Business The Drive Business competition includes other independent domestic disk drive manufacturers, the disk drive divisions of both domestic and foreign (primarily Japanese) computer systems manufacturers and the captive disk drive manufacturing operations of some of its customers. The Company's principal competitors in the market for high-performance Winchester drives currently are Seagate Technology, Conner Peripheral Inc., Quantum Corporation and Fujitsu Corporation. In addition, the Company is experiencing increased competition from computer manufacturers such as International Business Machines and Hewlett Packard Company. PRODUCTS Micropolis Corporation had pursued a high-end strategy in the disk drive business that is focused exclusively on disk drives made with a large number of disks and heads (typically a minimum of 4 disks and 8 heads). Over time, these segments of the market have become increasingly attractive to all of the major disk drive manufacturers, and more importantly, they have been able to make steady inroads into these segments. In addition, the captive disk drive manufacturing arms of two major computer manufacturers (IBM and HP) have steadily increased their presence in this market. Thus, over time Micropolis has been faced with more competitors, all pursuing full line strategies which appeared to be increasingly desirable to the customer base. Also, in recent years the rate of technological change in the disk drive industry has increased significantly. This environment and the Company's difficulties in the manufacture and marketing of products have in recent periods adversely impacted the Drive Business' revenues and results of operations and are expected to continue to do so. EMPLOYEES As of December 29, 1995, the Company employed approximately 2,069 persons, including 411 in Engineering, 108 in Quality Assurance and Control, 1,325 in Manufacturing and Operations, 87 in Marketing and 138 in General Management and Administration. Competition for highly skilled employees is intense. The Company believes that its future success will depend on its continued ability to attract and retain qualified employees. None of the Company's employees is represented by a labor union, and the Company has experienced no work stoppages. The Company believes that its employee relations are good. During January 1996, the Company announced and completed a reduction in its workforce in the United States in order to prepare for the sale of the Drive Business. If the Sale is consummated, it would be expected that the Company would retain approximately 150 employees, including 75 in Engineering, 34 in Manufacturing and Operations, 25 in Marketing, and 16 in General Management and Administration. FOREIGN AND DOMESTIC OPERATIONS The information relating to foreign and domestic operations is included in Note 8 to the Company's Consolidated Financial Statements on page 32 of this report. 7 ITEM 2. PROPERTIES The Company's principal executive and engineering offices and limited domestic manufacturing operations are located in Chatsworth, California, comprising a total of approximately 186,000 square feet. Of these facilities, one building with approximately 58,000 square feet is owned, and one building with approximately 128,000 square feet is leased at an annual rental of approximately $982,000 subject to annual change based on the Consumer Price Index. The original term of this 1988 lease was five years, with three five- year renewal options. In May 1993, the Company began leasing this property on a month-to-month basis. Micropolis also leases on a month-to-month basis, a small amount of storage and parking space in Chatsworth. Under the Purchase Agreement, STC has an option to include in the Subject Assets the owned and/or leased portion of the corporate headquarters. If this option is not taken, the Systems Business would locate in the owned facility. If this option is taken, the Systems Business may lease back from STC or relocate to another leased facility in Southern California at a later date. In Singapore, the Company leases approximately 56,000 square feet on three floors of one building, and an additional 12,000 square feet on another floor of the same building. The space is used in the Company's manufacturing operations. These leases, which provide for an annual rental of $791,000 and $150,000, respectively, expire in April 1996. The Company leases an additional 134,600 square feet for manufacturing on five floors of an adjacent building at an annual rental of approximately $1,743,000. This lease expires in April 1996. During December 1994, the Company began construction of a 302,000 usable square foot manufacturing facility in Singapore. The new facility is expected to be completed in the second quarter of 1996, at which time the Company's operations in Singapore will move from their current leased facilities to the new factory. The Company has obtained financing to fund the expenditures associated with the construction of the building. A thirty-year ground lease for the new facility provides for lease payments of approximately $616,000 annually. This facility would be sold to STC upon consummation of the Purchase Agreement. Micropolis owns a building with approximately 37,000 square feet in Bangkok, Thailand which is used for manufacturing Head Positioner Assemblies and other disk drive sub-assemblies. This facility would be sold to STC upon consummation of the Purchase Agreement. In addition, the Company leases approximately 20,400 square feet in two separate locations adjacent to the main manufacturing site. These leases expire in August of 1998. These leases would be assumed by STC upon consummation of the Purchase Agreement. Micropolis also leases sales offices in San Jose and Irvine, California; Roswell, Georgia; Salem, New Hampshire; Branford, Connecticut; Des Plaines, Illinois; Plano, Texas; Charlottesville, Virginia; Reading, England; Munich, Germany; Massy, France; Milan, Italy; Jarfalla, Sweden; Singapore; Tokyo, Japan; Taipei, Taiwan; and N. Sydney, Australia. These leases would be assumed by STC upon consummation of the Purchase Agreement. The Company believes that its current facilities are well maintained and are adequate for its near-term production requirements. The Company is presently at approximately 33% of capacity. ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine legal matters and contingencies in the ordinary course of business which management believes will not have a material effect upon the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSS Information required by this item is incorporated by reference from the Form 10-Q relating to the Company's quarterly period ended September 29, 1995. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market on the NASDAQ National Market System under the symbol "MLIS." The following table sets forth for the periods indicated the high and low closing sale prices for the Common Stock.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Fiscal 1995 High.................................... 11 7 1/4 7 3/8 5 3/8 Low..................................... 4 7/8 4 3/4 5 3/8 3 Fiscal 1994 High.................................... 8 3/8 7 7/8 7 1/4 9 1/2 Low..................................... 4 7/8 5 1/4 5 3/8 6 1/8
The price range per share, reflected in the above table, sets forth the highest and lowest closing prices in each fiscal quarter during 1995 and 1994, as reported by NASDAQ National Market System. No dividends have been declared by the Company during the five-year period ended December 29, 1995. Under the terms of the Company's credit facility, it is prohibited from declaring or paying dividends without the prior consent of the lender. As described in Note 3 to the Company's Consolidated Financial Statements, the Company intends to terminate this credit facility. At February 2, 1996, there were 611 record holders of the Company's Common Stock. If the Sale is consummated, the Company expects to have a deficit net worth and therefore not to meet the criteria for continued inclusion on the Nasdaq National Market System. If the Company's Common Stock is no longer approved for inclusion on the Nasdaq National Market System, and the Company cannot obtain listing elsewhere, trading, if any, in the Company's Common Stock may thereafter be conducted in the over-the-counter market and its stock quoted in the so-called "pink sheets" or, if then available, the "OTC Bulletin Board Service." As a result, it could be more difficult to trade, or to obtain accurate quotations as to the value of, the Company's Common Stock and the spread between the "bid" and "ask" prices for the Company's Common Stock could materially increase. 9 ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Statement of operations data Net sales...................... $211,264 $346,314 $382,926 $396,579 $350,875 Cost of sales................. 205,628 286,856 315,436 306,482 285,555 -------- -------- -------- -------- -------- Gross profit................... 5,636 59,458 67,490 90,097 65,320 Operating expenses: Research and development..... 42,469 43,648 36,112 27,868 24,065 Selling, general and adminis- trative..................... 44,274 43,500 41,906 38,656 33,258 Restructuring charge......... -- -- 5,496 -- -- -------- -------- -------- -------- -------- Total operating expenses...... 86,743 87,148 83,514 66,524 57,323 -------- -------- -------- -------- -------- Income (loss) from operations.. (81,107) (27,690) (16,024) 23,573 7,997 Other expense, net............ 4,242 2,985 3,888 2,683 3,504 -------- -------- -------- -------- -------- Income (loss) before income taxes......................... (85,349) (30,675) (19,912) 20,890 4,493 Income tax provision (bene- fit)......................... (1,061) -- 4 1,333 150 -------- -------- -------- -------- -------- Net income (loss)(1)........... $(84,288) $(30,675) $(19,916) $ 19,557 $ 4,343 ======== ======== ======== ======== ======== Earnings (loss) per share(1)... $ (5.46) $ (2.03) $ (1.34) $ 1.33 $ .32 ======== ======== ======== ======== ======== Weighted average common and common equivalent shares out- standing...................... 15,445 15,100 14,835 14,720 13,674 ======== ======== ======== ======== ======== Balance sheet data Working capital................ $ 65,957 $121,022 $144,423 $163,394 $141,850 Total assets................... 180,394 233,915 250,429 259,624 244,909 Long term debt: Term Loan Facility............ 18,102 -- -- -- -- 10% Convertible Subordinated Notes due 1998............... 20,000 -- -- -- -- 6% Convertible Subordinated Debentures due 2012.......... 75,000 75,000 75,000 75,000 75,000 Shareholders' equity........... 7,173 89,630 118,356 136,257 114,629
- -------- (1) Income from the Company's Singapore and Thailand operations is exempt from income taxes in those countries through 2004 and December 1993, respectively. The income tax exemptions in Singapore and Thailand had no impact in fiscal 1995 and had an effect of approximately $7,401 and $.49 in fiscal 1994, $4,800 and $.33 in fiscal 1993, $12,879 and $.87 in fiscal 1992 and $11,047 and $.81 in fiscal 1991 on net income and earnings per share, respectively, as compared to income taxes at the maximum statutory rates. However, the aforementioned aggregate and per share effects are not necessarily indicative of the Company's consolidated incremental tax liability in the absence of such tax holidays either historically or upon termination of holiday status in 2004 and 1993 (see Notes 1 and 2 to the Company's Consolidated Financial Statements). 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS On January 24, 1996, the Company entered into a definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation ("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation ("ST"), to sell substantially all of the Company's assets (other than cash and accounts receivable) related to the Company's hard disk drive business to STC (the "Sale"). The Sale is subject to stockholder approval, as well as certain closing conditions contained in the Purchase Agreement. If the Sale is consummated, the Company's remaining business will be focused on information storage subsystems and video systems, and will rename itself StreamLogic Corporation ("StreamLogic"). STREAMLOGIC Business of StreamLogic StreamLogic's principal business will be fault tolerant disk storage subsystems, commonly known as RAID systems. Longer term, StreamLogic plans to develop a substantial video server and video disk recorder business, assuming that current tape-based markets for such products transition to disk-based technologies, and that StreamLogic's products are successful in these new markets. Existing Products Present Company products which will comprise StreamLogic's initial product line include: . RAIDION(R) fault-tolerant disk arrays--software- and hardware-based RAID storage solutions for network data processing environments as well as video and multimedia applications. . MICRODISK(R) subsystems--modular, stackable, external storage for desktop computing and network environments. . MICRODISK AV subsystems--modular, stackable, external storage optimized for professional audio/video editing and desktop multimedia applications. . VIDEO DISK RECORDER(TM) (VDR)--digital disk recorder technology for professional and commercial video editing and playback environments. . VIDEON(TM)--Motion Picture Experts Group ("MPEG")-based video-on-demand ("VOD") servers for hospitality and cable television broadcast environments. The brand names "Raidion" and "Microdisk," which will be retained by StreamLogic, are believed to be of significant importance to ongoing market recognition and acceptance of the products sold under those names and their variants. StreamLogic's products are sold to OEMs and system integrators and through distribution channels worldwide. In 1995, revenues attributable to the products to be retained by StreamLogic amounted to $39.5 million and all but $2.5 million of these revenues came from products sold into the LAN RAID sub-system market. In the future, and especially in 1996, StreamLogic's revenue base will be largely dependent on its success in the LAN RAID sub-system market. StreamLogic products in the LAN RAID segment will continue to focus on Novell and Windows NT clustered operating environments. RAID functionality is required to ensure both data availability and data integrity. In addition, requirements exist for increasingly comprehensive management features. The company currently offers RAIDION desktop and rack mount configurations with RAID functionality in both external array controllers and host based software subsystems. Plans to bring deskside configurations to market in 1996 will continue the current scaleable, modular, hot swappable characteristics of the RAIDION. The product line will continue to be optimized for on-line transaction processing. The non-captive LAN RAID market is estimated by industry sources to be about a $725 million market in 1997. Competitors in this segment include: Hewlett- Packard, Compaq, Digital Storage Works, Conner Peripherals, Storage Dimensions, Ciprico, and FWB. The Company's market share in 1995 was 6%, down from 8% in 1994. The Company will endeavor to recapture and expand its market share by providing RAID controller feature enhancements and by improved focus as a result of the sale of the disk drive business. 11 For further information covering the Company's present Systems Business, see Item 1--"Business." Future Product Development StreamLogic's future product development will be focused on the storage, management and movement of digital data in various networking and audio/video related applications. StreamLogic's core technical competencies include its RAID software, RAID controllers, optimization of disk drives for application specific environments, enclosure packaging, control of both analog and digital video streams ("video streaming"), Serial Switching Architecture ("SSA") switching, MPEG encoding/decoding and network management. StreamLogic currently expects to use these core competencies and the products it has developed, and plans to develop in the future, to participate in five target markets. The five markets are: .Bundled RAID subsystems for the LAN market. .Bundled storage systems for internet and web server markets. .Digital output storage systems for the corporate IntraNet market. .Video disk recorders for the professional editing market. .Video servers for hospitality and cable head-end markets. These markets vary dramatically in size and competitive characteristics. Over the next two years, the segments expected to be of most importance to the growth and profitability of StreamLogic are: (1) Professional Video Editing. This market segment is characterized by single or few users per system and high data rate video streams stored on hard disks. Fault tolerance is desired but RAID technology is used primarily as a method of achieving higher data rate. Video disk recorders are used to replace professional level video tape recorders for a wide variety of applications. The Company has a strategic partnership with BTS Broadcast Television Systems GmbH ("BTS"), a division of Phillips Electronics, to develop video disk recorder products to be marketed by BTS. The professional video market is estimated by industry sources to be a $12 billion market with video tape recorders representing half of all revenues. Video disk recorders are expected to penetrate a small portion of that market while video disk editing is expected to penetrate a larger portion. Key competitors in the video disk recorder market are Tektronix and a number of small independent suppliers. In video disk editing, the key competitors are Avid Technology, Tektronix, Sony, Panasonic and a small number of independent suppliers. (2) Hospitality and Cable Head-end Video Servers. This market is made up of multi-channel video playback systems. A video server allows multiple simultaneous users from one video data stream stored on hard disk. Such playback is today achieved by the installation of large numbers of video tape recorders. In the cable head-end market, the video server provides considerable ease-of-use benefits over conventional video cassette usage, as well as considerable cost savings. Fault tolerance is required in the cable head-end market, while price is more important in the hospitality market. StreamLogic is currently the only revenue producing competitor in the video server hospitality market. Competitors in the cable head-end market are Digital, Sea Change, and Sony. The Company and STC have entered into an OEM supply agreement, effective upon consummation of the Sale. Among other things, the OEM Supply Agreement allows StreamLogic to buy at prices equal to or slightly lower than the most favored OEM customer of STC. StreamLogic must offer all its disk drive business and requirements to STC on a right-of-first-refusal basis, subject to the ability of STC to meet certain delivery and other standards. The agreement has an initial two-year term, after which it may be renewed annually by mutual agreement. Management, Employees and Property of StreamLogic StreamLogic's management is presently expected to include the Company's current executive officers, with the possible exceptions of Eric Dunstan and Donald McDonell, who may join ST. StreamLogic's Board of Directors is expected to include the Company's present directors. StreamLogic will be located at 21329 Nordhoff Street in Chatsworth, California, which is a building currently owned by it. It is also possible that this building 12 will be sold to STC and leased back, but whether the Company and STC will enter into such a transaction and the key terms of any such lease have not yet been decided upon. Whether StreamLogic owns or leases this space, or moves to other space is not expected to have a material effect on the operations of StreamLogic. Market for StreamLogic Common Stock StreamLogic expects that during 1996 its net worth will cease to meet the requirements for continuing quotation on the NASDAQ National Market System. See Item 5--"Market for Registrant's Common Equity and Related Stockholder Matters." StreamLogic's Financial Position, Results of Operations, and Liquidity If the Sale is consummated on the terms and within the time contemplated by the Purchase Agreement (the target closing date is March 29, 1996), and if the results of operations for the quarter ended March 29, 1996 are comparable to the results for the quarter ended December 29, 1995, StreamLogic is expected to have both significant cash balances relative to its asset base and scope of operations (assuming no material unfavorable adjustments to the Purchase Price and that StreamLogic is able to collect the retained accounts receivable related to the Drive Business), and an unusually high level of indebtedness. See Note 10 of Notes to Consolidated Financial Statements. As a result of losses related to the combined Drive and Systems Businesses in the first quarter, the Company expects to have a deficit net worth at March 29, 1996. Based on management's business plan, including numerous assumptions, StreamLogic expects to post losses from operations at least throughout 1996 and to generate negative cash flows on a quarterly basis. The proceeds of the Sale will be used for general corporate purposes including funding near-term operating losses, currently estimated at $7 million in 1996; the actual amount of such losses will depend on future operating results that are difficult to estimate and may differ materially from this estimate. In addition, interest expense on the $95 million of the Company's debt expected to be outstanding as of the Closing Date is currently estimated at $6.5 million annually, although such amounts are currently estimated to be offset by approximately $2.5 million of interest income on cash balances. In 1997, sinking fund payments on certain debt of the Company commence and are due in the amount of $3.75 million each March 15 through 2012. The Company is also negotiating with the holder of the $20 million 10% Convertible Subordinated Notes due 1998 to obtain a consent necessary to consummate the Sale, and may agree to retire or otherwise restructure these notes. In addition, after the Sale the Company may seek to restructure, in part or in whole, its $75 Million 6% Convertible Subordinated Debentures due 2012, but plans to carefully evaluate such a potential use of funds against alternative uses, such as acquisitions. StreamLogic Strategic and Financial Alternatives The Company is considering and will consider strategic and financial alternatives to improve its results of operations, cash flows and net worth, including restructuring of debt, acquisitions and other alternatives, after the Sale is consummated. Among the alternatives to deal with its highly leveraged condition following completion of the Sale, in addition to the alternative of not seeking to restructure its $20,000,000 10% Convertible Subordinated Notes and $75,000,000 6% Convertible Subordinated Debentures, would be utilization of a portion of the cash resulting from the sale to reduce indebtedness and/or a restructuring of indebtedness by exchange offer, prepackaged bankruptcy, or otherwise. The cash consideration payable to the Company by STC as a result of the Sale had closing occurred on December 29, 1995 (assuming no adverse adjustments for indemnity or other factors) would have been approximately $50 million (on the Closing Date, such amount would be reduced by amounts due under the Facility; see "Results of Operations-- Liquidity and Capital Resources"). In addition, the Company expects to liquidate the trade accounts receivable related to the Drive Business but retained by the Company at closing. The Company has been approached by several parties in the RAID business, and other businesses related to the intended future business of StreamLogic Corporation, inquiring as to StreamLogic's potential interest in mergers or acquisitions of or by the Company. While preliminary discussions have occurred, no offers have been received or made and no potential transactions would occur before the Sale. There can be no assurance that any such offers will be received or made or that any such transaction will occur. 13 RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 Net sales decreased 39% to $211.3 million in 1995 as compared to $346.3 million in 1994. Drive Business revenues declined by 44% in 1995 as compared to 1994 and sales made by the Systems Business decreased by approximately 4%. The decrease in revenues was primarily attributable to sharply lower drive orders than anticipated in the distribution channel during the first quarter of 1995 for the Company's 4 GB 3 1/2-inch and 9 GB 5 1/4-inch drives. In addition, a component problem, and other technical issues, effectively shut down production of the Company's 2 GB 3 1/2-inch drive for most of the first quarter of 1995. During the second quarter of 1995, the Company resumed full production of its 2 GB 3 1/2-inch drives and met the increased demand for these drives and its SuperCapacity 4 and 9 GB drives. During the third and fourth quarters of 1995, the Company's OEM revenue declined due to reduced shipments to certain large customers. The Company anticipated that such revenue reduction would be offset by new OEM customers in qualification. However, the Company experienced delays in such OEM qualifications and unexpected difficulties in the manufacture of 3 1/2-inch disk drives resulting in higher manufacturing costs, excessive warranty cost, inventory build-up and lost sales. The Company can provide no assurance that such OEM qualifications will materialize in the future. During the fourth quarter of 1995 the Company announced a price reduction on its Javelin family of drives. The Company plans to discontinue manufacturing Systems Business products in its Singapore facility during the second quarter of 1996. All Systems Business products will be manufactured in the Company's Chatsworth, California facility. Such discontinuance of manufacturing in Singapore is not expected to have a significant impact on Systems Business revenue. Overall bookings for 1995 decreased by 45% from those in 1994 principally due to manufacturing difficulties, component problems and delays in OEM qualifications in the Company's 2, 4 and 9 GB drives. Cost of sales as a percent of sales increased to 97.3% in 1995 from 82.8% in 1994 resulting in a gross margin of 2.7% as compared to 17.2% in 1994. The decrease in margin was the result of price declines in the Company's Javelin family of drives, operating inefficiencies due to low volume production of the 2 and 4 GB drives, and a provision recorded during the first quarter of 1995 for certain unusable components of the 2 GB drives. Research and development expenses increased to 20.1% of sales in 1995 as compared to 12.6% in 1994. The percentage increase is the result of lower sales offset by a decrease in spending of $1.2 million. The decrease in spending was a result of savings from the Company's cost containment efforts initiated in March 1995, offset by the recognition of the research and development costs incurred by Tulip Memory Systems, and research and development on the Company's high capacity 3 1/2-inch and 5 1/4-inch drives and subsystem products. In 1995, approximately one-third of the Company's research and development expenses were incurred by the ongoing Systems Business. Selling, general and administrative expenses were 20.2% of sales in 1995 as compared to 12.6% in 1994. The percentage increase is the result of lower sales and an increase in expense of $774,000. The increase in expense was the result of increased expenditures for advertising and sales promotion activities for new products, costs associated with a work force reduction in the U.S. and Europe completed in March 1995, and the retention of outside assistance to help the Company in formulating and implementing its recovery plan, offset by the Company's cost containment efforts initiated in March 1995. In the first quarter of 1996, the Company will record charges for certain severance and other costs related to employee reductions made in January 1996. The Company leases sales offices in eight domestic and nine foreign locations. These leases would be assumed by STC upon consummation of the Sale. The assumption of these leases is not expected to have a significant impact on the Systems Business. Interest expense increased to $6 million in 1995 (2.8% of sales) as compared to $5.1 million (1.5% of sales) in 1994, primarily as a result of fees associated with the Company's Term Loan Facility and the interest expense 14 of the Company's 10% Convertible Subordinated Debentures dated October 11, 1995. Interest income was $1.7 million in 1995 as compared to $2.1 million in 1994 as a result of lower cash equivalent and short-term investment balances. As a result of the above, loss before income taxes was $85.3 million in 1995 as compared to $30.7 million in 1994. The Company recorded an income tax benefit of $1.1 million in 1995, primarily representing a refund of certain foreign income taxes paid in a prior year. The Company's income tax provision benefits from the tax holiday afforded the Company's Singapore operation, which will remain in effect through August 2004. The income tax exemption in Singapore had no impact in 1995 and had an effect of approximately $7.4 million and $.49 on net income and earnings per share, respectively, as compared to income taxes at the maximum statutory rates in 1994. A net operating loss of approximately $113,603,000 is available to be carried forward to the years 2004-2010. General business tax credit carryforwards of approximately $8,562,000, expiring between 2000 and 2009, are also available to reduce future federal income taxes. Net loss for 1995 was $84.3 million compared to a net loss of $30.7 million in 1994. FISCAL 1994 COMPARED TO FISCAL 1993 Net sales decreased by 10.5% to $346.3 million in 1994 as compared to $382.9 million in 1993. OEM revenues declined substantially in 1994 as a result of a decrease in shipments in the Company's 5 1/4-inch 3600 rpm drives and the 3 1/2-inch 5400 rpm 1 gigabyte (GB) drives. The decline in OEM sales was only partially offset by increases in the Company's Storage Systems Division (SSD) and Video Systems Division. The increase in SSD sales was primarily the result of an increase in shipments of the 3 1/2-inch, 1 inch high 1 GB drive, 1.7 GB full height drives and storage subsystems. The increase in the Video Systems Division, which had no sales in 1993, came primarily in the second half of 1994 and related to shipments of the AV Server 100. Backlog as of December 30, 1994 was $27.8 million, as compared to $29.2 million as of December 31, 1993. Cost of sales as a percentage of sales was 82.8% in 1994, comparable to the 82.4% in 1993, resulting in gross margins of 17.2% (17.6% in 1993). Gross margins in the first three quarters of 1994 were adversely impacted by competitive pricing on the 1 GB, 1 inch high 3 1/2-inch drives. Margins increased substantially in the fourth quarter, to 26.5%, as a result of the increased shipments of the Company's Javelin class SuperCapacity drives and storage and video subsystems. Research and development as a percentage of sales increased to 12.6% in 1994 as compared to 9.4% in 1993. The increase in spending of $7.5 million relates to increased research and development for high capacity 3 1/2-inch and 5 1/4- inch drives, subsystem products and development of new disk substrates at Tulip Memory Systems. Selling, general and administrative expense increased to 12.6% in 1994 as compared to 10.9% in 1993. The increase in spending of $1.6 million relates primarily to increased sales and marketing costs in the Company's Storage Systems Division. Interest expense was $5.1 million (1.5% of sales) in 1994 which is comparable to 1993. Interest income was $2.1 million in 1994 as compared to $2.3 million in 1993. As a result of the above, the loss before income taxes was $30.7 million in 1994 versus a loss of $19.9 million in 1993. The Company provided for no income tax in 1994 versus $4,000 provided in 1993. The Company's income tax provision benefits from a tax holiday afforded the Company's Singapore operation, which remain in effect through August 2004 (previously 1999). The effect on net income and earnings per share of the income tax exemptions in Singapore as compared to income taxes at the maximum statutory rates for 1994 and 1993, was approximately $7.4 million and $.49 and $4.8 million and $.33, respectively. Net loss was $30.7 million in 1994, as compared to net loss of $19.9 million in 1993. 15 LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and short-term investments decreased to $27.9 million as of December 29, 1995 from $63.2 million as of December 30, 1994. Net cash used in operations of $47.5 million is primarily due to the Company's net loss of $84.3 million and decrease in accounts payable of $11.4 million, offset by a reduction in accounts receivable of $28.5 million, due principally to decreased sales in the fourth quarter of 1995 compared to the fourth quarter of 1994. Accounts payable and other accrued liabilities decreased by $11.4 million from 1994 due to decreased inventory receipts. The Company leases sales offices in eight domestic and nine foreign locations. These leases would be assumed by STC upon consummation of the Purchase Agreement. The assumption of these leases is not expected to have a significant impact on the Systems Business. The Company's capital expenditures in 1995 were $30.5 million as compared to $19.7 million in 1994. Capital expenditures related primarily to the construction of a new manufacturing facility in Singapore to replace the current leased facility and for equipment and tooling to support new products. The new facility is expected to be completed in 1996. The Company has obtained a term loan facility to fund the expenditures associated with the construction of the building. The Company currently anticipates that following consummation of the Sale, its 1996 capital spending will be significantly lower than that of 1995 and will be principally for equipment and tooling required for the Company's new products. The Company has an existing $21.5 million term loan facility (the "Loan Facility") used to finance the construction of its new factory in Singapore. According to the terms of the Loan Facility, the Company is to pay the last 30% ($8.5 million) of the amounts due under the $30 million construction contract. In addition, the Company has entered into contracts to build an ESD safe cleanroom for the production of MR-based disk drives, and certain other contracts for the facilitization of the factory, all in an amount of approximately $9.0 million. The Company is past due on the payments required under the cleanroom construction contract, and does not have the funds to pay the $8.5 million which will come due between March and July 1996 related to the construction contract. With the assistance of ST, the Company has sought and obtained informal deferrals on all of the above mentioned obligations and no payments are expected to be made by Micropolis Corporation. Rather, these obligations are planned to be assumed by ST pursuant to the Agreement. During the second quarter of 1995, the Company obtained a 2-year extension of its credit facility and reset the size of the facility to $25 million, down from $33 million. As of December 29, 1995, the Company was in violation of certain covenants under its line of credit, including among others, the net worth covenant. Even if the covenants were to be waived (which waiver the Company has not requested or pursued), there would be no additional availability under the line of credit beyond the $1.5 million reserved for the outstanding standby letter of credit. After evaluating the costs of the line and the balance sheet of StreamLogic assuming the Sale is consummated, and because the Agreement requires assets to be transferred free of all liens, pledges and encumbrances, the Company elected to terminate its credit facility and has notified the lender of its decision. The amount available under the facility as of December 29, 1995 was $1.5 million (all of which is reserved for an outstanding standby letter of credit). During October 1995, the Company completed the private placement to an institutional investor of $20,000,000 aggregate principal amount of 10% Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes are convertible at the option of the holder into shares of Common Stock of the Company at a conversion price of $6.00 per share, a premium to the market price of the Company's Common Stock at the time of issuance. The Notes are senior to the Company's existing 6% Convertible Subordinated Debentures due 2012 and subordinate to certain senior debt. The Notes are collateralized by substantially all of the assets of the Company. The Company has requested consent of the holder of the Notes to allow consummation of the Sale and may agree to retire or otherwise restructure these Notes. The Company has the option to redeem the Notes, in whole or in part, at scheduled premium-to-par redemption prices, plus accrued and unpaid interest, at any time prior to conversion or maturity. Interest on the Notes is payable semiannually on April 15 and October 15. 16 On February 16, 1996, the Company entered into a $10 Million Facility Agreement (the "Facility") with STC for the purpose of providing additional liquidity to the Company to pay accounts payable between the date of the Facility and March 29, 1996. As of March 6, 1996, the Company had borrowed $2 million under the Facility. Any amounts outstanding under the Facility are due on March 29, 1996. Advances bear interest at U.S. dollar prime rate plus 1%. As of December 29, 1995, the Company had net shareholders' equity totaling $7,173,000 and anticipates a loss for the first quarter of 1996, the size of which will depend in significant measure on the level of orders received in the latter half of the quarter which cannot be predicted with assurance. The Company has been unable to generate positive cash flow from its operations and is dependent on future developments, including consummation of the Sale discussed above, and achieving a level of profitable operations in order to meet its obligations as they come due. Management has formulated plans to continue as a going concern, which include the Sale (without regard to inclusion or exclusion of the Option Real Property), and believes the Sale will provide sufficient cash flow for the Company for at least the next twelve months, and much longer unless cash is used for acquisitions and/or debt restructuring, both of which will be studied. However, there is no assurance that the Company will be successful in consummating the Sale transaction. Therefore, these conditions raise substantial doubt about the Company's ability to continue as a going concern. The December 29, 1995 financial statements of Micropolis Corporation do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. If the sale is not approved or consummated by the end of March, the Company anticipates that it could rely upon the assistance of ST to fund losses from the Drive Business until the Sale closes, assuming that any delay in closing can be expected to be resolved and that a closing can be expected within a reasonable period of time. However, there is no assurance that ST would render any such assistance. If the Sale is not approved and consummated within a reasonable period of time, the Company does not have the capital resources and liquidity to carry on its business as it is presently operated. If the Sale were to fail, the Company would be required immediately to reduce substantially its payroll and to restructure operations, and may be compelled to seek reorganization under Chapter 11 of the Bankruptcy Code. This process would likely result in little or no residual value to stockholders. 17 MICROPOLIS CORPORATION ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors......................... 19 Consolidated Statements of Operations for the fiscal years ended December 29, 1995, December 30, 1994 and December 31, 1993.................................. 20 Consolidated Balance Sheets as of December 29, 1995 and December 30, 1994. 21 Consolidated Statements of Cash Flows for the fiscal years ended December 29, 1995, December 30, 1994 and December 31, 1993.................................. 22 Consolidated Statements of Shareholders' Equity for the three years ended December 29, 1995........................................................ 23 Notes to Consolidated Financial Statements................................ 24
18 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Micropolis Corporation We have audited the accompanying consolidated balance sheets of Micropolis Corporation as of December 29, 1995 and December 30, 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 29, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Micropolis Corporation at December 29, 1995 and December 30, 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 29, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and cash flow used in operating activities raise substantial doubt about its ability to continue as a going concern. Management's plans as to these matters are also described in Note 1. The 1995 financial statements do not include any adjustments that might result from the outcome of this uncertainty. ERNST & YOUNG LLP Los Angeles, California February 1, 1996 19 MICROPOLIS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED -------------------------------------- DECEMBER 29, DECEMBER 30, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Net sales................................ $211,264 $346,314 $382,926 Cost of sales............................ 205,628 286,856 315,436 -------- -------- -------- Gross profit............................. 5,636 59,458 67,490 Operating expenses: Research and development............... 42,469 43,648 36,112 Selling, general and administrative.... 44,274 43,500 41,906 Restructuring charge................... -- -- 5,496 -------- -------- -------- Total operating expenses............. 86,743 87,148 83,514 -------- -------- -------- Loss from operations..................... (81,107) (27,690) (16,024) -------- -------- -------- Interest income........................ 1,719 2,090 2,335 Interest expense....................... (5,961) (5,075) (5,093) Other expense.......................... -- -- (1,130) -------- -------- -------- Loss before income taxes................. (85,349) (30,675) (19,912) Income tax provision (benefit)........... (1,061) -- 4 -------- -------- -------- Net loss................................. $(84,288) $(30,675) $(19,916) ======== ======== ======== Loss per share........................... $ (5.46) $ (2.03) $ (1.34) ======== ======== ======== Weighted average common outstanding...... 15,445 15,100 14,835 ======== ======== ========
See accompanying notes. 20 MICROPOLIS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 29, DECEMBER 30, 1995 1994 ------------ ------------ ASSETS Current assets: Cash, cash equivalents and short-term investments.. $ 27,896 $ 63,216 Accounts receivable, less allowance for doubtful accounts and customer returns of $5,427 ($4,455 in 1994)............................................. 33,249 61,724 Inventories........................................ 59,777 56,746 Other current assets............................... 3,433 6,405 -------- -------- Total current assets............................. 124,355 188,091 Property, plant and equipment, at cost: Land............................................... 1,675 1,675 Buildings and improvements......................... 22,520 22,246 Machinery and equipment............................ 87,094 85,479 Construction in progress........................... 24,400 3,524 -------- -------- 135,689 112,924 Less accumulated depreciation and amortization..... 81,544 68,672 -------- -------- 54,145 44,252 Other assets......................................... 1,893 1,572 -------- -------- $180,393 $233,915 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of Term Loan Facility.............. $ 2,687 $ -- Accounts payable................................... 34,209 46,388 Other accrued liabilities.......................... 21,502 20,681 -------- -------- Total current liabilities............................ 58,398 67,069 Term Loan Facility................................... 18,102 -- 10% Convertible Subordinated Notes due 1998.......... 20,000 -- 6% Convertible Subordinated Debentures due 2012...... 75,000 75,000 Deferred income taxes................................ 1,720 2,216 Commitments and contingencies Shareholders' equity: Preferred stock, $1.00 par value; 2,000,000 shares authorized, none issued........................... -- -- Common stock, $1.00 par value, 50,000,000 shares authorized; 15,580,413 shares issued and outstanding (15,266,440 in 1994).................. 15,580 15,266 Additional paid-in capital......................... 110,380 108,863 Accumulated deficit................................ (118,787) (34,499) -------- -------- Total shareholders' equity....................... 7,173 89,630 -------- -------- $180,393 $233,915 ======== ========
See accompanying notes. 21 MICROPOLIS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED ---------------------------- DEC. 29, DEC. 30, DEC. 31, 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Net loss....................................... $(84,288) $(30,675) $(19,916) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization................. 20,679 23,932 25,364 Deferred income taxes......................... (496) (201) (3,000) (Gain) loss on disposition of property, plant and equipment................................ (51) (182) 54 Increase (decrease) from changes in: Accounts receivable.......................... 28,475 (13,493) 1,760 Inventories.................................. (3,031) 2,931 5,934 Other current assets......................... 2,972 (2,016) (896) Accounts payable and other accrued liabilities................................. (11,358) 12,644 12,240 Other assets................................. (393) 1,226 (432) -------- -------- -------- Net cash provided by (used in) operating activities...................................... (47,491) (5,834) 21,108 -------- -------- -------- Cash flows from investing activities: Proceeds from sale of equipment................ 51 254 57 Additions to property, plant and equipment..... (30,500) (19,704) (22,766) Net change in short-term investments........... 12,254 12,186 1,826 -------- -------- -------- Net cash used in investing activities............ (18,195) (7,264) (20,883) -------- -------- -------- Cash flows from financing activities: Proceeds from Term Loan Facility............... 20,789 -- -- Proceeds from 10% Convertible Subordinated Notes due 1998................................ 20,000 -- -- Proceeds from sale of common stock, net........ 1,831 1,949 2,015 Payment on capital lease obligation............ -- (231) (534) -------- -------- -------- Net cash provided by financing activities........ 42,620 1,718 1,481 -------- -------- -------- Net increase (decrease) in cash and equivalents.. (23,066) (11,380) 1,706 Cash and equivalents at beginning of period...... 37,720 49,100 47,394 -------- -------- -------- Cash and equivalents at end of period............ 14,654 37,720 49,100 Short term investments........................... 13,242 25,496 37,682 -------- -------- -------- Total cash, cash equivalents and short-term investments..................................... $ 27,896 $ 63,216 $ 86,782 ======== ======== ======== Supplemental cash flow information: Interest payments.............................. $ 5,791 $ 5,076 $ 4,821 Tax payments (recoveries)...................... $ (460) $ 2,964 $ 278
See accompanying notes. 22 MICROPOLIS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 29, 1995 (IN THOUSANDS)
NUMBER ADDITIONAL RETAINED OF COMMON COMMON PAID-IN EARNINGS SHARES STOCK CAPITAL (DEFICIT) TOTAL --------- ------- ---------- --------- -------- Balances at December 25, 1992........................ 14,532 $14,532 $105,633 $ 16,092 $136,257 Common stock sold for cash. 356 356 1,659 -- 2,015 Net Loss................... -- -- -- (19,916) (19,916) ------ ------- -------- --------- -------- Balances at December 31, 1993........................ 14,888 14,888 107,292 (3,824) 118,356 Common stock sold for cash. 378 378 1,571 -- 1,949 Net Loss................... -- -- -- (30,675) (30,675) ------ ------- -------- --------- -------- Balances at December 30, 1994........................ 15,266 15,266 108,863 (34,499) 89,630 Common stock sold for cash. 314 314 1,517 -- 1,831 Net Loss................... -- -- -- (84,288) (84,288) ------ ------- -------- --------- -------- Balances at December 29, 1995........................ 15,580 $15,580 $110,380 $(118,787) $ 7,173 ====== ======= ======== ========= ========
See accompanying notes. 23 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 29, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS INFORMATION RECENT DEVELOPMENTS As described in Note 10, on January 24, 1996, the Company entered into a definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation ("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation ("ST"), to sell substantially all of the Company's assets (other than cash and accounts receivable) related to the Company's hard disk drive business to STC (the "Sale"). The Sale is subject to stockholder approval, as well as certain closing conditions contained in the Purchase Agreement. If the Sale is consummated, the Company's remaining business will be focused on information storage subsystems and video systems. The accompanying historical financial statements do not give effect to this transaction. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has incurred significant and increasing operating losses in recent years and has substantially depleted its cash resources. The Company anticipates a loss for the first quarter of 1996, the size of which will depend in significant measure on the level of orders received in the latter half of the quarter which cannot be predicted with assurance. The Company has been unable to generate positive cash flow from its operations and is dependent on future developments, including consummation of the Sale discussed above, and achieving a level of profitable operations in order to meet its obligations as they come due. As described in Note 3, in January 1995, the Company has notified its lender that it would exercise its right to terminate its credit facility agreement in order to facilitate the process of removing the associated liens from its assets in order to prepare for the Sale. Management has formulated plans to continue as a going concern, which include the Sale, and believes the Sale will provide sufficient cash flow for the Company for the next twelve months. However, there is no assurance that the Company will be successful in carrying out these actions. If the Sale is not approved and consummated within a reasonable period of time, the Company does not have the capital resources and liquidity to carry on its business as it is presently conducted, nor does it expect that any advantageous alternative transaction could be rapidly arranged. Accordingly, if the Sale were to fail, the Company would be required to restructure its operations, and may be compelled to seek reorganization under Chapter 11 of the Bankruptcy Code. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The December 29, 1995 financial statements of Micropolis Corporation do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Fiscal years 1995 and 1994 were fifty-two week years versus a fifty-three week 1993. SALES Micropolis is a designer and manufacturer of high capacity disk drives, information storage and video systems. The Company sells these products and systems directly to original equipment manufacturers ("OEMs") and systems integrators and through independent distributors and value added resellers ("VARs") for resale to end users. The Company generally warrants its products against defects for periods from one to five years. The Company provides for estimated future product warranty costs when products are shipped. In addition, the 24 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 Company performs ongoing credit evaluations of its customers' financial condition, and generally requires no collateral from its customers Trade credit is generally granted to its customers, typically on net 30 day terms. Historically, the Company has not experienced significant bad debt write-offs. The Company also has policies and/or contractual agreements which allow distributors to receive price protection credit under certain circumstances when the Company lowers its sales prices. In addition, the Company permits customers to return products under certain circumstances. The Company makes a provision for the estimated amount of price protection credits and for product returns that may occur under these programs and contracts in the period of sale. Sales, most of which are denominated in U.S. dollars, are recorded upon shipment. No customer accounted for more than 10% of total sales during 1995, 1994 and 1993. FOREIGN EXCHANGE CONTRACTS The functional currency of the Company's Singapore and Thailand subsidiaries is the U.S. dollar. The Company enters into foreign exchange contracts to minimize the effects of foreign currency fluctuations related to certain known local expenditures for operations and for the new facility being constructed in Singapore. These foreign exchange contracts hedged approximately $17.2 million and $19.9 million of transaction exposures as of December 29, 1995 and December 30, 1994, respectively. There were no significant deferred unrealized gains or losses at December 29, 1995 or December 30, 1994. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Short-term investments consist primarily of commercial paper, certificates of deposit, and U.S. government agency securities and are considered available for sale under Statement of Financial Accounting Standards 115. These investments generally mature within six months and are carried at cost which approximates fair values. INVENTORIES Inventories are stated at the lower of standard cost, which approximates first-in, first-out, or market.
DEC. 29, DEC. 30, 1995 1994 -------- -------- (IN THOUSANDS) Raw materials and purchased parts....................... $20,207 $18,634 Work-in-process......................................... 23,289 20,771 Finished goods.......................................... 16,281 17,341 ------- ------- $59,777 $56,746 ======= =======
DEPRECIATION AND AMORTIZATION Depreciation and amortization are provided on the straight-line method over the estimated useful life of the assets or term of related lease, whichever is shorter; for buildings and improvements, 10 to 30 years; machinery and equipment, 3 to 5 years. 25 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 OTHER ACCRUED LIABILITIES Other accrued liabilities are comprised of the following:
DEC. 29, DEC. 30, 1995 1994 -------- -------- (IN THOUSANDS) Accrued salaries and wages.............................. $ 5,956 $ 5,622 Accrued warranty........................................ 8,006 8,614 Income taxes payable.................................... 137 243 Other................................................... 7,403 6,202 ------- ------- $21,502 $20,681 ======= =======
ADVERTISING EXPENSE The cost of advertising is expensed as incurred. The Company incurred $4,606,000, $4,317,000 and $4,799,000 in advertising costs during 1995, 1994 and 1993, respectively. RESTRUCTURING CHARGE In the third quarter of 1993, the Company recorded a restructuring charge of $5.5 million. This charge related primarily to separation costs recognized in connection with a reduction in workforce and a write-down of certain assets which were no longer in use due to changes in the Company's production requirements and new product specifications. All related expenditures were completed in fiscal year 1994. INCOME TAXES The Company applies an asset and liability approach in accounting for income taxes. Federal taxes are not provided currently on undistributed foreign earnings since it is the Company's intention that these earnings be reinvested indefinitely in such subsidiaries, or remitted in a manner which will not result in a Federal tax liability. PER SHARE INFORMATION Loss per share is computed by dividing net loss by the weighted average number of shares of common stock. Applicable common stock equivalents outstanding during the period have not been considered as their effect is antidilutive. Primary and fully diluted earnings per share are the same. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 121 In March 1995, the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. 26 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 2. INCOME TAXES The provision (credit) for income taxes is composed of the following:
FISCAL YEAR ENDED --------------------------- DEC. 29, DEC. 30, DEC. 31, 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Current Federal....................................... $ -- $-- $(105) State......................................... 82 (52) 73 Foreign....................................... (1,143) 52 36 ------- ---- ----- Total....................................... $(1,061) $-- $ 4 ======= ==== =====
Deferred income taxes result from differences in the timing of the recognition of expense and income items for tax and financial statement purposes. During 1993 $3,000,000 was reclassified from deferred income taxes to current income taxes payable for payments during 1994 for years covering 1986 through 1990. Deferred tax assets and liabilities are comprised of the following at December 29, 1995:
DEC. 29, DEC. 30, 1995 1994 -------- -------- (IN THOUSANDS) Deferred tax asset: Reserves not currently tax deductible.............. $ 5,371 $ 4,639 Other.............................................. 768 862 Excess of book over tax depreciation............... 2,130 1,798 Net operating loss................................. 46,641 31,996 Income tax credits................................. 9,668 7,514 -------- -------- Total before valuation allowance................. 64,578 46,809 Valuation allowance................................ (63,756) (45,248) -------- -------- 822 1,561 -------- -------- Deferred tax liability: Reserves not currently tax deductible.............. -- (2,216) State income taxes................................. (2,275) (1,327) Other.............................................. (267) (234) -------- -------- (2,542) (3,777) -------- -------- Deferred tax liability, net........................ $ (1,720) $ (2,216) ======== ========
The Company has determined a valuation allowance is required for the deferred tax assets due to the uncertainty of ultimately realizing certain tax benefits. The change in the valuation allowance was a result of current year losses and settlement of prior year tax audits. 27 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 The following table reconciles the provision for income taxes to the statutory federal income tax rate of 35%:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) Tax benefit at statutory rate............... $(29,872) $(10,736) $(6,969) Increases (decreases) related to: Losses without current income tax benefit. 15,906 13,267 1,510 State income tax expense (benefit) net of federal income tax....................... 53 (34) 48 Foreign operations........................ (5,671) (10,234) (5,090) Repatriation of foreign earnings.......... 18,498 7,700 10,500 Other, net................................ 25 37 5 -------- -------- ------- $ (1,061) $ 0 $ 4 ======== ======== =======
Income from the Company's Singapore and Thailand subsidiaries was exempt from income taxes in those countries through August 2004 and December 1993, respectively. Income (loss) from these operations for the periods under exemption was $(15,310,000) in 1995, $27,411,000 in 1994 and $17,182,000 in 1993. At December 29, 1995, foreign earnings of $44,671,000 have been retained indefinitely by subsidiary companies for reinvestment, on which no additional U.S. tax has been provided. If repatriated, additional taxes of approximately $15,296,000 on these earnings, net of available foreign tax credit carryforwards, would be due. Any tax otherwise due upon repatriation would be substantially offset by the tax benefit of net operating loss carryforwards. The Company repatriated $52,850,000 in 1995, $22,201,000 in 1994 and $30,000,000 in 1993 from foreign subsidiaries by means of special dividends, which were offset by the Company's 1995, 1994 and 1993 domestic losses. A net operating loss of approximately $113,603,000 is available to be carried forward to the years 2004-2010. General business tax credit carryforwards of approximately $8,562,000, expiring between 2000 and 2009, are also available to reduce future federal income taxes. 3. CREDIT FACILITY AGREEMENT During the second quarter of 1995, the Company obtained a two-year extension of its $33 million credit facility agreement and reset the size of the facility to $25 million. As of December 29, 1995, the Company was in violation of certain covenants under the facility, including, among others, the net worth covenant. Even if the covenants were to be waived (which waiver the Company has not requested or pursued), there would be no additional availability under the line of credit beyond the $1.5 million reserved for the outstanding standby letter of credit. In January 1996, the Company notified its lender that it was in default on the facility and would exercise its right to terminate the facility. The Company has elected to terminate the facility in order to facilitate the process of removing the associated liens from its assets to prepare for the Sale. The availability under the facility is primarily a function of the level of eligible accounts receivable, is limited by certain outstanding letters of credit and is secured by substantially all of the Company's assets. The amount available under the facility as of December 29, 1995 was $1.5 million (all of which is reserved for outstanding standby letters of credit). The agreement requires specified levels of operating profits, working capital and tangible net worth. The borrowings under this agreement bear interest at the prime rate plus 1%. A fee of .5% is payable on the unused portion of the credit line. As of December 29, 1995, there were no amounts outstanding under the facility. 28 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 4. LEASE COMMITMENTS Minimum annual lease commitments at December 29, 1995 under noncancellable operating leases, principally for operating facilities, are payable as follows:
(IN THOUSANDS) 1996...................................................... $ 1,614 1997...................................................... 1,120 1998...................................................... 1,066 1999...................................................... 1,008 2000...................................................... 1,008 Thereafter................................................ 17,343 ------- Total future minimum lease payments..................... $23,159 =======
Included in minimum annual lease commitments is a thirty-year ground lease for the new facility being constructed in Singapore. Rent expense amounted to $4,923,000 in 1995, $4,182,000 in 1994 and $4,643,000 in 1993. 5. LONG TERM DEBT In December 1994, Singapore Technologies Construction Pte Ltd. ("ST Construction"), a subsidiary of ST, was hired by the Company as the general contractor for construction of its new factory in Singapore. During the third quarter of 1995, the Company refinanced, with ST Construction together with ST Capital Ltd (another subsidiary of ST) as lenders, its existing term loan facility used to finance the new factory with a new $21.5 million loan facility (the "Loan Facility"). The Loan Facility is payable over six years in monthly principal installments of $298,611 beginning April 1996, bears interest at the Singapore Interbank Offered Rate plus 2%, and is collateralized by the new factory. During October 1995, the Company completed the private placement to a major institutional investor of $20,000,000 aggregate principal amount of 10% Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes are convertible at the option of the holder into shares of Common Stock of the Company at a conversion price of $6.00 per share, a premium to the market price of the Company's Common Stock at the time of issuance. The Notes are senior to the Company's existing 6% Convertible Subordinated Debentures due 2012 and subordinate to certain senior debt. The Company has the option to redeem the Notes, in whole or in part, at scheduled premium-to-par redemption prices, plus accrued and unpaid interest, at any time prior to conversion or maturity. Interest on the Notes is payable semiannually on April 15 and October 15. Interest expense amounted to $444,000 in 1995. In March 1987, the Company issued $75,000,000 principal amount of 6% Convertible Subordinated Debentures due 2012 (the "Debentures"). The Debentures are convertible into common stock at a price of $48.50 at any time prior to redemption or maturity. (1,546,000 shares of common stock have been reserved for issuance upon conversion.) Mandatory annual sinking fund payments of 5% of the aggregate principal amount of the Debentures issued will be made on each March 15, commencing March 15, 1997. Debentures converted to common stock or reacquired or otherwise redeemed by the Company may be used to reduce the amount of any sinking fund payment. The Debentures may be redeemed early, at the Company's option, upon the payment of a premium. Interest on the debentures is payable semi-annually on March 15 and September 15. Interest expense amounted to $4,500,000 in 1995, 1994 and 1993. Because Loan Facility and Notes were entered into recently, the fair market value of the Loan Facility and the Notes approximates carrying value as of December 29, 1995. The fair market value of the Debentures using over-the- counter market prices, was approximately $36 million at December 29, 1995. 29 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 Maturities and sinking fund requirements of long-term debt for the five years succeeding December 29, 1995 are $2,687,000 in 1996, $7,333,000 in 1997, $27,333,000 in 1998, $7,333,000 in 1999 and $7,333,000 in 2000. During 1995, 1994 and 1993 interest paid totaled $5,791,000, $5,076,000 and $4,821,000 respectively, of which $347,000 was capitalized in 1995 as part of the cost of the Company's new factory in Singapore. 6. CAPITAL STOCK Under the Company's various stock option plans, options may be granted at prices equal to fair market value at the date of grant. Options for key employees and officers generally become exercisable in equal annual amounts over five years commencing one year from the date of grant, and expire five years from the date of grant. Options for directors are exercisable over three years. At December 29, 1995, there were options for 970,697 shares available for future option grants. There are currently 432 employees participating in the various plans. Expiration dates for all options range from 1996 to 2000. A summary of certain information with respect to options under the Plans follows:
FISCAL YEARS ENDED ------------------------------- DEC. 29, DEC. 30, DEC. 31, 1995 1994 1993 --------- --------- --------- Options outstanding, be- ginning of year........ 1,265,470 1,316,970 1,160,444 Options granted......... 1,100,100 476,500 552,000 Options exercised....... (91,444) (166,750) (176,326) Weighted average exer- cise price............. $6.39 $4.50 $5.72 Options canceled........ (649,966) (361,250) (219,148) --------- --------- --------- Options outstanding, end of year................ 1,624,160 1,265,470 1,316,970 ========= ========= ========= Weighted average price.. $6.14 $7.15 $7.15 ========= ========= ========= Exercisable............. 248,787 381,241 458,638 ========= ========= =========
The Company also has an employee stock purchase plan under Section 423 of the Internal Revenue Code, with 1,400,000 shares of common stock authorized to be issued. All full time employees are eligible to participate through payroll deductions of up to 10% of their compensation. Participants may, at their option, purchase common stock from the Company at the lower of 85% of the fair market value of the common stock at either the beginning or end of each one year option period. During 1995, 222,095 shares were issued pursuant to this plan at prices ranging from $5.53 to $6.16. During 1994, 207,845 shares were issued pursuant to this plan at a price of $5.66, and in 1993, 178,898 shares were issued pursuant to this plan at a price of $5.42. As of December 29, 1995, 303,848 shares were available for issuance under this plan. The Board of Directors of the Company declared a dividend distribution of one Right for each share of common stock of the Company outstanding at the close of business on June 2, 1989. When exercisable, each Right entitles the registered holder to purchase from the Company one share of common stock at a price of $40.00 per share, subject to adjustment. Initially, the Rights attach to all outstanding shares of common stock, and no separate Rights Certificates will be distributed. The Rights will become exercisable and will detach from the common stock in the event any individual or group acquires 20% or more of the Company's common stock, or announces a tender or exchange offer, other than through conversion of the Notes, which, if consummated, would result in that person or group owning at least 30% of the Company's common stock. If an individual or 30 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 group acquires 20% or more of the Company's common stock (except pursuant to certain cash tender offers for all of the Company's common stock), each Right will entitle the holder of a Right, other than Rights that are or were acquired or beneficially owned by the 20% stockholder (which rights will thereafter be void) to purchase, at the Right's then current exercise price, the Company's common stock in an amount having a market value equal to twice the exercise price. Similarly, with certain exceptions, if the Company merges or consolidates with or sells 20% or more of its assets or earning power to another person, each Right then will entitle the holder to purchase, at the Right's then current exercise price, the stock of the acquiring company in an amount having a market value equal to twice the exercise price. The Rights do not have voting or dividend rights, and, until they become exercisable, have no dilutive effect on the earnings of the Company. The Company may redeem the rights at $0.01 per Right at any time on or prior to the tenth day after acquisition by a person or group of 20% or more of the Company's outstanding common stock. The Rights will expire on May 18, 1999, unless earlier redeemed. No dividends have been declared by the Company during the five-year period ended December 29, 1995. Under the terms of the Company's credit facility, it is prohibited from declaring or paying dividends without the prior consent of the lender. 7. COMMITMENTS AND CONTINGENCIES In the third quarter of 1992, the Company purchased an equity interest of approximately 27% in Tulip Memory Systems, Inc. (TMS), a start-up company formed to develop substrates which are to be used in the manufacture of computer disk drives. During 1994, the Company increased its ownership to approximately 60%, pending anticipated outside investment. Operating expenses attributable to TMS are included in the financial results of the Company. In connection with its original investment, Micropolis agreed to guarantee the obligations of TMS to pay the acquisition cost of equipment. As of December 29, 1995 the Company's guaranty obligation under the agreement was $1.5 million. At December 29, 1995, the Company had letters of credit outstanding totaling approximately $7.1 million, which guarantee various trade activities. These letters of credit are secured by pledges of cash. In addition, the Company is involved in routine legal matters and contingencies in the ordinary course of business which management believes will not have a material effect upon the Company's financial position. 31 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 8. GEOGRAPHIC INFORMATION The following summarizes the Company's sales, income (loss) before income taxes, and assets by geographic area. Foreign sales originate primarily from the Company's Singapore location. The sales described below represent the geographic origination of such sales. Export sales (sales originating in the United States to customers in foreign countries), were less than 10% of total sales in each of 1995, 1994 and 1993.
FISCAL YEARS ENDED ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Customer sales: Domestic (including export sales) ..... $ 25,149 $ 63,892 $ 128,781 Foreign................................ 186,115 282,422 254,145 Affiliate sales: Domestic............................... 64,309 49,851 55,006 Foreign................................ 110,812 178,881 234,477 Eliminations........................... (175,121) (228,732) (289,483) --------- --------- --------- $ 211,264 $ 346,314 $ 382,926 ========= ========= ========= Income (loss) before income taxes: Domestic............................... $ (66,406) $ (58,609) $ (34,425) Foreign................................ (18,943) 27,934 14,513 --------- --------- --------- $ (85,349) $ (30,675) $ (19,912) ========= ========= ========= Assets: Domestic............................... $ 20,732 $ 66,063 $ 74,520 Foreign................................ 159,661 167,852 175,909 --------- --------- --------- $ 180,393 $ 233,915 $ 250,429 ========= ========= =========
Sales to affiliates are at arms-length prices. 9. COMPARATIVE QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
QUARTERS ------------------------------------------------ FISCAL 1995 FIRST SECOND THIRD FOURTH YEAR - ----------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.................... $ 40,899 $ 70,076 $ 58,785 $ 41,504 $211,264 Gross profit (loss).......... (8,869) 15,369 2,491 (3,355) 5,636 Loss before income taxes..... (36,253) (6,323) (17,445) (25,328) (85,349) Net loss..................... (35,087) (6,344) (17,481) (25,376) (84,288) Loss per share............... (2.29) (.41) (1.12) (1.63) (5.46) QUARTERS ------------------------------------------------ FISCAL 1994 FIRST SECOND THIRD FOURTH YEAR - ----------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.................... $ 83,658 $ 75,761 $ 79,285 $107,610 $346,314 Gross profit................. 12,296 7,245 11,446 28,471 59,458 Income (loss) before income taxes....................... (9,760) (14,793) (10,948) 4,826 (30,675) Net income (loss)............ (9,760) (14,793) (10,948) 4,826 (30,675) Earnings (loss) per share.... (.65) (.99) (.72) .31 (2.03)
32 MICROPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 29, 1995 10. SUBSEQUENT EVENT (UNAUDITED) On January 24, 1996, the Company entered into a definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation ("STC"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation ("ST"), to sell substantially all of the assets, other than cash and accounts receivable, of the Company's hard disk drive business (the "Drive Business") including the name "Micropolis," certain other intangibles, the capital stock of the Company's subsidiary Micropolis Corporation (Thailand) Ltd. and either the capital stock or assets of five of the Company's European and Asian sales and marketing subsidiaries (such assets, collectively, the "Subject Assets") to STC, and STC will assume certain of the Company's Liabilities relating to the Drive Business (the "Sale"). In addition, under the Purchase Agreement, STC has an option to include in the Subject Assets the owned and/or leased portion of the Company's Corporate headquarters in Chatsworth, California (the "Option Real Property"). The sale will be accounted for by the parties using the purchase method of accounting. The Sale is subject to stockholder approval, as well as certain closing conditions contained in the Purchase Agreement. If the Sale is consummated, the Company's remaining business (the "Systems Business") will be focused on highly integrated data and video storage/server products to the information technology (IT) marketplace and will rename itself StreamLogic Corporation ("StreamLogic"). The following unaudited pro forma condensed consolidated balance sheet of Micropolis Corporation as of December 29, 1995 and the unaudited pro forma condensed consolidated statement of operations for the year ended December 29, 1995 have been prepared to illustrate the effect of the proposed Sale. The financial statements have been prepared as though the Sale had occurred on December 29, 1995 for purposes of the pro forma balance sheet and as of December 31, 1994 for purposes of the pro forma statement of operations. If the Sale is consummated, the Company will rename itself StreamLogic Corporation ("StreamLogic"). The pro forma adjustments and the assumptions on which they are based are described in the accompanying notes to unaudited pro forma financial statements. The unaudited pro forma condensed combining financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or consolidated results of operations of Micropolis Corporation that would have been reported had the Sale occurred on the dates indicated, nor do they represent a forecast of the consolidated financial position of Micropolis Corporation at any future date or the consolidated results of operations of Micropolis Corporation for any future period. Furthermore, no effect has been given in the Micropolis Corporation condensed consolidated statements of operations for operating benefits that may be realized by virtue of the Sale and no effect has been given for any additional expense control or restructuring activities which the Company may undertake with respect to the remaining business. Amounts representing the assets to be sold and liabilities to be assumed, as reflected in the accompanying pro forma financial statements, are preliminary and subject to the consummation of the Sale. The actual amount of cash received by the Company in exchange for the Subject Assets and Assumed Liabilities will depend on its operating results between December 29, 1995 and the Closing Date, which cannot now be determined with certainty. The level of the balance sheet elements used to determine the purchase price will depend largely on first quarter 1996 revenues and the resulting levels of accounts receivable and inventory. Such values are difficult to estimate and could vary considerably from those reflected in the accompanying pro forma financial statements (due to, among other things, the level and timing of sales, amount of cash collected from such sales and the resulting level of accounts payable, which will be a function of the amount of both collections and purchases of components during the quarter. The unaudited pro forma condensed consolidated financial statements, including the Notes thereto, should be read in conjunction with the historical consolidated financial statements of Micropolis Corporation, which are included herein. 33 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 29, 1995 ----------------------------------------------- SALE OF APPLICATION STREAMLOGIC MICROPOLIS DISK DRIVE OF CORPORATION CORPORATION ASSETS(1) PROCEEDS(2) PRO FORMA ----------- ---------- ----------- ----------- ASSETS Current assets: Cash, cash equivalents and short-term investments....... $ 27,896 $ -- $20,391 $ 45,472 (1,515) (1,300) Accounts receivable, net...... 33,249 -- -- 33,249 Receivable from STC........... -- -- 30,510 30,510 Inventories................... 59,777 (50,777) -- 9,000 Other current assets.......... 3,433 (2,717) -- 716 -------- --------- ------- -------- Total current assets........ 124,355 (53,494) 48,086 118,947 Property, plant and equipment, net............................ 54,145 (47,772) -- 6,373 Other assets.................... 1,893 (723) -- 1,170 -------- --------- ------- -------- $180,393 $(101,989) $48,086 $126,490 ======== ========= ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of Term Loan Facility..................... $ 2,687 $ (2,687) $ -- $ -- Accounts payable.............. 34,209 (26,035) -- 8,174 Other accrued liabilities..... 21,502 (14,064) (1,300) 7,238 1,100 -------- --------- ------- -------- Total current liabilities....... 58,398 (42,786) (200) 15,412 Long term debt.................. 113,102 (18,102) -- 95,000 Deferred income taxes........... 1,720 -- -- 1,720 Shareholders' equity: Common stock.................. 15,580 -- -- 15,580 Additional paid-in capital.... 110,380 -- -- 110,380 Accumulated deficit........... (118,787) (41,101) 48,286 (111,602) -------- --------- ------- -------- Total shareholders' equity.. 7,173 (41,101) 48,286 14,358 -------- --------- ------- -------- $180,393 $(101,989) $48,086 $126,490 ======== ========= ======= ========
- -------- (1) To eliminate the assets and liabilities of the Drive Business to be transferred to STC and to give effect to the proposed Sale as if the Sale was consummated on December 29, 1995 (excluding the Option Real Property). The net book value of the Option Real Property was approximately $3,200 as of December 29, 1995. (2) To give effect to the receipt of cash proceeds from the Sale as if the Sale was consummated on December 29, 1995 (excluding the Option Real Property with a net book value of approximately $3,200 as of that date). Pursuant to the Purchase Agreement, additional cash payments are due from STC 45 days after closing and are subject to confirmation by STC of the final net book value of the assets and liabilities to be transferred. In addition, the Company will pay $1,300 from the Sale proceeds to satisfy its guaranty obligation under its agreement with TMS. A holdback of 5% of the balance will be retained by STC until 34 the date six months after the closing date. The pro forma gain application to the above proposed Sale after estimated adjustments (assuming no adverse adjustment for indemnity or other factors) is: Proceeds from sale.............................................. $ 50,901 Book value of assets to be sold................................. (41,101) Transaction fees................................................ (1,515) Book provision for tax.......................................... (1,100) -------- Pro forma gain................................................. $ 7,185 ========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 35 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 29, 1995 ------------------------------------------------- SALE OF STREAMLOGIC MICROPOLIS DISK DRIVE PRO FORMA CORPORATION CORPORATION ASSETS ADJUSTMENTS(4) PRO FORMA ----------- ---------- -------------- ----------- Net sales.................... $211,264 $171,921 $ -- $ 39,343 Cost of sales................ 205,628 176,336 2,372 31,664 -------- -------- ------- -------- Gross profit................. 5,636 (4,415) (2,372) 7,679 Operating expenses(3): Research and development... 42,469 28,826 -- 13,643 Selling, general and administrative............ 44,274 30,614 -- 13,660 -------- -------- ------- -------- Total operating expenses... 86,743 59,440 -- 27,303 -------- -------- ------- -------- Loss from operations......... (81,107) (63,855) (2,372) (19,624) Interest expense, net........ (4,242) -- -- (4,242) -------- -------- ------- -------- Loss before income taxes..... (85,349) (63,855) (2,372) (23,866) Income tax benefit........... (1,061) -- -- (1,061) -------- -------- ------- -------- Net loss..................... $(84,288) $(63,855) $(2,372) $(22,805) ======== ======== ======= ======== Loss per share............... $ (5.46) $ (1.48) ======== ======== Weighted average shares outstanding................. 15,445 15,445 ======== ========
- -------- (3) The costs of Tulip Memory Systems are included in the StreamLogic Corporation Pro Forma operating expenses. Such costs included Research and Development of $3,189 and Selling, General and Administrative of $1,927. The Company's plans call for the discontinuation of Tulip Memory Systems in the first quarter of 1996. (4) The Company and STC have entered into an OEM supply agreement. Among other things, the OEM Supply Agreement allows StreamLogic to buy at prices equal to or slightly lower than the most favored OEM customer of STC. StreamLogic must offer all its disk drive business and requirements to STC on a right-of-first-refusal basis, subject to the ability of STC to meet certain delivery and other standards. The agreement has an initial two- year term, after which it may be renewed annually by mutual agreement. The pro forma adjustment incorporates the provisions contained in the agreement. See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 36 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) The unaudited pro forma condensed consolidated financial statements and related notes have been prepared to illustrate the effect of the proposed Sale. The financial statements have been prepared as though the Sale had occurred on December 29, 1995 for purposes of the pro forma balance sheet and as of December 31, 1994 for purposes of the fiscal 1995 pro forma statement of operations, respectively. The unaudited pro forma condensed consolidated statement of operations are not necessarily indicative of operating results which would have been achieved had the Sale been consummated as of December 31, 1994 and should not be construed as representative of future operations. Such pro forma financial statements do not give effect to any additional expense control or restructuring activities which the Company may undertake with respect to the remaining business. The $9.8 million excess of proceeds from sale of the disk drive assets over the book value of those assets, as reflected in the accompanying pro forma financial statements, was based on agreed upon values and the estimated fair value of those assets. Specifically, a value of $7 million has been established for the goodwill of the Company related to the Drive Business and the name "Micropolis" pursuant to the Purchase Agreement. In addition, certain land and fixed assets have been assigned a value of approximately $2.8 million in excess of book value based upon anticipated appraisal results and pursuant to the Purchase Agreement. Pursuant to the Purchase Agreement, all trade accounts receivable as of December 29, 1995 are retained by the Company regardless of whether such accounts receivable were generated by the Systems Business or the Drive Business. For purposes of the unaudited pro forma condensed consolidated balance sheet, aggregate consideration of $111,789 ($101,989 for the assets to be sold, $7,000 for the goodwill of the Company related to the Drive Business and the name "Micropolis", and $2,800 for the proceeds in excess of book value of assets to be sold) was assumed as if the sale had been consummated on December 29, 1995. As there are several variable factors (including ongoing losses, the level of inventory and the level of accounts payable) that will affect the amounts of the assets to be sold, liabilities to be assumed and cash received, such amounts cannot now be determined with certainty, but are expected to be comparable to or less than at December 29, 1995. The consideration to the Company, pursuant to the Purchase Agreement, was assumed as follows. Cash proceeds to the Company at closing........................ $ 20,391 Cash proceeds to the Company 45 days after closing............. 27,965 Cash proceeds to the Company 6 months after closing............ 2,545 -------- Total cash proceeds............................................ 50,901 -------- Liabilities assumed at closing: Current liabilities.......................................... 42,786 Long term debt............................................... 18,102 -------- 60,888 -------- Total consideration.......................................... $111,789 ========
Net sales, cost of sales and research and development expenses are classified between the disk drive business and StreamLogic based on specific identification. Selling, general and administrative expenses are allocated to the disk drive business and StreamLogic based on activity surveys and are believed by management to be representative of the relative expenses. Interest expense, net is classified as StreamLogic as only capitalized interest on the Term Loan Facility debt is attributable to the disk drive business. The costs of Tulip Memory Systems are included in the StreamLogic Corporation Pro Forma operating expenses. Such costs included Research and Development of $3,189 and Selling, General and Administrative of $1,927. The Company's plans call for the discontinuation of Tulip Memory Systems in the second quarter of 1996. As discussed in Note 2 to the consolidated financial statements, at December 29, 1995, foreign earnings of $44,671 had been retained indefinitely by subsidiary companies for reinvestment, on which no additional U.S. tax has been provided. Following the consummation of the Sale, such foreign earnings would be repatriated and the proceeds in excess of book value of assets to be sold of $9,800 would be taken into income and, as a result, alternative minimum taxes of approximately $1,100 would be due. Such taxes are shown as other accrued liabilities in the unaudited pro forma condensed consolidated financial statements. After the Sale, a net operating loss of approximately $59,132 would be available to be carried forward to the years 2004-2010. 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item is incorporated by reference from the information under the caption "Election of Directors" contained in the Proxy Statement relating to the Company's 1996 Annual Meeting of Stockholder, which will be filed within 120 days of the end of the fiscal year covered by this Report. EXECUTIVE OFFICERS OF THE REGISTRANT
SERVED AS NAME AGE POSITION OFFICER SINCE ---- --- -------- ------------- J. Larry Smart 48 President, Chief Executive Officer and 1995 Chairman of the Board of Directors Taroon C. Kamdar 50 President--Asia/Pacific Division and 1991 General Manager, Storage Systems Division Ericson M. Dunstan 63 Senior Vice President--Corporate 1976 Engineering Barbara V. Scherer 40 Vice President--Finance, Chief 1988 Financial Officer and Treasurer Donald McDonell 47 Vice President--Sales 1992 Holly Sacks 46 Vice President--Marketing 1993
MR. SMART was elected by the Board of Directors to the position of President and Chief Executive Officer in July 1995 and serves as Chairman. He served as President and Chief Executive Officer of Maxtor Corporation from March 1994 to February 1995. He has served as Chairman of the Board of Southwall Technologies Inc. since March 1994, and was President and Chief Executive Officer of Southwall Technologies Inc. from June 1991 to March 1994. From November 1987 to June 1991, he was Senior Vice President at SCI Systems. MR. KAMDAR joined Micropolis in November 1991 as Senior Vice President, General Manager of the Storage Systems Division and in December 1992 was promoted to Executive Vice President--Storage Systems Division. In April 1993, Mr. Kamdar was promoted to President, Asia/Pacific Division. For more than five years prior to joining Micropolis, Mr. Kamdar held various executive positions at Maxtor Corporation including Senior Vice President, Marketing, Sales and Business Development. DR. DUNSTAN is Senior Vice President--Corporate Engineering and Secretary, and has served as an officer of the Company since December 1976. MS. SCHERER joined Micropolis in November 1987 as Treasury Director, and became Treasurer in October 1988. In November 1989, she became Vice President and Treasurer and in March 1995, was promoted to Senior Vice President-- Finance and Chief Financial Officer. She was previously employed by the Boston Consulting Group from May 1985 to November 1987. MR. MCDONELL joined Micropolis in August 1986 as Director of Distribution and Retail Marketing and became Director of Resale-Marketing in November 1986. In December 1991, he became Director of Sales--Western Region and in January 1993, was promoted to Vice President--Sales, Storage Systems Division. MS. SACKS joined Micropolis in January 1992 as Director of Marketing, Storage Systems Division and in 1993 was promoted to Vice President-- Marketing, Storage Systems Division. She held various management positions in Xerox Corporation from February 1990 to December 1992 and Genicom Corporation from September 1988 to February 1990. Officers serve at the discretion of the Board of Directors. 38 ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference from the information under the caption "Executive Compensation" contained in the Proxy Statement relating to the Company's 1996 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference from the information under the caption "Security Ownership of Certain Beneficial Holders and Management" contained in the Proxy Statement relating to the Company's 1996 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference from the information under the caption "Executive Compensation" contained in the Proxy Statement relating to the Company's 1996 Annual Meeting of Stockholders, which will be filed within 120 days of the end of the fiscal year covered by this Report. 39 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS. Report of Independent Auditors. See Index to Consolidated Financial Statements at Item 8 on F-1 of this Report. 2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial statement schedule of Micropolis Corporation is filed as part of the Report and should be read in conjunction with the Consolidated Financial Statements of Micropolis Corporation:
SCHEDULE PAGE -------- ---- II Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are not applicable or are not required or the information to be set forth therein is included in the Consolidated Financial Statements or notes thereto. 3. EXHIBITS: INCORPORATED BY REFERENCE 3.1 Certificate of Incorporation(1) 3.2 By-Laws, as amended to date(2) 4.1 Indenture, dated March 15, 1987, between Micropolis Corporation and First Interstate Bank of California as trustee, relating to $75,000,000 principal amount of 6% Convertible Subordinated Debentures due 2012(3) 4.2 Rights Agreement dated as of May 1989 between the Company and First Interstate Bank of California(4) 4.3 Amendment No. 1 to Rights Agreement(14) 10.15* Micropolis Corporation Employees' Stock Purchase Plan(5) 10.19* Micropolis Corporation Employee Savings and Retirement Plan(6) 10.20* Form of Indemnification Agreement between the Company and each of its directors and officers(7) 10.21* Executive and Key Employees' Stock Option Plan, dated October 1987(1) 10.22* Directors' Stock Option Plan, dated October 1987(1) 10.23* Form of Incentive Stock Option Agreement for Executive and Key Employees' Stock Option Plan, dated October 1987(1) 10.24* Form of Non-Qualified Stock Option Agreement for Executive and Key Employees' Stock Option Plan, dated October 1987(1) 10.26* Form of Stock Option Agreement for Directors' Stock Option Plan, dated October 1987(1) 10.30* Offer letter agreement between Micropolis Corporation and Robert G. Wallstrom(8) 10.31* First Amendment to Micropolis Corporation Employee Savings and Retirement Plan(8) 10.32* Second Amendment to Micropolis Corporation Employee Savings and Retirement Plan(8) 10.33* Third Amendment to the Micropolis Corporation Employee Savings and Retirement Plan(8) 10.34* Fourth Amendment to Micropolis Corporation Employee Savings and Retirement Plan(8)
40 10.35 Loan Agreement between the Company and CIT Group Business Credit(8) 10.37* Severance Agreement between Micropolis Corporation and Taroon Kamdar(9) 10.38* Severance Agreement between Micropolis Corporation and Robert Ganter 10.39* Severance Agreement between Micropolis Corporation and Nigel Macleod(10) 10.40* Summary of Stock Appreciation Bonus Plan(10) 10.41* Summary of Storage System Division Bonus Plan(10) 10.42* Summary of Key Performance Bonus Plan(10) 10.43* Severance Agreement between Micropolis Corporation and Joel Appelbaum(11) 10.44* Amendment to the Micropolis Corporation Employee Stock Purchase Plan(12) 10.45* Amended and Restated Stock Option Plan for Independent Directors of Micropolis Corporation(12) 10.46* Stock Option Plan for Executive and Key Employees of Micropolis Corporation, as amended(12) 10.47* Agreement for Services between Micropolis Corporation and J. Larry Smart(13) 10.48* Employment Agreement between Micropolis Corporation and J. Larry Smart(14) 10.49 Loan Agreement between Micropolis Limited and ST Capital Limited, and related Guarantee Agreement between Micropolis Corporation and Singapore Technologies Construction PTE LTD(14) 10.50* Consulting Agreement between Micropolis Corporation and Chriss Street & Company(14) - -------- *Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K Report pursuant to Item 14(c). FILED HEREWITH 10.51 Note Agreement Re: $20,000,000 10% Convertible Secured Notes Due October 15, 1998, dated as of October 11, 1995 between Micropolis Corporation and Lindner Dividend Fund, a Series of Lindner Investments 10.52 Promissory Note between Micropolis Corporation and J. Larry Smart 10.53 Asset Purchase Agreement dated January 24, 1996 between Micropolis Corporation and ST Chatsworth Pte Ltd, a Singapore corporation 10.54 Development Agreement dated September 15, 1995 between Micropolis Corporation and BTS Broadcast Television Systems GmbH 10.55 $10 Million Facility Agreement dated February 16, 1996 between Micropolis Corporation and ST Chatsworth Pte Ltd. 10.56 StreamLogic OEM Supply Agreement dated March 4, 1996, between Micropolis Corporation and ST Chatsworth Pte Ltd. 21 Subsidiaries of Registrant 23 Consent of Independent Auditors (See Exhibit 23) 27 Article 5 Financial Data Schedule for 1995 10-K
- -------- (1) Incorporated by reference to Exhibits 3.1, 10.21, 10.22, 10.23, 10.24 and 10.26, respectively, filed in the Company's Annual Report on Form 10-K, for the fiscal year ended December 25, 1987. (2) Incorporated by reference to Exhibit 3.2 filed in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1988. (3) Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3 No. 33-12374. (4) Incorporated by reference to Exhibit I filed in the Company's Form 8-K Report dated June 2, 1989. (5) Incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8 No. 2-90423. 41 (6) Incorporated by reference to Exhibits 10.18 and 10.19 respectively, filed in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1985. (7) Incorporated by reference to Exhibit D of the Company's Proxy Statement for the 1987 Annual Meeting of Shareholders. (8) Incorporated by reference to Exhibits 10.30, 10.31, 10.32, 10.33 and 10.34, respectively, filed in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1990. (9) Incorporated by reference to Exhibits 10.36 and 10.37, respectively, filed in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1991. (10) Incorporated by reference to Exhibits 10.39, 10.40, 10.41 and 10.42, respectively, filed in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. (11) Incorporated by reference to Exhibit 10.43 filed in the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 1994. (12) Incorporated by reference to Exhibits 10.44, 10.45 and 10.46, respectively, filed in the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 1, 1994. (13) Incorporated by reference to Exhibit 10.47 filed in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995. (14) Incorporated by reference to Exhibits 4.3, 10.48, 10.49 and 10.50, respectively, filed in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 29, 1995. (b) No reports on Form 8-K were filed by the Registrant during the fourth quarter ended December 29, 1995. (c) Those exhibits, and the index thereto, required to be filed by Item 601 of Regulation S-K are attached hereto or incorporated by reference herein. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICROPOLIS CORPORATION Dated: March 7, 1996 By: /s/ Barbara V. Scherer __________________________________ Barbara V. Scherer Vice President--Finance, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. Larry Smart President and Chairman of March 7, 1996 ____________________________________ the Board (Chief Executive J. Larry Smart Officer) /s/ Barbara V. Scherer Senior Vice President-- March 7, 1996 ____________________________________ Finance, Barbara V. Scherer Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ Lee N. Hilbert Corporate Controller March 7, 1996 ____________________________________ (Principal Accounting Lee N. Hilbert Officer) /s/ Ericson M. Dunstan Senior Vice President-- March 7, 1996 ____________________________________ Corporate Engineering, Ericson M. Dunstan Director /s/ Chriss W. Street Director March 7, 1996 ____________________________________ Chriss W. Street /s/ S. Kenneth Kannappan Director March 7, 1996 ____________________________________ S. Kenneth Kannappan
S-1 MICROPOLIS CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993
BALANCE ADDITIONS BALANCE AT BEGINNING CHARGED TO END OF OF YEAR EXPENSES DEDUCTIONS* YEAR ---------- ---------- ----------- ---------- 1995: Allowance for doubtful accounts, customer returns and price protection...................... $4,455,000 $2,950,000 $1,978,000 $5,427,000 1994: Allowance for doubtful accounts, customer returns and price protection...................... $1,375,000 $5,736,000 $2,656,000 $4,455,000 1993: Allowance for doubtful accounts, customer returns and price protection...................... $1,390,000 $ 323,000 $ 338,000 $1,375,000
- -------- *Write-offs against reserves S-2 MICROPOLIS CORPORATION INDEX TO EXHIBITS (ITEM 14 (C)) 10.51 Note Agreement Re: $20,000,000 10% Convertible Secured Notes Due October 15, 1998, dated as of October 11, 1995 between Micropolis Corporation and Lindner Dividend Fund, a Series of Lindner Investments 10.52 Promissory Note between Micropolis Corporation and J. Larry Smart 10.53 Asset Purchase Agreement dated January 24, 1996 between Micropolis Corporation and ST Chatsworth Pte Ltd, a Singapore corporation 10.54 Development Agreement dated September 15, 1995 between Micropolis Corporation and BTS Broadcast Television Systems GmbH 10.55 $10 Million Facility Agreement dated February 16, 1996 between Micropolis Corporation and ST Chatsworth Pte Ltd. 10.56 StreamLogic OEM Supply Agreement dated March 4, 1996, between Micropolis Corporation and ST Chatsworth Pte Ltd. 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 27 Article 5 Financial Data Schedule for 1995 10-K
EX-10.51 2 MICROPOLIS CORPORATION NOTE AGREEMENT EXHIBIT 10.51 ================================================================================ MICROPOLIS CORPORATION NOTE AGREEMENT Dated as of October 11, 1995 Re: $20,000,000 Principal Amount of 10% Convertible Secured Notes Due October 15, 1998 ================================================================================ TABLE OF CONTENTS (Not a part of this Agreement)
Page ---- 1. DESCRIPTION OF NOTES AND COMMITMENT...................................... 1\ 1.1 Description of Notes............................................. 1 1.2 Commitment, Closing Date......................................... 2 2. REPRESENTATIONS.......................................................... 3 2.1 Representations of the Company................................... 3 2.2 Representations of the Purchaser................................. 5 3. CLOSING CONDITIONS....................................................... 7 3.1 Conditions to the Purchaser's Obligations........................ 7 3.2 Conditions to the Company's Obligations.......................... 8 4. SUBORDINATION............................................................ 8 4.1 Agreement to Subordinate......................................... 8 4.2 Liquidation; Dissolution; Bankruptcy............................. 8 4.3 Default on Senior Debt........................................... 9 4.4 Acceleration of Notes............................................ 10 4.5 Subrogation...................................................... 10 4.6 Relative Rights.................................................. 10 4.7 Subordination May Not Be Impaired by Company..................... 11 4.8 Senior Debt Entitled to Rely..................................... 11 4.9 Seniority of the Notes........................................... 11 5. CONVERSION............................................................... 11 5.1 Conversion Privilege............................................. 11 5.2 Conversion Price................................................. 11 5.3 Requirements for Conversion...................................... 11 5.4 Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends........................................ 12 5.5 Cash Payments in Lieu of Fractional Shares....................... 12 5.6 Adjustment of Conversion Price................................... 13 5.7 Taxes on Shares Issued........................................... 15 5.8 Reservation of Shares; Shares to be Fully Paid; Listing of Common Stock.......................................... 15
i EX-10.52 3 PROMISSORY NOTE EXHIBIT 10.52 PROMISSORY NOTE Micropolis Corporation 21211 Nordhoff Street Chatsworth, California 91311 November 2, 1995 FOR VALUE RECEIVED, the undersigned, J. Larry Smart ("Borrower"), promises to pay to Micropolis Corporation, a Delaware corporation ("Lender"), or order, the principal amount of $125,007.05, or so much thereof as Lender shall have disbursed to Borrower, with interest on the unpaid principal balance hereunder at the rate of eight percent per annum. One hundred and fifty-six payments in the amount of $901.94 shall be deducted by the Lender from the net weekly payroll amount due to the Borrower, commencing with the regularly scheduled payroll period ending November 24, 1995 (disbursement date of December 1, 1995), and ending with the regularly scheduled payroll period ending November 13, 1998 (disbursement date of November 20, 1998). Borrower retains option of repaying principal, in any or the entire principal amount, plus accrued interest, prior to scheduled repayment dates. No penalty shall be charged to the Borrower if any or the entire principal amount is paid prior to the scheduled repayment dates. Proceeds of this Note received by the Borrower shall be used for the sole purpose of purchasing shares of the Common Stock of the Lender, as permitted and in accordance with the requirements of federal securities laws, including, without limitation, the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. All amounts due hereunder shall be payable without defense, set off or counterclaim, in lawful money of the United States of America, through weekly payroll deductions as described hereunder, to Lender at 21211 Nordhoff Street, Chatsworth, California 91311. Upon the occurrence of a default hereunder the Lender may, at its option, without notice to or demand upon Borrower or any other party, declare immediately due and payable the entire principal balance hereof together with all accrued and unpaid interest thereon, plus any other amounts then owing pursuant to this Note, whereupon the same shall be immediately due and payable. In no event shall interest be charged under this Note which would violate any applicable law. If any default occurs in any payment due under this Note, Borrower and all guarantors and endorsers hereof, and their successors and assigns, promise to pay all costs and expenses, including attorneys' fees, incurred by each Lender hereof in collecting or attempting to collect the indebtedness under this Note, whether or not any action or proceeding is commenced. None of the provisions hereof and none of the Lender's rights or remedies hereunder on account of any past or future defaults shall be deemed to have been waived by the Lender's acceptance of any past due installments or by any indulgence granted by the Lender to Borrower. Borrower and all guarantors and endorsers hereof, and their successors and assigns, hereby waive presentment, demand, diligence, protest and notice of every kind (except such notices as may be required), and agree that they shall remain liable for all amounts due hereunder notwithstanding any extension of time or change in the terms of payment of this Note granted by any Lender hereof, or any delay or failure by the Lender thereof to exercise any rights under this Note. Promissory Note November 2, 1995 Page 2 In the event that the Borrower is no longer employed by the Lender, or its successors and assigns, regardless of cause or method of termination, Borrower shall remain liable for all amounts due hereunder, and, upon such termination, payment shall be due immediately and payable in equal monthly installments over the remaining term of the Note, with a maturity date of November 20, 1998. This Note shall inure to the benefit of Lender, its successors and assigns and shall bind the heirs, executors, administrators, successors and assigns of Borrower. Each reference herein to powers or rights of Lender shall also be deemed a reference to the same power or right of such assignees to the extent of the interest assigned to them. In the event that any one or more provisions of this Note shall be held to be illegal, invalid or otherwise unenforceable, the same shall not affect any other provision of this Note and the remaining provisions of this Note shall remain in full force and effect. This Note shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed the day and year first above written. Read and Agreed to: /s/ J. Larry Smart ------------------ By: J. Larry Smart MICROPOLIS CORPORATION /s/ Barbara V. Scherer ---------------------- By: Barbara V. Scherer Title: Vice President--Finance, CFO & Treasurer Exhibit A. Promissory Note Amortization Table and Payment Schedule EX-10.53 4 ASSET PURCHASE AGREEMENT EXHIBIT 10.53 DATED THIS 24TH DAY OF JANUARY 1996 ----------------------------------- MICROPOLIS CORPORATION and ST CHATSWORTH PTE LTD ******************************** ASSET PURCHASE AGREEMENT ******************************** BIH LI & LEE Advocates & Solicitors 79 Robinson Road #24-01 CPF Building Singapore 068897 C O N T E N T S ---------------
SECTION HEADING PAGE - ------- ------- ---- 1. AGREEMENT TO BUY AND SELL ASSETS 1 1.1 Purchase of Assets by ST 1 1.2 Option over Purchased Companies 5 1.3 Option over US Real Property 6 1.4 Excluded Assets 6 1.5 Assumption of Certain Obligations by ST 6 1.6 Excluded Liabilities 7 1.7 Discharge of Excluded Liabilities 9 2. CLOSING AND PAYMENT OF THE PURCHASE PRICE 9 2.1 Closing 9 2.2 Purchase Price 9 2.3 Payment of Initial Payment 10 2.4 Payment of Second Payment 11 2.5 Payment of Final Payment 11 2.6 Allocation of Purchase Price 11 2.7 Transfer of Acquired Assets 12 2.8 Transfer by Delivery 12 2.9 Operative Agreements 12 2.10 Closing in relation to Sale of Shares in Micropolis Thailand 13 2.11 Closing in relation to Sale of Shares in the Purchased Companies 14 2.12 Prorations 15 3. DETERMINATION OF NET WORTH AND CLOSING DATE BALANCE SHEET 15 3.1 Determination of Preliminary Closing Date Balance Sheet 15 3.2 Supply of Information and Documents 15 3.3 Confirmation of Disk Drive Final Net Worth 16 3.4 Definition of Closing Date Balance Sheet 17 3.5 Application of Accounting Principles 17 4. REPRESENTATIONS AND WARRANTIES OF MCUS 17 4.1 Information and Corporate Capacity 18 (A) Information 18 (B) Organisation and Qualification of MC 18
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SECTION HEADING PAGE - ------- ------- ---- (C) Authority of MCUS 18 (D) Assets 19 4.2 Real Property 20 (A) Environmental Matters 20 (B) Violation of Applicable Laws 22 (C) Title 23 (D) Planning 24 (E) State and Condition of the Real Property 25 (F) Leasehold Properties 25 4.3 General Environmental Matters 26 4.4 Conduct of the Business 27 4.5 Permits and Licences 27 4.6 Financial Statements and Undisclosed Liabilities 27 4.7 Compliance with Laws 28 4.8 Patents and Patent Applications 28 4.9 Insolvency 29 4.10 Affiliate Transactions 30 4.11 Litigation 30 4.12 Absence of Changes 31 4.13 Employee Benefit Plans 32 4.14 Governmental and Other Approvals 33 4.15 Brokerage 33 4.16 Labour Relations 33 4.17 Warranties in Respect of Micropolis Thailand 33 (A) Debts to, contracts with, connected persons 34 (B) Accounts receivable 34 (C) Insurance 35 (D) Title to assets 35 (E) Books and records 35 (F) Options on capital 36 (G) Subsidiaries and associated companies 36 (H) Statutory and other requirements, consents and licenses 36 (I) The Audited Accounts 37 (J) Taxation 38 (K) Contributions 39 (L) Tax returns 39
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SECTION HEADING PAGE - ------- ------- ---- 4.18 Warranties in Respect of Purchased Companies 40 4.19 Trade Payables 40 4.20 Disclosure 41 5. REPRESENTATIONS AND WARRANTIES OF ST 41 5.1 Organisation and Qualification of ST 41 5.2 Authority 41 6. COVENANTS OF MCUS PRIOR TO CLOSING 42 6.1 Restrictions 42 6.2 Matters Pending Closing 43 6.3 Notice of Breach 45 6.4 Access 45 6.5 Authorisation from Others 45 6.6 HSR Filings 46 6.7 Consummation of Agreement 46 6.8 Relationships with Customers and Suppliers 47 6.9 Defective Disk Drives 47 6.10 Stock Verification 47 6.11 Inventory for System Business 47 6.12 Balance Sheet For Disk Drive Business 47 6.13 Financial Statement of Disk Drive Business 47 6.14 List of Acquired Assets 48 6.15 Accounts of Purchased Companies 48 6.16 Inventory for Evaluation 48 6.17 Purchase of Issued Share Capital 48 7. COVENANTS OF ST CHATSWORTH 48 7.1 Regulatory and Other Approvals 48 7.2 HSR Filings 49 7.3 Maintenance of Goodwill 49 8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ST CHATSWORTH TO CLOSE 50 8.1 Representations and Warranties 50 8.2 Performance of Covenants 50 8.3 Orders and Laws 50 8.4 Regulatory Consents and Approvals 51
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SECTION HEADING PAGE - ------- ------- ---- 8.5 Delivery of Certificates and Documents to ST Chatsworth 51 8.6 Exon-Florio Amendment 51 8.7 Pledge 51 8.8 Damage or Destruction 52 8.9 Title Insurance 52 8.10 Completion of Due Diligence 52 8.11 Approval of Board of Directors 52 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF MCUS TO CLOSE 53 9.1 Approval of Board of Directors 53 9.2 Approval of MCUS Stockholders 53 9.3 Delivery of Certificates and Documents to MCUS 53 9.4 Exon-Florio Amendment 53 9.5 Orders and Laws 53 9.6 Regulatory Consents and Approvals 54 10. CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING 54 10.1 Survival of Representations, Warranties, Agreements, Covenants and Obligations 54 10.2 Further Assurances 54 10.3 Publicity and Disclosures 54 10.4 Further Co-operation of the Parties 55 10.5 Consents of Third Parties 55 10.6 Mail Received after Closing 55 10.7 Employment of Business Employees by ST 56 10.8 Accounts Receivable 57 10.9 Transfer Tax Liabilities 57 10.10 Provisions in Relation to the name "Micropolis" 58 10.11 Warranty Servicing 58 10.12 Inventory Sent for Evaluation 59 10.13 AMK Leasehold 59
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SECTION HEADING PAGE - ------- ------- ---- 11. INDEMNIFICATION 59 11.1 General Indemnification by MCUS 59 11.2 Environmental Indemnification by MCUS 60 11.3 Notice and Defence of Claim 61 11.4 No Tax Effect: Insurance 62 12. TERMINATION OF AGREEMENT 63 12.1 Termination 63 12.2 Effects of Termination 63 12.3 Right to Proceed 63 13. MCUS's NON-COMPETITION COVENANTS 64 13.1 Non-Competition of MCUS 64 13.2 Injunctive Relief 65 13.3 Enforcement 65 14. NON-DISCLOSURE COVENANTS 65 14.1 Non-Disclosure of Information by MCUS 65 14.2 Definition of Confidential Information 65 14.3 Injunctive Relief 66 15. MISCELLANEOUS 66 15.1 Expenses 66 15.2 Notices 66 15.3 Waiver 67 15.4 Bulk Sales Act 67 15.5 Section Headings 68 15.6 Exhibits and Schedules 68 15.7 Severability 68 15.8 Entire Understanding 68 15.9 Binding Effect 68 15.10 Governing Law 68 15.11 Choice of Forum and Consent to Jurisdiction 69 15.12 Assignability 69 15.13 Counterparts: Delivery by Facsimile 69 15.14 Certain Definitions 69 15.15 No Rights to Third Parties 72 15.16 Pronouns and Plurals 72
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SECTION HEADING PAGE - ------- ------- ---- Schedule 1 73 Schedule 2 74 Schedule 3 75 Schedule 4 76 Schedule 5 77 Schedule 6 82 Schedule 7 83 Schedule 8 84
ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (the "Agreement") entered into this 24th day --------- of January 1996, by and between:- (1) MICROPOLIS CORPORATION, of 21211 Nordhoff St., Chatsworth, CA 91311, United States of America (hereinafter called "MCUS"); and ---- (2) ST CHATSWORTH PTE LTD of 83 Science Park Drive, #01-01/02 The Curie, Singapore Science Park, Singapore 118258 (hereinafter called "ST Chatsworth"). ------------- WITNESSETH:- WHEREAS, ST Chatsworth desires to purchase or cause one or more of its affiliated corporations to purchase the business and certain assets of the disk drive business of MCUS including the business and the assets used in the development, manufacturing, sales marketing and distribution of disk drives as carried on by MCUS and its affiliates (each such affiliate is hereinafter referred to as a "MC Affiliate") (MCUS and each such MC Affiliate are sometimes ------------ hereinafter referred to individually and collectively as "MC") excluding the -- business and assets associated with the systems business (the "Disk Drive ---------- Business"); - -------- WHEREAS, ST Chatsworth intends to assign all or a portion of its rights and obligations under this Agreement to one or more of its affiliates (each such affiliate to which any such rights and obligations are assigned is hereinafter referred to as a "ST Affiliate") (ST Chatsworth and each such ST Affiliate are ------------ sometimes hereinafter referred to individually and collectively as "ST"); and -- WHEREAS, MC desires to sell and cause the MC Affiliates to sell to ST the business and certain assets of the Disk Drive Business. NOW, THEREFORE, in consideration of the representations and warranties, covenants and agreements hereinafter made, the parties hereto do hereby agree as hereinafter set forth, and each of ST Chatsworth and MCUS hereby agrees to cause the ST Affiliates and the MC Affiliates respectively to perform their respective obligations pursuant to this Agreement. 1. AGREEMENT TO BUY AND SELL ASSETS -------------------------------- 1.1 Purchase of Assets by ST ------------------------ At the Closing (as defined in Section 2.1), on the terms and subject to the conditions set forth in this Agreement, MCUS shall and shall procure the MC Affiliates to sell, convey, transfer, assign and deliver to ST, and ST shall purchase and acquire from MC, free and clear of all Liens (as defined in C-1 2 Section 15.14) all of MC's right, title and interest in and to the following assets, properties and business of the Disk Drive Business as the same may exist on the Closing Date (as defined in Section 2.1), whether or not in the possession or control of MC:- (a) (in the event ST Chatsworth exercises the option pursuant to Section 1.3) the real property and all buildings and improvements located thereon owned by MCUS and located in Chatsworth, California, United States of America and more fully described in Schedule 1 of the ----------------- Disclosure Schedule annexed hereto (the "Disclosure Schedule") ------------------- ------------------- (which real property, together with all buildings, structures and improvements thereon and all rights, easements and appurtenances pertaining thereto are referred to as the "US Real Property"); ---------------- (b) (in the event ST Chatsworth exercises the option pursuant to Section 1.3) the leasehold interest and all buildings and improvements located thereon leased by MCUS from Northpark Industrial and more fully described in Schedule 2 of the Disclosure Schedule together ------------------------------------- with all buildings, structures and improvements thereon and all rights, easements and appurtenances pertaining thereto and together with any options to purchase the underlying property and leasehold improvements thereon, and all other rights, subleases, licences, permits, deposits and profits appurtenant to or related to the lease (the "US Leasehold"); ------------ (c) an irrevocable licence to use, to the exclusion of Micropolis Singapore (as defined in Section 15.14), the leasehold interest and all buildings and improvements located thereon leased by Micropolis Singapore from Technology Parks Private Limited and more fully described in Schedule 3 of the Disclosure Schedule subject to ------------------------------------- Section 10.13 for the remaining of the leasehold interest (the "AMK --- Leasehold"); --------- (d) the leasehold interest and all buildings and Improvements located thereon leased by Micropolis Singapore from Jurong Town Corporation and more fully described in Schedule 4 of the Disclosure Schedule ------------------------------------- (the "SN Leasehold"), ------------ (the SN Leasehold together with all buildings, structures and improvements thereon and all rights, easements and appurtenances pertaining thereto and together with any options to purchase the underlying property and leasehold improvements thereon, and all other rights, subleases, licences, permits, deposits and profits appurtenant to or related to the lease and the AMK leasehold are referred to as the "Singapore Leasehold"); ------------------- (e) the total issued share capital of Micropolis Thailand (as defined in Section 15.14); C-2 3 (f) (at the election of ST Chatsworth pursuant to Section 1.2) the total issued share capital of each or any of the Purchased Companies (as defined in Section 15.14); (g) the machinery, plant and equipment, office furniture, fixtures, vehicles and trailers and other tangible personal property (other than inventory) held for use in the conduct of the Disk Drive Business at the locations at which the Disk Drive Business is conducted or at customers' premises on consignment of MC used or useful in the Disk Drive Business (the "Machinery and Equipment") ----------------------- including, without limitation, the foregoing purchased subject to any conditional sales or title retention agreement in favour of any other person other than items disposed of between the date hereof and the Closing Date in the ordinary course of business consistent with past practice and on an arm's length basis; (h) the corporate assets of MCUS located in Chatsworth, California, United States of America, used in the conduct of the Disk Drive Business including the MIS computer software and other related equipment (the "Corporate Assets"); ----------------- (i) subject to Section 6.11, the finished goods inventory related to the Disk Drive Business of MC, the raw materials, supplies, work-in- progress on hand at MC's facilities at which the Disk Drive Business is conducted which are used solely in the Disk Drive Business (the "Inventory"); --------- (j) the sundry assets and all notes and other evidence of such indebtedness occurring in the conduct of or related to the Disk Drive Business (collectively the "Sundry Assets"); ------------- (k) all, but not less than all of the customer lists and related data, lists of suppliers, sales reports, cost sheets, bills of material, inventions, technical information, engineering data, production data, manufacturing process and process control data, blueprints and specifications, drawings, formulae, laboratory notebooks, all data regarding product development, processes, trade secrets, know-how and the Confidential Information (as defined in Section 14.2), and all files, financial and business information and records of MC relating to the Disk Drive Business, all of which shall be in machine readable form to the extent available; provided, that if any of the foregoing do not relate exclusively to the Disk Drive Business, MC shall deliver to ST extracts of the foregoing which relate to the Disk Drive Business provided that (except in relation to Micropolis Thailand and each or any of the Purchased Companies where ST Chatsworth has elected to purchase the issued share capital) MC shall be entitled to retain the original copies of financial and business information and records which are required for the filing of tax returns; C-3 4 (l) all, but not less than all, patents, trademarks, trade names, service marks, brand names, business and product names, logos, copyrights and applications for any of the foregoing of MC, relating to or used in the conduct of the Disk Drive Business and including MC's rights, title and interest including goodwill to the word and name "Micropolis"; (m) subject to Section 10.5 all right, title and interest of MC in and to:- (i) the leases for real property (collectively the "Real Property ------------- Leases") together with any options to purchase the underlying ------ property and leasehold improvements thereon, and in each case all other rights, subleases, licences, permits, deposits and profits appurtenant to or related to such leases and subleases of MC listed in Schedule 5 of the Disclosure ---------------------------- Schedule; -------- (ii) the leases or subleases of tangible personal property described in Schedule 6 of the Disclosure Schedule as to ------------------------------------- which MC is the lessor or sublessor and the leases of tangible personal property described in Schedule 6 of the ----------------- Disclosure Schedule as to which MC is the lessee or ------------------- sublessee, together with any options to purchase the underlying property; (iii) all purchase orders given by MC in the ordinary course of business consistent with past practice for the purchase of products, materials, supplies, parts and other items related to the Disk Drive Business; (iv) all purchase orders related to the Disk Drive Business submitted to MC by customers of MC in the ordinary course of business and consistent with past practice with respect to which MC has not received full payment thereon on or prior to the Closing Date; and (v) all contracts to which MC is a party and which are utilized in the conduct of the Disk Drive Business, including without limitation contracts relating to suppliers, sales representatives, distributors, purchase orders, marketing arrangements and manufacturing arrangements listed in Schedule 7 of the Disclosure Schedule, ------------------------------------- (all of such leases, contracts, purchase orders and sales commitments specified in this Section 1.1(m) are hereinafter referred to as the "Assumed Contracts"); ----------------- (n) all government licences and permits of MC necessary to the conduct of the Disk Drive Business which are transferable to the extent permitted under applicable law; C-4 5 (o) all prepaid expenses and other assets of MC related to the Disk Drive Business; (p) any security deposits deposited by or on behalf of MC as lessee or sublessee under the Real Property Leases and the SN Leasehold; (q) the goodwill of MC related to the Disk Drive Business; (r) subject to Section 10.5, all manufacturers', vendors' and suppliers' warranties in respect of any asset of the Acquired Assets (as hereinafter defined); (s) subject to Section 10.5, all rights, contractual or otherwise, in favour of MC regarding Confidential Information related to the Disk Drive Business; (t) all books and records used or held for use in the conduct of the Disk Drive Business or otherwise relating to the Acquired Assets (except in relation to Micropolis Thailand and the Purchased Companies where ST has elected to purchase the issued share capital) other than the minute books, stock transfer books and corporate seal of MC; and (u) all other assets and properties of MC used or held for use in connection with the Disk Drive Business except as otherwise provided in Section 1.4. Provided that in the case where the assets described above are owned by, belonging to or to be sold by the Purchased Companies, such assets shall only be included in the sale and purchase if ST Chatsworth makes the election pursuant to Section 1.2 to purchase these assets. All of the assets of MC described above to be acquired by ST are hereinafter collectively referred to as the "Acquired Assets." --------------- 1.2 Option Over Purchased Companies ------------------------------- MC irrevocably grant to ST Chatsworth or a ST Affiliate nominated by ST Chatsworth an option to be exercised in its absolute discretion in relation to each of the Purchased Companies to either:- (i) purchase the assets set out in Section 1.1 owned by, belonging to or to be sold by that Purchased Company; or (ii) purchase the total issued share capital of that Purchased Company. The option shall be exercised no later than the date falling 30 days prior to the Closing Date, by ST Chatsworth giving written notice to MCUS of the exercise of the option under this Section 1.2. C-5 6 1.3 Option Over US Real Property ---------------------------- MCUS irrevocably grants to ST Chatsworth or a ST Affiliate nominated by ST Chatsworth an option to purchase the US Real Property and/or the US Leasehold. The option may be exercised no later than the date falling 30 days prior to the Closing Date by ST Chatsworth giving written notice to MCUS of the exercise of the option. 1.4 Excluded Assets --------------- Notwithstanding anything in Section 1.1 to the contrary, the following shall be specifically excluded from the Acquired Assets:- (a) cash, commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents; (b) life insurance policies of officers and other employees of MC and all other insurance policies relating to the operation of the Disk Drive Business; (c) all refunds or credits, if any, of Taxes (as defined in Section 15.14) due to or from MC which cannot be assigned by law; (d) any rights (including indemnification) and claims and recoveries under litigation of MC against third parties arising out of or relating to events prior to the Closing Date; (e) the rights of MC in, to and under all contracts of any nature, the obligations of MC under which expressly are not assumed by ST pursuant to Section 1.6; (f) the assets and properties of Tulip Memory System Inc; and (g) except as provided in Section 1.1(j) in relation to the Sundry Assets, the accounts receivable related to the Disk Drive Business of MC. 1.5 Assumption of Certain Obligations by ST --------------------------------------- In addition to the contractual obligations of ST under this Agreement on and as of the Closing Date, ST shall assume and pay, perform or discharge when due the following obligations (collectively, the "Assumed ------- Liabilities"):- ----------- (a) the liabilities as of the (Closing Date under the Assumed Contracts except for any liability under any of the Assumed Contracts arising out of MC's failure to perform its obligations thereunder to the extent such performance is due on or prior to the Closing Date; C-6 7 (b) the liabilities as of the Closing Date of Micropolis Limited (as defined in Section 15.14) under the contract in relation to the design, construction and completion of a proposed 4/part 5-storey factory building on Plot A14269 Mukim 18, Singapore, dated 20 June 1994 between Micropolis Limited, CDC-Construction & Development Pte Ltd and Design Team Pte Ltd; (c) the liabilities as of the Closing Date of Micropolis Limited under the contract in relation to the design, supply, installation and commissioning into operation of a cleanroom dated 12 September 1995 between Takasago Thermal Engineering Co. Ltd and Micropolis Limited; (d) the liabilities as of the Closing Date of Micropolis Limited under the Loan Agreement dated 8 September 1995 between Micropolis Limited and ST Capital Limited; (e) the liabilities as of the Closing Date of Micropolis Limited to Garytech Engineering & Trading pursuant to the letter dated 13 November 1995; (f) trade payables occurring in the conduct of or related to the Disk Drive Business not paid prior to the Closing Date (collectively the "Trade Payables"); -------------- (g) the warranty claims reserve amounting to US$8,000,000; and (h) any benefits relating to the employment of the Transferred Employees (as defined in Section 10.7) which are imposed or required by statutory provisions of the relevant country where the Transferred Employees are employed but only to the extent reflected dollar for dollar on the Closing Date Balance Sheet (as defined in Section 3.4). 1.6 Excluded Liabilities -------------------- With the exception of the Assumed Liabilities, ST assumes no liabilities or other obligations, commercial or otherwise, of MC, known or unknown, fixed or contingent, choate or inchoate, liquidated or unliquidated, secured or unsecured or otherwise (the "Excluded Liabilities"). Without -------------------- in any way limiting the generality of the foregoing, ST shall not assume any obligation or liability to any person with respect to the following:- (a) any liability of MC for Taxes other than Transfer Tax Liabilities (as set out in Section 10.9); (b) except as provided in Section 10.11, any liability for defects, returns or allowances, losses, personal injury, property damage or other damages of any kind whatsoever, whether suffered or incurred by a customer of MC or a customer of ST or any other person, arising out C-7 8 of products manufactured or sold by MC or services performed by MC on or prior to the Closing Date, whether the occurrence giving rise to such liability occurs before or after the Closing Date, whether the claim is asserted before or after the Closing Date; (c) except as provided in Section 1.5(h), any responsibility, liability or obligation (whether contractual, statutory or otherwise) with respect to salary, wages, sick pay, vacation pay, severance pay, redundancy pay, savings plans, deferred compensation, MC's pension, profit-sharing, retirement and other fringe benefit plans, or other obligations (whether contractual, governmentally mandated or otherwise) for the benefit of any employees of MC (including the Transferred Employees) including accounts payable and accrued payroll and pension benefits accrued (vested or unvested), or arising out of their employment through the Closing Date and/or their termination of employment by MC upon the consummation of the transactions contemplated hereby; (d) any liability with respect to the environmental condition of the Real Property (as defined in Section 4.2(A)(a)) or the clean-up thereof including, without limitation, the clean-up of any Hazardous Materials (as defined in Section 4.2(A)(d)) either on the Real Property or originating on the Real Property; (e) any liability resulting from the failure of MC to comply with the requirements of all applicable building, fire, zoning and Environmental Laws (as defined in Section 4.2(A)(c)), laws relating to occupational health and safety, anti-trust laws, and other laws (foreign or domestic) applicable to MC or the conduct of their business as previously or currently in effect; (f) any liability under any Assumed Contract to the extent such liability arises out of MC's failure to perform its obligations thereunder on or prior to the Closing Date; (g) any liability of MC arising out of indebtedness for borrowed money; (h) any obligation or liability under MC's employee health and dental plans arising out of or relating to, medical or dental services provided or rendered to employees on or before the Closing Date; (i) any obligation of MC due and payable under non-competition covenants or consulting agreements or the like; (j) any liability arising from or related to tort claims or any penalties or fines, whether criminal or civil, assessed against MC; and C-8 9 (k) the liability to reinstate the premises in relation to the AMK Leasehold. 1.7 Discharge of Excluded Liabilities --------------------------------- MCUS shall and shall procure the MC Affiliates to discharge in a timely manner or shall make adequate provision for all of the Excluded Liabilities, provided that MC shall have the ability to contest, in good faith, any such claim of liability asserted in respect thereof by any person other than ST and ST Affiliates. 2. CLOSING AND PAYMENT OF THE PURCHASE PRICE ----------------------------------------- 2.1 Closing ------- The closing of the transactions contemplated hereby (the "Closing") shall ------- be held at the offices of Messrs Bih Li & Lee, Singapore counsel to ST Chatsworth at 4.00 p.m. on 29 March 1996 or at such other time, date or place as MCUS and ST Chatsworth shall mutually agree (the "Closing ------- Date"). ---- 2.2 Purchase Price -------------- The aggregate consideration to be paid by ST to MCUS for the Acquired Assets and the non-competition covenant set forth in Section 13 (the "Purchase Price") shall be the amount equal to the Disk Drive Final Net -------------- Worth. For the purpose hereof, the term "Disk Drive Final Net Worth" -------------------------- shall be the result of the following amounts:- (a) the purchase price of the goodwill of MC related to the Disk Drive Business and the name "Micropolis" which shall be US$7,000,000; (b) the purchase price of the following which shall be the net book value as of the Closing Date as reflected in the Closing Date Balance Sheet:- (i) the Inventory and the Machinery and Equipment; (ii) the SN Leasehold; (iii) the Real Property Leases; (iv) if applicable, the US Real Property; and (v) the Sundry Assets; C-9 10 (c) the purchase price of the total issued share capital of Micropolis Thailand which shall be the net book value as of the Closing Date but excluding goodwill, if any, as reflected in the Closing Date Balance Sheet except that the land (excluding the building and the improvements) of Micropolis Thailand located at 733/1-8 Phaholyothin Road, Lumlookkar Pathumthani (the "Thai Land") shall be deemed to --------- have a value of US$2,000,000; (d) if applicable, the purchase price of the total issued share capital of each of the Purchased Companies which shall be the net book value as of the Closing Date but excluding goodwill, if any, as reflected in the Closing Date Balance Sheet; and (e) the purchase price of the Corporate Assets which shall be the fair market value, to be determined by an appraiser of international repute to be agreed between ST Chatsworth and MCUS; minus ----- (a) the amount of the net book value of the Assumed Liabilities other than the warranty claims reserve as of the Closing Date as reflected in the Closing Date Balance Sheet; and (b) the warranty claims reserve of US$8,000,000, Provided that under no circumstances shall the Purchase Price exceed the mount equal to the Disk Drive Final Net Worth determined as of 29 December 1995 in accordance with the Financial Statements (as defined in Section 4.6) plus 10 per cent and if the Purchase Price exceeds the said amount, it shall be reduced by an amount equal to the difference. For the avoidance of doubt, no other payment will be made by ST for any other Acquired Assets. ST Chatsworth shall pay the Purchase Price in the manner hereinafter set forth by telegraphic transfer of immediately available funds to such account or accounts as may be specified by MCUS for such purpose. 2.3 Payment of Initial Payment -------------------------- At the Closing, on the conveyance, transfer, assignment and delivery of the Acquired Assets, ST shall pay to MCUS for and on behalf of MC the initial payment (the "Initial Payment") which shall be an amount equal to --------------- the result of the following amounts:- (a) 90 per cent of the net book value of the Acquired Assets other than the Inventory; and C-10 11 (b) 50 per cent of the net book value of the Inventory, minus ----- (a) the amount of the net book value of the Assumed Liabilities other than the warranty claims reserve as of the Closing Date; and (b) the warranty claims reserve of US$8,000,000. For the purpose of calculating the Initial Payment only, the net book value as aforesaid shall be as reflected in the Preliminary Closing Date Balance Sheet as defined in Section 3.1). 2.4 Payment of Second Payment ------------------------- (a) In the event no ST Disapproval Notice (as defined in Section 3.3(a)) is given by ST Chatsworth within the 21-day period set forth in Section 3.3(a), within 3 days of the determination of the Closing Date Balance Sheet, ST Chatsworth shall pay to MCUS for and on behalf of MC, the balance of the Purchase Price, after subtracting five (5) per cent from the said balance. (b) In the event ST Chatsworth gives the ST Disapproval Notice to MCUS within the 21-day period set forth in Section 3.3(a), within 3 days of the delivery of the ST Disapproval Notice by ST Chatsworth to MCUS, ST Chatsworth shall pay to MCUS for and on behalf of MC, the balance of the Purchase Price in relation to the items not in dispute, after subtracting five (5) per cent from the said balance. The balance of the Purchase Price in relation to the disputed items, after subtracting five (5) per cent from the said balance shall be paid within 3 days of the resolution of the dispute in accordance with Section 3.3(a) or (b) as the case may be. 2.5 Payment of Final Payment ------------------------ On or prior to the date falling 6 months from the Closing Date, ST shall pay to MCUS for and on behalf of MC, the remaining five (5) per cent of the Purchase Price, after deducting and netting-off any sums owing by MC or for which MC are liable to ST under this Agreement whether as a result of any claims for breach of warranty or otherwise. 2.6 Allocation of Purchase Price ---------------------------- ST Chatsworth and MCUS shall negotiate in good faith prior to the Closing Date and determine the allocation of the consideration paid by ST Chatsworth for the Acquired Assets. ST and MC shall report the purchase and sale of the Acquired Assets in accordance with the allocation for all national, federal, state, provincial and local tax and other purposes. C-11 12 2.7 Transfer of Acquired Assets --------------------------- At the Closing, MCUS shall or shall procure the appropriate MC Affiliate to deliver to ST Chatsworth or the appropriate ST Affiliate duly executed deeds, bills of sale, endorsements, assignments and other instruments of transfer and assignment of the Acquired Assets sufficient to vest in such party the interests in the Acquired Assets being conveyed in accordance with the terms of this Agreement in form and substance reasonably satisfactory to ST. In the event that local laws, custom and practice require that the transactions contemplated by this Agreement be the subject of an instrument or other agreement under applicable local law ("Local ----- Agreement"), such Local Agreement shall be in form and substance --------- reasonably satisfactory to ST Chatsworth and MCUS, provided that such Local Agreement will give full force and effect to the provisions of this Agreement, and in the event of conflict, the terms of this Agreement shall prevail. (The deeds, bills of sale, endorsements, assignments, instruments and agreements and Local Agreements referred to in this Section 2.7 are hereinafter referred to collectively as the "Ancillary --------- Documents"). --------- 2.8 Transfer by Delivery -------------------- At the Closing or such other date and time thereafter as may reasonably be determined by ST, MCUS shall or shall procure the appropriate MC Affiliate to deliver to ST Chatsworth or the appropriate ST Affiliate:- (a) such of the Acquired Assets which are capable of transfer by delivery; and (b) possession of the Real Property. 2.9 Operative Agreements -------------------- At the Closing, each of ST Chatsworth and MCUS shall enter into or shall procure the relevant ST Affiliate or MC Affiliate as the case may be to enter into the following agreements:- (a) computer services agreement in relation to the use by MCUS (or such other person as ST Chatsworth and MCUS may agree) of the MIS computer system; (b) patent cross-licensing agreement whereby MCUS shall license to ST Chatsworth (or such other person as ST Chatsworth and MCUS may agree) the use of all its patents in relation to the system application business and ST Chatsworth shall license MCUS (or such other person as ST Chatsworth and MCUS may agree) the use of all the patents in relation to the Disk Drive Business to be sold and transferred herein; and C-12 13 (c) a distributorship agreement whereby MCUS shall appoint ST Chatsworth (or such other person as ST Chatsworth and MCUS may agree) to distribute its products in relation to the system business in Europe, for a period of 2 years. 2.10 Closing in Relation to Sale of Shares in Micropolis Thailand ------------------------------------------------------------ (a) At the Closing, MCUS shall deliver to ST Chatsworth:- (i) duly executed transfers in favour of ST Chatsworth or as it may direct accompanied by the relative share certificates in respect of the shares in Micropolis Thailand to be sold by MCUS to ST Chatsworth; (ii) the written resignations of all directors from their directorships in Micropolis Thailand to take effect as ST Chatsworth may determine with acknowledgements signed by each of them in the form required by ST Chatsworth to the effect that he has no claim against Micropolis Thailand for compensation for loss of office or otherwise howsoever; (iii) a certified copy of board resolutions of Micropolis Thailand in the form required by ST Chatsworth:- (aa) approving the registration of the said share transfers; (bb) appointing such persons as ST Chatsworth may nominate as directors of Micropolis Thailand; and (cc) revoking all existing authorities to bankers in respect of the operation of its bank accounts and giving authority in favour of such persons as ST Chatsworth may nominate to operate such accounts and appointing such persons as ST Chatsworth may nominate as the signatories of all the bank accounts of Micropolis Thailand; and (iv) MCUS shall deliver to ST Chatsworth a list of all Micropolis Thailand's bank accounts and banking facilities. (b) At the Closing, ST Chatsworth shall procure the discharge of all guarantees given by MCUS to secure the liabilities of Micropolis Thailand. C-13 14 2.11 Closing in Relation to Sale of Shares in the Purchased Companies ---------------------------------------------------------------- In the event ST Chatsworth elects to purchase the total issued share capital of each or any of the Purchased Companies pursuant to the option in Section 1.2, at the Closing:- (a) MCUS shall deliver to ST Chatsworth:- (i) duly executed transfers in favour of ST Chatsworth or as it may direct accompanied by the relative share certificates or other analogous documents in respect of the shares in the Purchased Companies to be sold by MCUS to ST Chatsworth; (ii) the written resignations of all directors from their directorships in the relevant Purchased Companies to take effect as ST Chatsworth may determine with acknowledgements signed by each of them in the form required by ST Chatsworth to the effect that he has no claim against the relevant company for compensation for loss of office or otherwise howsoever; (iii) a certified copy of board resolutions of the Purchased Companies in the form required by ST Chatsworth:- (aa) approving the registration of the said share transfers; (bb) appointing such persons as ST Chatsworth may nominate as directors of the relevant company; and (cc) revoking all existing authorities to bankers in respect of the operation of its bank accounts and giving authority in favour of such persons as ST Chatsworth may nominate to operate such accounts and appointing such persons as ST Chatsworth may nominate as the signatories of all the bank accounts of the relevant company; and (iv) MCUS shall deliver to ST Chatsworth a list of the Purchased Companies' bank accounts and banking facilities. (b) At the Closing, ST Chatsworth shall procure the discharge of all guarantees issued by MCUS to secure the liabilities of the relevant Purchased Companies. C-14 15 2.12 Prorations ---------- The following prorations relating to the Acquired Assets and the ownership and operation of the Disk Drive Business will be made as of the Closing Date, with MC liable to the extent such items relate to any time period prior to the Closing Date and ST liable to the extent such items relate to periods beginning with and subsequent to the Closing Date:- (a) real estate taxes on or with respect to the Acquired Assets; (b) rents, additional rents, taxes and other items payable by MC under the Real Property Leases and the AMK Leasehold so long as ST Chatsworth occupies and continues to occupy the AMK Leasehold; (c) the amount of rents, taxes and charges for sewer, water, telephone, electricity and other utilities relating to the Real Property and the Real Property Leases; and (d) all other items (excluding personal property taxes and other taxes) normally adjusted in connection with similar transactions. Except as otherwise agreed by the parties, the net amount or all such prorations will be settled and paid on the Closing Date. If the Closing shall occur before a real estate tax rate is fixed, the apportionment of taxes shall be based upon the tax rate for the preceding year applied to the latest assessed valuation. 3. DETERMINATION OF NET WORTH AND CLOSING DATE BALANCE SHEET --------------------------------------------------------- 3.1 Determination of Preliminary Closing Date Balance Sheet ------------------------------------------------------- MCUS shall prepare a combined balance sheet of the Disk Drive Business (the "Preliminary Closing Date Balance Sheet") as of the Closing Date -------------------------------------- and shall deliver the Preliminary Closing Date Balance Sheet to ST Chatsworth or ST's Accountants as promptly as possible and in any event no later than the date falling 21 days after the Closing Date. The Preliminary Closing Date Balance Sheet shall be prepared in accordance with the generally accepted accounting principles applicable in the United States of America and applied on a consistent basis (collectively, the "Accounting Principles"). ST and ST's Accountants shall have the --------------------- obligation to participate in the physical inventory. 3.2 Supply of Information and Documents ----------------------------------- (a) MCUS agrees to provide ST and ST's Accountants the opportunity to review the Preliminary Closing Date Balance Sheet delivered by MCUS and the underlying work papers with a view to confirming the Disk Drive Final Net Worth. C-15 16 (b) As promptly as possible and in any event no later than 28 days after the Closing Date, MCUS shall give or shall procure for ST's Accountants all such information and documentation relating to the Disk Drive Business as ST's Accountants shall require to enable them to confirm the Disk Drive Final Net Worth. 3.3 Confirmation of Disk Drive Final Net Worth ------------------------------------------ (a) If ST Chatsworth notifies MCUS in writing of its disagreement with the Preliminary Closing Date Balance Sheet within 21 days after receipt thereof, specifying the nature of each disagreement and the basis therefor (the "ST Disapproval Notice"), then ST Chatsworth --------------------- and MCUS shall attempt to resolve their differences with respect thereto within fourteen (14) days after MCUS's receipt of the ST Disapproval Notice, in which case, the Preliminary Closing Date Balance Sheet, as amended to the extent necessary to reflect resolution of all such disagreements, shall be the Closing Date Balance Sheet (as hereinafter defined) and shall be conclusive and binding on ST and MC. (b) Any disputes not resolved by ST Chatsworth and MCUS within such 14 day period regarding the Preliminary Closing Date Balance Sheet shall be submitted by the parties promptly after the expiration of the applicable 14-day period to an internationally recognized accounting firm mutually acceptable to both parties, which firm shall not have had a material relationship with either ST Chatsworth or MCUS or any of their respective affiliates within the two years preceding the selection (the "Independent CPA"). Within thirty (30) --------------- days after its acceptance of its appointment as Independent CPA, the Independent CPA shall determine, based solely on presentations by ST Chatsworth and MCUS, and not by independent review, those items in dispute and shall render a written report as to the resolution of each dispute and the resulting calculation of the Closing Date Balance Sheet and the Disk Drive Final Net Worth. Materiality shall not be a basis for rejection of a disputed item in the calculation of the Disk Drive Final Net Worth. In resolving any disputed item, the Independent CPA may not assign a value to such item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. The Independent CPA shall have exclusive jurisdiction over (and resort to the Independent CPA as provided in this Section 3.3) shall be the sole recourse and remedy of the parties against one another or any other person with respect to) any disputes (without prejudice to the parties' rights to claim a breach of any representation or warranty or to indemnification under Section 11 hereof) arising out of or relating to the Preliminary Closing Date Balance Sheet and the Closing Date Balance Sheet; and the Independent CPA's determination (without prejudice to the parties' rights to claim a breach of any representation or warranty or to indemnification under Section 11 hereof) shall be conclusive and C-16 17 binding on the parties and shall be enforceable in a court of law. In the event ST Chatsworth does not deliver the ST Disapproval Notice within 21 days from ST Chatsworth's receipt of the Preliminary Closing Date Balance Sheet, ST Chatsworth shall be deemed to have accepted MCUS's determination and the Preliminary Closing Date Balance Sheet shall be deemed to be the Closing Date Balance Sheet and shall be conclusive and binding (without prejudice to the parties' rights to claim a breach of any representation or warranty or to indemnification under Section 11 hereof) on ST Chatsworth and MCUS. (c) MCUS and ST Chatsworth shall bear the fees and expenses of their respective accountants and other representatives. The fees and expenses of the Independent CPA shall be borne equally by MCUS and ST Chatsworth. 3.4 Definition of Closing Date Balance Sheet ---------------------------------------- As used herein, the term "Closing Date Balance Sheet" shall mean:- -------------------------- (a) the Preliminary Closing Date Balance Sheet if no ST Disapproval Notice is given by ST Chatsworth within the 21-day period set forth in Section 3.3(a); or (b) if the ST Disapproval Notice is given in accordance with Section 3.3(a) and all of the disputed items are resolved by mutual agreement of the parties, the Preliminary Closing Date Balance Sheet, as amended, if necessary, to reflect such resolution of all disputes; or (c) if any or all of the disputed items are submitted to the Independent CPA for resolution, the Preliminary Closing Date Balance Sheet, as amended, if necessary, to reflect any resolution of any disputes by mutual agreement of the parties and the resolution of all other disputes by the Independent CPA. 3.5 Application of Accounting Principles ------------------------------------ ST's Accountants in confirming the Disk Drive Final Net Worth shall apply the Accounting Principles. 4. REPRESENTATIONS AND WARRANTIES OF MCUS -------------------------------------- MCUS makes the following representations and warranties to each of ST Chatsworth and the ST Affiliates (with the intent that the provisions of this Section 4 shall continue to have full force and effect notwithstanding Closing):- C-17 18 4.1 Information and Corporate Capacity ---------------------------------- (A) Information ----------- All information in writing which has been given by or on behalf of MC or their agents to ST or their agents before and during the negotiations leading to this Agreement was, when given, and remains to the best of the knowledge of MC true, complete and accurate in all respects and not misleading and that after making all proper enquiries MC is not aware of any fact or matter, not in the public domain, in relation to the Disk Drive Business which would render any such information untrue, incomplete, inaccurate or misleading or might reasonably affect the willingness of ST to purchase the Disk Drive Business or the price at or the terms upon which the purchase is made. (B) Organisation and Qualification of MC ------------------------------------ Each of MCUS and the MC Affiliates is duly organised, validly existing and in good standing under the laws of the jurisdiction of its incorporation (except in the case where under the laws of a jurisdiction in which the concept of good standing is inapplicable, as to which no representation or warranty regarding good standing is made). Except for the approval by the shareholders of MCUS of the transactions contemplated hereby, which approval shall be obtained before the Closing, each of MCUS and the MC Affiliates has full corporate power and authority to enter into and perform the transactions contemplated by this Agreement. (C) Authority of MCUS ----------------- (i) This Agreement and each of the Ancillary Documents delivered or to be delivered by MCUS when executed and delivered in accordance with their respective terms will constitute the valid and binding obligations of each of MCUS and the MC Affiliates and shall be enforceable against it in accordance with their respective terms. (ii) The execution, delivery and performance of this Agreement and each of the Ancillary Documents delivered or to be delivered by MCUS have been, or when delivered will be, duly authorised by all necessary corporate action of MCUS. (iii) The execution, delivery and performance by MCUS of this Agreement or any Ancillary Documents does not and will not with the passage of time or the giving of notice or both:- C-18 19 (aa) result in a breach of or constitute a default by MC or result in any right of termination or other effect adverse to MC under any agreement, lease or instrument pertaining to the Disk Drive Business to which MC is a party or by which any Acquired Asset is bound or affected or under any other agreement binding on MC the effect of which breach or default would hinder, delay, interfere with or prohibit the transactions contemplated by this Agreement; (bb) result in a violation of any law, rule or regulation now in effect to which MC is subject, or any order, writ, judgement, injunction, decree, determination or award, now in effect which is applicable to MC; and (cc) violate any provisions of the memorandum and articles of association or equivalent, or bylaws of MC, as amended. (D) Assets ------ (i) To the best of the knowledge of MCUS after making due and careful inquiries, the Machinery and Equipment conforms to all applicable laws, ordinances and regulations. (ii) Except as listed in Schedule 8 of the Disclosure Schedule, ------------------------------------- MC have good and marketable title to the Acquired Assets, free and clear of all claims, liens, pledges, charges, mortgages, security interests, encumbrances, equities or other imperfections of title. (iii) To the best of the knowledge of MCUS after making due and careful inquiries, the inventories of MC are of a quality and quantity saleable or usable in the ordinary course of MC's business. (iv) All of the Acquired Assets are located on the premises owned or leased by MC or on consignment to its customers. (v) To the best of the knowledge of MCUS after making due and careful inquiries, the Acquired Assets comprise all assets now used in the Disk Drive Business and which are necessary for the continuation of the Disk Drive Business as now carried on. (vi) The Machinery and Equipment:- (aa) are in a proper state of repair and condition and satisfactory working order; C-19 20 (bb) have been regularly and properly maintained; and (cc) are adequate for and not surplus to the requirements of the Disk Drive Business. (vii) The Sundry Assets:- (aa) arose from bona fide transactions in the ordinary course of business and are payable on ordinary trade terms; (bb) are legal, valid and binding obligations of the respective debtors enforceable in accordance with their terms; (cc) are not subject to any valid set-off or counterclaim; (dd) are collectible in the ordinary course of business consistent with past practice in the aggregate recorded amounts thereof, net of any applicable reserve reflected in the balance sheet included in the annual financial statements; and (ee) are not the subject of any actions or proceedings brought by or on behalf of MC. 4.2 Real Property ------------- (A) Environmental Matters --------------------- (i) The Real Property and the operations thereon and the uses made thereof, are in compliance with all, and are not in violation of any Environmental Laws (as hereinafter defined). (ii) There has been no generation, use, treatment, handling, storage or disposal of Hazardous Materials on or from the Real Property by any person (including, without limitation, MC and the past and present officers, employees and agents of MC and all past and present owners, operators and lessees of the Real Property) at any time except in full compliance with all Environmental Laws. (iii) The Real Property has not been used at any time by any person in such a manner as to cause a violation of any Environmental Law or to potentially give rise to any liability or obligation for the remediation or restoration of the Real Property or for the treatment, storage, removal, disposal, release, arrangement for removal or disposal or transportation of any Hazardous Materials. C-20 21 (iv) None of MCUS or the MC Affiliates has received any notice of, and no circumstances exist that could form the basis of, an Environmental Action (as hereinafter defined) arising out of or relating to the Real Property or the generation, use, treatment, handling, storage or disposal of Hazardous Materials thereon, or the release or transportation of Hazardous Materials thereto or therefrom. (v) Each of MCUS and the MC Affiliates has obtained all permits, approvals, licences and other authorisations required under Environmental Laws, such licenses and permits being in full force and effect and is complying in all respects therewith. (vi) No employees of MC or its predecessors or any past owner, operator or lessee of the Real Property have been exposed to Hazardous Materials. (vii) Each of MCUS and the MC Affiliates has delivered to ST true, complete and correct copies or results of any and all reports, studies or tests in the possession of or initiated by it pertaining to the existence of Hazardous Materials and other environmental concerns on any part of the Real Property or concerning compliance with or liability under Environmental Laws in the operation of the business of MC or as conducted by any prior owner, operator or lessee of the Real Property. As used in this Section 4.2 and elsewhere in this Agreement:- (a) The term "Real Property" shall mean the US Real Property (in ------------- the event ST Chatsworth exercises the option pursuant to Section 1.3), the US Leasehold (in the event ST Chatsworth exercises the option pursuant to Section 1.3), the Singapore Leasehold and the Thai Land and the Real Property Leases; (b) "Environmental Action" means any administrative, regulatory -------------------- or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, including, without limitation:- (aa) any claim by any Governmental or Regulatory Authority (as defined in Section 15.14) for enforcement, clean- up, removal, response, remedial or other actions or damages pursuant to any Environmental Law; and C-21 22 (bb) any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to the environment; (c) "Environmental Laws" and "Environmental Law" mean any ------------------ ----------------- applicable national, federal, provincial, state or local law of any country or any political subdivision thereof, rule, regulation, order, writ, judgement, injunction, decree, determination or award of any jurisdiction relating to the environment or Hazardous Materials; and (d) "Hazardous Materials" means:- ------------------- (aa) petroleum or petroleum products, natural or synthetic gas and asbestos in any form; (bb) any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants" or words of any similar import under any Environmental Law; and (cc) any other substance exposure to which is regulated under any Environmental Law. (B) Violation of Applicable Laws ---------------------------- (i) No notice of violation of any applicable federal, national, provincial, state or local statute, ordinance, order, requirement, law, rule, regulation (including, without limitation, any Environmental Law), or of any covenant, condition, restriction or easement affecting the Real Property with respect to the use or occupancy of the Real Property has been given to MC by any person having jurisdiction over the Real Property or by any other person entitled to enforce the same, or by any private citizen or citizen action group and, to the best knowledge of each of MCUS and the MC Affiliates, no such notice has been given to any other person. (ii) To the best of the knowledge of each of MCUS and the MC Affiliates, there is not:- C-22 23 (aa) any intended or proposed federal, national, provincial, state, or local statute, ordinance, order, requirement, law, rule or regulation (including, but not limited to, zoning changes) which may prevent or hinder ST's continued use of the Real Property as heretofore used in the conduct of the Disk Drive Business; or (bb) any suit, action, claim or legal, administrative, arbitration or other proceeding or governmental investigation (other than Environmental Actions) pending or threatened in writing against or affecting either the Real Property or the use thereof or that would prevent or hinder ST's continued use thereof in the Disk Drive Business. (C) Title ----- In relation to each Real Property:- (i) MCUS or the MC Affiliates as indicated as the owner or lessee of the Real Property in Schedule 5 is the beneficial owner or lessee of and is beneficially entitled to the whole of the proceeds of sale of and has a good and marketable title to the whole of the Real Property. (ii) MCUS has in its possession or unconditionally held to its order all the original documents of title and other documents and papers relating to the Real Property. (iii) There are no mortgages, charges or debentures (whether legal or equitable and whether fixed or floating), rent charges, liabilities to maintain roadways, liens (whether for costs or to any unpaid vendor or otherwise), annuities or other unusual outgoings or trusts (whether for securing money or otherwise) affecting the Real Property or the proceeds of sale thereof. (iv) Except for the lots-tie restriction in relation to the US Real Property and the US Leasehold, the Real Property is not subject to any lease, sub-lease, tenancy, concession, occupancy agreement or similar right, adverse estate, right, interest, covenant, restriction, stipulation, easement, option, right of pre-emption, wayleave, profit a prendre, licence or other right or informal arrangement in favour of any third party (whether in the nature of a public or private right or obligation) nor is there any agreement or commitment to give or create any of the foregoing and where the Real Property is subject to any such arrangement no breach has occurred of any of the terms C-23 24 thereof and all rights of light, air and support are enjoyed fully is of right. (v) The Real Property enjoys access and egress over roads which prior to the date of this Agreement have been adopted by the appropriate highway authority and are maintainable at the public expense. The Real Property drains into a public sewer and is serviced by water, electricity and gas utilities. The pipes, sewers, wires, cables, conduits and other conducting media serving the Real Property connect directly to the mains without passing through land in the occupation and ownership of a third party or if they do, the facilities, easements or rights necessary for the enjoyment and present use of the Real Property are enjoyed on terms which do not entitle any person to terminate or curtail the same. (D) Planning -------- In relation to each Real Property:- (i) No development at the Real Property or use of the Real Property has been undertaken in breach of any planning, building or construction legislation or any regulations, by- laws, orders, consents or permissions made or given thereunder. (ii) The planning consents and permissions affecting the Real Property are either unconditional or are subject only to conditions which are neither unusual, personal nor temporary and which have been satisfied or fully observed and performed up to the date of this Agreement. (iii) There is no resolution, proposal, scheme or order, whether formally adopted or not, for the compulsory acquisition of the whole or any part of the Real Property or any access or egress, or for the alteration, construction or improvement of any road, sub-way, underpass, footbridge, elevated road, dual carriageway or flyover upon or adjoining the Real Property or any access or egress. (iv) There is no outstanding statutory or informal notice relating to the Real Property or any business carried on thereat or the use thereof. (v) To MC's knowledge, there are no encroachments onto the Real Property by any improvements on any adjoining property which would materially and adversely impair the utility of the Real Property for the uses for which it is currently used in the Disk Drive Business. C-24 25 (vi) To MC's knowledge, there are no material encroachments onto any adjoining property by any improvements on the Real Property. (E) State and Condition of the Real Property ---------------------------------------- In relation to each Real Property:- (i) The buildings and other structures on the Real Property are in good and substantial repair and fit for the purposes for which they are presently used. (ii) None of the following has in the past affected the Real Property:- (aa) structural or other defects in the Real Property or the building of which the Real Property is part or in any drains, pipes, wires or services; (bb) flooding; (cc) subsidence; and (dd) rising damp, wet or dry rot or any infestation. (F) Leasehold Properties -------------------- Where the interest of MC in any Real Property is a leasehold interest:- (i) Any consent necessary for the grant of the lease under which MC holds its interest in the Real Property (the "Lease") was ----- duly obtained and a copy of the consent is with the documents of title and the receipt for the payment of rent which fell due immediately prior to the date of this Agreement unqualified. (ii) There is no material subsisting breach, nor any material non- observance of any covenant, condition or agreement contained in the Lease on the part of either the relevant landlord or MC and no landlord has refused to accept rent or made any complaint or objection. (iii) There are no restrictions in the Lease which prevent the Real Property being used now or in the future for the present or proposed use. C-25 26 (iv) No alterations have been made to the Real Property at the expense of MC without all necessary consents and approvals and all such alterations to the Real Property are to be disregarded on rent reviews and do not have to be reinstated at the expiry of the term. (v) All steps in rent reviews have been duly taken and no rent reviews are or should be currently under negotiation or the subject of a reference to an expert or arbitrator or the courts. (vi) The Lease does not contain any unusual or objectionable covenants or agreements having regard to the use to which the Real Property is currently put. 4.3 General Environmental Matters ----------------------------- (a) MC have obtained all licences which are required under applicable Environmental Laws in connection with the conduct of the Disk Drive Business or the Acquired Assets. Each of such licences is in full force and effect. MC have conducted the Disk Drive Business in compliance in all material respects with the terms and conditions of such licences and with any applicable Environmental Law. (b) No order has been issued, no Environmental Claim (as defined in Section 15.14) has been filed, no penalty has been assessed and no investigation or review is pending or, to the knowledge of MC, threatened by any Governmental or Regulatory Authority with respect to any alleged failure by MC to have any licence required under applicable Environmental Laws in connection with the conduct of the Disk Drive Business or with respect to any generation, treatment, storage, recycling, transportation, discharge, disposal or release of any Hazardous Material in connection with the Disk Drive Business and to the knowledge of MC there are no facts or circumstances in existence which could reasonably be expected to form the basis for any such order, Environmental Claim, penalty or investigation. (c) MC has not transported or arranged for the transportation of any Hazardous Material in connection with the operation of the Disk Drive Business to any location that is:- (i) listed on the NPL (as defined in Section 15.14) under CERCLA (as defined in Section 15.14); (ii) listed for possible inclusion on the NPL by the Environmental Protection Agency in CERCLIS (as defined in Section 15.14) or on any similar state or local list; or C-26 27 (iii) the subject of enforcement actions by federal, state or local Governmental or Regulatory Authority that may lead to Environmental Claims against MC or the Disk Drive Business. (d) No Hazardous Material generated in connection with the operation of the Disk Drive Business has been recycled, treated, stored, disposed of or released by MC at any location. 4.4 Conduct of the Business ----------------------- No supplier, distributor or customer of MC has notified MC that it intends to discontinue its relationship with MC other than any supplier, distributor or customer, the loss of which would not have a Material Adverse Effect (as defined in Section 4.12). 4.5 Permits and Licences -------------------- (a) MC have obtained all governmental authorisations, licences, permits and orders necessary for the conduct of the Disk Drive Business as presently conducted. MC is not required to have any form of security clearance from any governmental agency in order to conduct the Disk Drive Business in the manner it is presently conducted. (b) The execution, delivery and performance by MC of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not:- (i) result in or give to any person any right of termination, cancellation, acceleration or modification in or with respect to, (ii) result in or give to any person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (iii) result in the creation or imposition of any Lien upon MC or any of the Acquired Assets and under, any business licence. 4.6 Financial Statements and Undisclosed Liabilities ------------------------------------------------ (a) MCUS will deliver to ST Chatsworth the audited accounts of MC on a consolidated basis for the twelve months ended 29 December 1995 together with all notes thereto. The foregoing accounts are referred to herein as the "Financial Statements". -------------------- C-27 28 (b) The Financial Statements:- (i) will present fairly the results of operations of MC as of 29 December 1995 in accordance with the Accounting Principles applied on a consistent basis; and (ii) are based on the books and records of MC. 4.7 Compliance with Laws -------------------- Each of MCUS and the MC Affiliates has been and is, and its business and operations have been and are being conducted, in compliance with all requirements of all applicable statutes, laws, ordinances, regulations, rules, codes or decrees, whether foreign or domestic, federal, national, provincial, state or local, which are currently in effect and apply to the Disk Drive Business or the Acquired Assets including, without limitation, those relating to fair labour practices and standards, equal employment practices, occupational safety and health, export/import licences or controls, foreign exchange controls, restraint of trade and unfair competition, immigration, and federal procurement. MC has not received any written notice from any person with respect to an alleged, actual or potential violation and/or failure to comply with any of the foregoing. 4.8 Patents and Patent Applications ------------------------------- (a) All patents and patent applications owned by or licensed to or used by each of MCUS and the MC Affiliates in connection with the Disk Drive Business have been duly filed in or issued by the United States Patent and Trademark Office or the corresponding offices of other countries or other jurisdictions and have been properly maintained in accordance with all applicable provisions of law and administrative regulations in the United States and each such country or other jurisdictions. To the best of the knowledge of MCUS, after making due and careful inquiries, each of MCUS and the MC Affiliates' use of the said patent does not require the consent of any third party. Also the same are freely transferable and are owned exclusively by MC free and clear of any attachments, liens, royalties, encumbrances, adverse claims, licences or any other ownership or other interest of any person whatsoever, including, without limitation, any ownership or other interest of any other affiliate of MC. To the best of the knowledge of MCUS, after making due and careful inquiries, no person has a licence to use any of such patents or any claim which may arise from the existence of such patent application and no outstanding order, decree, judgement or stipulation, and no proceeding charging MC or its affiliates with infringement of any adversely held patent with respect to the Disk Drive Business, has been served upon MC or its affiliates at any time during the 1-year period prior to and ending upon the Closing Date or, except as disclosed by MCUS's patent counsel in its C-28 29 attorney representation letter to ST Chatsworth or its representatives and to the best of MC's knowledge, is threatened to be filed; and to the best of the knowledge of MCUS, after making due and careful inquiries, the continuing conduct of the Disk Drive Business by ST, as heretofore conducted by MC, will not result in the infringement of any patents or patent application or other rights owned by or owed to any third party. To the best knowledge of MC after a review of the current files of MC and their affiliates, no person or entity is infringing upon the patents referred to herein. (b) To the best of the knowledge of MCUS, after making due and careful inquiries, each of MCUS and the MC Affiliates owns and has the right to use, free and clear of any claims or rights of any third party, including without limitation, any affiliate of MC, all trademarks, trade names, service marks, brand names, business and product names, logos, trade secrets, customer lists, secret processes, technology, know-how and any other Confidential Information required for or used in the manufacture, sale, distribution or marketing of all products either being or proposed to be manufactured, sold, distributed or marketed by MC and included in the Disk Drive Business, including, without limitation, any products licensed by MC from others in connection with the Disk Drive Business. (c) MC is not in any way making any unlawful or wrongful use of any trade secrets, customer lists, manufacturing processes, secret processes, technology, know-how or any other confidential information of any third party, including, without limitation, any former employer of any present or past employee of MC. The manufacturing processes, secret processes, know-how and any other intellectual property and confidential information resulting from the development activities engaged in by any employees of MC with respect to the Disk Drive Business is the property of MC. (d) Neither MC nor any Transferred Employees of MC is a party to any non-competition agreement or similar agreement with any third party pertaining to the Disk Drive Business. (e) MC has not provided to any entities in which MC has a beneficial equity or ownership interest but which are not affiliates ("Investees") any material know-how or technology with respect to --------- the Disk Drive Business and to the knowledge of MC, no Investees have any material know-how or technology with respect to the Disk Drive Business. 4.9 Insolvency ---------- (a) No order has been made or petition presented or resolution passed for the winding up of MC or for the appointment of a provisional liquidator to MC or for an administration order to be made in respect C-29 30 of MC and no meeting has been convened for the purposes of winding up MC. (b) No receiver or receiver and manager has been appointed by any person and no steps have been taken for the appointment of a receiver or a receiver and manager over the whole or any part of the business or assets of MC. (c) There is no unfulfilled or unsatisfied judgement or court order outstanding against MC. (d) No judicial management order has been made and no petition for such an order has been presented in respect of MC. (e) No distress, charging order, garnishee order, execution or other process has been levied against MC or the Acquired Assets and no action has been taken to repossess any of the Acquired Assets. (f) MC has not made or proposes to make any arrangement or composition with its creditors or any class of its creditors. 4.10 Affiliate Transactions ---------------------- (a) No officer, director, affiliate or associate of MC or any associate of any such officer, director or affiliate provides or causes to be provided any assets, services or facilities used or held for use in connection with the Disk Drive Business. (b) The Disk Drive Business does not provide or cause to be provided any assets, services or facilities to any such officer, director, affiliate or associate. 4.11 Litigation ---------- (a) There are no actions or proceedings pending or, to the knowledge of MC, threatened against, relating to or affecting MC with respect to the Disk Drive Business or any of the Acquired Assets which:- (i) could reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Documents or otherwise result in a material diminution of the benefits contemplated by this Agreement or any of the Ancillary Documents to ST; or C-30 31 (ii) if determined adversely to MC, could reasonably be expected to result in any injunction or other equitable relief that would interfere in any material respect with the Disk Drive Business. (b) There are no facts or circumstances known to MC that could reasonably be expected to give rise to any action or proceeding that would be required to be disclosed pursuant to Section 4.11(a). (c) There are no orders outstanding against MC with respect to the Disk Drive Business. 4.12 Absence of Changes ------------------ Since 29 December 1995, MC has conducted the Disk Drive Business only in the ordinary course, and MC has not (in connection with or pertaining to the Disk Drive Business), as of the date hereof and as of the date of the Closing, either directly or indirectly:- (a) suffered any change in the financial condition, assets, liabilities of the Disk Drive Business, whether or not arising in the ordinary course of business, which change by itself or in conjunction with any or all other such changes has a Material Adverse Effect (the term "Material Adverse Effect" shall mean a material adverse effect ----------------------- on the business or financial condition of the Disk Drive Business, excluding any general economic, market or industry changes); (b) incurred any obligation or liability (absolute, accrued, contingent or otherwise) with respect to the Disk Drive Business other than liabilities in the ordinary course of business consistent with past practice; (c) permitted any Acquired Assets to become subject to any Lien, mortgage, pledge or encumbrance other than in the ordinary course of business; (d) (i) purchased, sold, assigned, transferred, abandoned or otherwise disposed of any asset of the Disk Drive Business other than in the ordinary and normal course of its business consistent with past practice; or (ii) cancelled any debts or claims of the Disk Drive Business, other than in the ordinary and normal course of business consistent with past practice; (e) entered into any transaction or agreement other than in the ordinary and normal course of the Disk Drive Business consistent with past practice; C-31 32 (f) entered into any compromise or settlement of any litigation or governmental investigation relating to the Disk Drive Business or the Acquired Assets; (g) suffered any damage, destruction or loss to the Acquired Assets, whether or not covered by insurance, which has a Material Adverse Effect; (h) made or suffered any amendment, modification or termination of any of the Assumed Contracts which has a Material Adverse Effect; (i) received notice or acquired knowledge of any labour trouble, difficulty, dispute or organizing effort involving employees of the Disk Drive Business; (j) entered into any lease or sub-lease, pledge or hypothecation of any Acquired Asset; or (k) (except where it has given written notice thereof to ST) suffered any loss of employees, customers or suppliers that has a Material Adverse Effect on the Disk Drive Business or been advised by any customer or supplier that such customer or supplier intends to discontinue its relationship with MC with respect to the Disk Drive Business. 4.13 Employee Benefit Plans ---------------------- In relation to all employee benefit plans, agreements, policies, arrangements and understandings (whether or not written) relating to employee benefits provided to the Business Employees (as defined in Section 10.7), including, without limitation, all plans, agreements, arrangements, policies or understandings relating to sick pay, vacation pay or severance pay, deferred compensation, pensions, profit sharing, retirement income or other benefits, stock purchase and stock option plans, bonuses, severance arrangements, health benefits, disability benefits, insurance benefits and all other employee benefits or fringe benefits (individually referred to as "a Plan" and collectively referred ------ to as the "Plans"). ----- (a) True, correct and complete copies of each such Plan (or in the case of any unwritten Plan, a description thereof) have been furnished to ST. (b) Each Plan has been administered and operated in accordance with its terms and applicable law. (c) Full payment has been made of all amounts which MC was required, under the terms of any of the Plans, to have paid as contributions to such Plans on or prior to the date hereof. There are no accrued liabilities under any Plans, programmes or practices maintained on behalf of the employees of MC which are not provided for on their C-32 33 books or financial statements or which have not been fully provided for by contributions to such Plans, programmes, or practices. (d) Other than for claims in the ordinary course for benefits under the Plans, there are no actions, suits, claims or proceedings, pending or, to the best of MC's knowledge, threatened, nor, to the best of MC's knowledge does there exist any basis therefor, which would result in any liability with respect to any Plan of MC. (e) MC does not maintain any employee welfare benefit plans which provide post-retirement benefits to employees. 4.14 Governmental and Other Approvals -------------------------------- MC is not required to obtain or make any application for any approval, licence or permit from or take other action or effect any filing with, any foreign or domestic, federal, national, provincial, state, municipal or other governmental body, commission, board, department or agency or third party in order to execute this Agreement and/or consummate the transactions contemplated hereby in accordance with applicable laws and regulations. 4.15 Brokerage --------- MCUS agree to indemnify and hold ST harmless in connection with any claims for commissions or other compensation made by any broker or finder claiming to have been employed by or on behalf of MC in connection with the transactions contemplated herein. 4.16 Labour Relations ---------------- None of the Business Employees is covered by a collective bargaining agreement between a collective bargaining unit, trade union, works council, or other employees' association and MC. 4.17 Warranties in Respect of Micropolis Thailand -------------------------------------------- (a) MCUS hereby makes the representations and warranties contained in Sections 4.1 to 4.16 in respect of Micropolis Thailand insofar as the same would be applicable as if the assets, business, undertaking and liabilities of such company were being acquired by ST. (b) In respect of Micropolis Thailand, MCUS hereby warrants and represents to ST that:- C-33 34 (A) Debts to, contracts with, connected persons ------------------------------------------- (i) There are:- (aa) no loans made by Micropolis Thailand to its shareholder and/or any director of Micropolis Thailand; (bb) no debts owing to Micropolis Thailand by its shareholder and/or any director of Micropolis Thailand; (cc) except in relation to inter-company balances, no debts owing by Micropolis Thailand other than debts which have arisen in the ordinary course of business; and (dd) no securities for any such loans or debts as aforesaid. (ii) There are no existing contracts or engagements to which Micropolis Thailand is a party and in which any director of Micropolis Thailand is interested. (B) Accounts receivable ------------------- (i) None of the accounts receivable which are included in the audited accounts (the "Audited Accounts") of ---------------- Micropolis Thailand for the year ended 29 December 1995 (the "Balance Sheet Date") or which have subsequently ------------------ arisen have been outstanding for more than three (3) months from their due dates for payment and all such debts have realized or will realize in the normal course of collection their full value as included in the Audited Accounts or in the books of Micropolis Thailand after taking into account the provisions for bad and doubtful debts in the Audited Accounts. (ii) No part of the amounts included in the Audited Accounts or in the books of Micropolis Thailand as due from debtors has been released on terms that any debtors pays less than the net book value after any provisions made in the Audited Accounts as at the Balance Sheet Date or has been written off or has proved to any extent to be irrecoverable or is now regarded as being irrecoverable. C-34 35 (C) Insurance --------- All the assets of Micropolis Thailand which are of an insurable nature have at all material times been and are as at the date hereof insured in amounts reasonably regarded as adequate against fire and other risks normally insured against by companies carrying on similar businesses or owning property of a similar nature and Micropolis Thailand has at all material times been, and is at the date hereof, adequately covered against accident, third party errors and omissions and other risks normally covered by insurance by such companies. The particulars of the insurance of Micropolis Thailand which have been supplied to ST are true and correct. In respect of all such insurances:- (i) all premiums have been duly paid; and (ii) all the policies are in force and are not voidable on account of any act, omission or non-disclosure on the part of the insured party. (D) Title to assets --------------- All assets of Micropolis Thailand and all debts due to it which are included in the Audited Accounts or have otherwise been represented as being the property of or due to Micropolis Thailand or at the Balance Sheet Date used or held for the purposes of its business were at the Balance Sheet Date the absolute property of Micropolis Thailand and (save for those subsequently disposed of or realized in the ordinary course of trading) all such assets and all assets and debts which have subsequently been acquired or arisen are as at the date hereof the absolute property of Micropolis Thailand free from all and any encumbrance of whatever nature and there are no circumstances under which by operation of law or otherwise Micropolis Thailand's title, right or interest in and to such assets may be adversely affected in any way whatsoever. (E) Books and records ----------------- The records, statutory books and books of account of Micropolis Thailand are duly entered up and maintained in accordance with all legal requirements applicable thereto and contain true, full and accurate records of all matters required to be dealt with therein and all such books and all records and documents (including documents of title) which are its property are in its possession or under its control and all accounts, documents and returns required to be delivered to or made to C-35 36 the relevant authority in Thailand have been duly and correctly delivered or made. (F) Options on capital ------------------ (i) MCUS is entitled to sell and transfer to ST the full legal and beneficial ownership of the total issued share capital of Micropolis Thailand on the terms of this Agreement without the consent of any third party. (ii) No person has the right (whether exercisable now or in the future and whether contingent or not) to call for the allotment, issue, sale or transfer of any share or loan capital of Micropolis Thailand under any option or other agreement (including conversion rights and rights of pre-emption) and there are no claims, charges, liens, equities or encumbrances on the share capital of Micropolis Thailand. (G) Subsidiaries and associated companies ------------------------------------- (i) Micropolis Thailand has no subsidiaries or associated companies (that is to say a company in which Micropolis Thailand has not less than 20 per cent of its issued share capital and in whose commercial and financial policy decisions Micropolis Thailand participates) and is not a partner in any partnership. (ii) Micropolis Thailand does not carry on any business outside Thailand. (iii) Micropolis Thailand has not, other than in the ordinary course of business, made any material investment in, or material advance of cash to, guarantee of indebtedness of, or other extension of credit to any company. (H) Statutory and other requirements, consents and licenses ------------------------------------------------------- (i) All statutory and other requirements applicable to the carrying on of the business of Micropolis Thailand as now carried on, and all conditions applicable to any licences and consents involved in the carrying on of such business, have been complied with and MCUS is not aware (after making due and careful enquiries) of any breach thereof or of any intended or contemplated refusal or revocation of any such licence or consent. C-36 37 (ii) No notice has been issued and received and, to the knowledge of MCUS, no investigation or review is pending or threatened by any governmental or self- regulatory entity:- (aa) with respect to any alleged violation by Micropolis Thailand or, to the best knowledge of MCUS, any officer, director or employee of Micropolis Thailand, of any law, ordinance, rule, regulation, order, policy or guideline of any governmental or self-regulatory entity, the sanction for which violation could be reasonably expected to have a Material Adverse Effect on the business, assets or prospects or the financial condition or the results of operations of Micropolis Thailand; or (bb) with respect to any alleged failure to have all permits, certificates, licences, registrations, approvals and other authorisations required in connection with the operation of the business of Micropolis Thailand, the absence of which may have a Material Adverse Effect on the business, assets or prospects or the financial condition or the results of operations of Micropolis Thailand. (iii) The Promotion Certificate of the Board of Investment No. 1555 issued to Micropolis Thailand is valid and has not been revoked and Micropolis Thailand is not in breach of the Promotion Certificate and has complied with all the terms and conditions of the Promotion Certificate. (I) The Audited Accounts -------------------- (i) The Audited Accounts have been prepared in accordance with all applicable laws and on a consistent basis in accordance with accounting principles, standards and practices generally accepted at the date hereof in Thailand so as to give a true and fair view of the state of affairs of Micropolis Thailand at the Balance Sheet Date and of the profits or losses for the period concerned and as at that date make:- (aa) full provision for all actual liabilities; C-37 38 (bb) proper provision (or note in accordance with good accountancy practice) for all contingent and disputed liabilities; (cc) provision reasonably regarded as adequate for all bad and doubtful debts; and (dd) due provision for depreciation and amortisation and any obsolescence of assets. (ii) Full provision or reserve has been made in the Audited Accounts for all taxation liable to be assessed on Micropolis Thailand or for which it is or may become accountable in respect of:- (aa) profits, gains or income (as computed for taxation purposes) arising or accruing or deemed to arise or accrue on or before the Balance Sheet Date; (bb) any transactions effected or deemed to be effected on or before the Balance Sheet Date or provided for in the Audited Accounts; and (cc) distributions made or deemed to be made on or before the Balance Sheet Date or provided for in the Audited Accounts. (iii) Proper provision or reserve for deferred taxation in accordance with accounting principles and standards generally accepted at the date hereof in Thailand has been made in the Audited Accounts. (iv) The profits of Micropolis Thailand as shown by the Audited Accounts have not been affected to a material extent by inconsistencies of accounting practices, by the inclusion of non-recurring items of income or expenditure, by transactions entered into otherwise than on normal commercial terms or by any other factors rendering such profits exceptionally high or low. (J) Taxation -------- There is no liability for Taxes in respect of which a claim could be made against Micropolis Thailand (other than as specifically provided for in the Audited Accounts and other than taxes on income arising from transactions entered into in the ordinary course of business after the Balance Sheet Date) C-38 39 and there are no circumstances likely to give rise to such a Liability. (K) Contributions ------------- (i) All deductions and payments required to be made by Micropolis Thailand in respect of contributions (including employer's contributions) to any relevant competent authority have been so made. (ii) Proper records have been maintained in respect of all such deductions and payments and all regulations applicable thereto have been complied with. (L) Tax returns ----------- (i) Micropolis Thailand has duly made all returns and given or delivered all notices, accounts and information which on or before the date hereof ought to have been made, given or delivered for the purposes of taxation and all such returns, notices, accounts and information (and all other information supplied to the inland revenue or the customs and excise or other fiscal authority concerned for any such purpose) have been correct and made on a proper basis and none of such returns, notices, accounts or information is disputed in any material respect by the fiscal authority concerned and there is not in existence any fact which might be the occasion of any such dispute or of any claim for taxation in respect of any financial period down to and including the Balance Sheet Date not provided for in the Audited Accounts. (ii) Without limiting the generality of Section 4.17(b)(L)(i), except as disclosed in the audited accounts for the period ending 29 December 1995, the tax returns of Micropolis Thailand have at all times been correct and on a proper basis and no taxes, levies or duties, including but not limited to goods and services tax, value added tax, sales tax and property tax, if any, are the subject of any arrears or other dispute with the fiscal authorities in Thailand or elsewhere and there is no liability to taxation in respect of which a claim could be made against Micropolis Thailand and there are no circumstances likely to give rise to such a claim. C-39 40 (iii) All documents the enforcement of which Micropolis Thailand may be interested in and which are subject to ad valorem stamp duty have been duly stamped and no document belonging to Micropolis Thailand which is subject to ad valorem stamp duty is or will be unstamped or insufficiently stamped; nor has any relief from such duty been improperly obtained, nor has any event occurred as a result of which any such duty from which relief has been obtained will become payable. (iv) Micropolis Thailand has not received any tax concession, relief or other special tax treatment, whether in relation to its assets or the business carried on by it or otherwise which, if revoked or otherwise removed, will or may give rise to any additional liability to taxation and, to the extent that Micropolis Thailand has received any such tax concession, relief or other special tax treatment, there are not in existence any facts or circumstances which will or may lead to the revocation or removal of the same. 4.18 Warranties in Respect of Purchased Companies -------------------------------------------- In the event ST Chatsworth elects to purchase the total issued share capital of each or any of the Purchased Companies pursuant to the option in Section 1.2:- (a) MCUS hereby makes the representations and warranties contained in Sections 4.1 to 4.16 in respect of the Purchased Company whose share capital is to be purchased insofar as the same would be applicable as if the assets, business, undertaking and liabilities of such companies were being acquired by ST; and (b) in respect of the Purchased Company whose share capital is to be purchased, MCUS warrants and represents to ST in the terms of Section 4.17(b) mutatis mutandis and all references therein to Micropolis Thailand shall be construed as references to the Purchased Company whose share capital is to be purchased and all references therein to Thailand shall be construed as references to the country of incorporation of the Purchased Company whose share capital is to be purchased. 4.19 Trade Payables -------------- The Trade Payables:- (a) arose from bona fide transactions in the ordinary course of business and are payable on ordinary trade terms; C-40 41 (b) are legal, valid and binding obligations of MC enforceable in accordance with their terms; (c) are not subject to any valid set-off or counterclaim; and (d) will be paid on normal credit terms. 4.20 Disclosure ---------- No representation or warranty in this Section 4 and the Disclosure Schedule, and no statement contained therein contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact or any fact necessary to make the statements contained herein or therein not misleading in any material respect. 5. REPRESENTATIONS AND WARRANTIES OF ST ------------------------------------ ST Chatsworth hereby makes the following representations and warranties to MCUS:- 5.1 Organisation and Qualification of ST ------------------------------------ ST Chatsworth is duly organised and validly existing under the laws of Singapore. ST Chatsworth has full corporate power and authority to enter into and perform the transactions contemplated by this Agreement. 5.2 Authority --------- This Agreement and each of the Ancillary Documents delivered or to be delivered by ST Chatsworth or a ST Affiliate will constitute the valid and binding obligation of ST Chatsworth or such ST Affiliate, as appropriate, when executed and delivered in accordance with its terms, and shall be enforceable against ST Chatsworth or such ST Affiliate in accordance with their respective terms, except to the extent such enforceability:- (a) may be limited by bankruptcy, insolvency, reorganisation, moratorium or similar laws affecting the enforcement of creditors' rights generally; (b) is subject to equitable principles generally. The execution, delivery and performance of this Agreement and of the Ancillary Documents delivered or to be delivered by ST Chatsworth or such ST Affiliate have been, or when delivered will be, duly authorised by all necessary corporate action of ST Chatsworth or such ST Affiliate. The execution, delivery and performance by ST Chatsworth or such ST Affiliate, as the case may be, of this Agreement or any Ancillary Documents does not and will not with the passage of time or the giving of notice or both:- C-41 42 (a) violate any provisions of the memorandum and articles of association or equivalent, or bylaws of ST Chatsworth or the ST Affiliate; or (b) require any approval, consent or waiver of, or filing with, any entity, private or governmental except such approvals which are required under Section 8.4. 6. COVENANTS OF MCUS PRIOR TO CLOSING ---------------------------------- MCUS covenants and agrees as follows throughout the period from the date hereof through and including the Closing:- 6.1 Restrictions ------------ Except as may be otherwise contemplated by this Agreement or except as ST Chatsworth may otherwise consent to in writing, MCUS shall cause the Disk Drive Business in all material respects to be conducted in the ordinary course of business and in substantially the same manner in which such business and operations have been previously conducted prior to the date hereof and shall:- (a) deliver or make, duly and correctly all accounts, documents and returns required by applicable law to be made to such authorities as is appropriate; (b) conduct its business and affairs in all material respects in accordance with its memorandum and articles of association or equivalent and all applicable laws and regulations of any country in which it operates; (c) keep ST Chatsworth informed and consult with ST Chatsworth on all material proposals and matters affecting or potentially affecting the Disk Drive Business; (d) hold meetings from time to time with the representatives of ST Chatsworth at such times as may be requested by ST Chatsworth on reasonable notice in order that ST Chatsworth may be informed as to the progress of the Disk Drive Business; (e) use all efforts to:- (i) preserve intact the present business organisation and reputation of the Disk Drive Business; (ii) keep available (subject to dismissals and retirements in the ordinary course of business consistent with past practice) the services of the employees; (iii) maintain the Acquired Assets in good working order and condition, ordinary wear and tear excepted; C-42 43 (iv) maintain the goodwill of customers, suppliers, lenders and other persons to whom MC sell goods or provide services or with whom MC otherwise have significant business relationships in connection with the Disk Drive Business; and (v) continue all current sales, marketing and promotional activities relating to the Disk Drive Business; and (f) except to the extent required by applicable law:- (i) cause the Disk Drive Business books and records to be maintained in the usual, regular and ordinary manner, and (ii) not permit any material change in any pricing, investment, accounting, financial reporting, inventory, credit, allowance or tax practice or policy of MC that would adversely affect the Disk Drive Business, the Acquired Assets and the Assumed Liabilities. 6.2 Matters Pending Closing ----------------------- Without limiting the generality of Section 6.1 with respect to the Disk Drive Business throughout the period from the date hereof through and including the Closing, MCUS shall not (except with the prior written consent of ST Chatsworth) cause or permit MC to:- (a) suffer or permit any event or condition within MC's control which will have a Material Adverse Effect on the Disk Drive Business or the Acquired Assets; (b) effect any dissolution, winding up, liquidation or termination of MC; (c) effect any merger or consolidation of MC unless MC is the survivor thereof; (d) institute, settle or dismiss any litigation, claim or other proceeding with respect to the Disk Drive Business or the Acquired Assets before any court or governmental agency; (e) make any change in the memorandum and articles of association or equivalent, or bylaws of MC which would hinder, delay or prohibit the transactions contemplated by this Agreement; (f) dispose of or agree to dispose of any interest in the Disk Drive Business or grant any option or right of pre-emption over, or mortgage, charge or otherwise encumber the assets of the Disk Drive Business including the Acquired Assets; C-43 44 (g) take any action which is inconsistent with the provisions of this Agreement or the consummation of the transactions contemplated hereunder; (h) enter into any transaction, agreement, contract, commitment or arrangement:- (i) which involves or is likely to involve negotiations or resources on the Disk Drive Business of an unusual or exceptional nature; or (ii) which is not in the ordinary course of business and on arm's length terms; (i) amending, modifying, terminating (partially or completely), granting any waiver under or giving any consent with respect to any contract in relation to the Disk Drive Business; (j) violating, breaching or defaulting under in any material respect, or taking or failing to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or default under any term or provision of any contract in relation to the Disk Drive Business; (k) fail to take any action required to maintain any of its insurances in force or knowingly do anything to make any policy of insurance void or voidable; (l) make or agree to make any change in the nature or organisation of the Disk Drive Business; (m) make any material change to the accounting procedures or principles by reference to which its accounts are drawn up otherwise than as required by any accounting standards authorities; (n) borrow any money or agree to (other than by bank overdraft or similar facility in the ordinary course of business and within limits subsisting as at the date of this Agreement); (o) incurring, purchasing, cancelling, prepaying or otherwise providing for a complete or partial discharge in advance of a scheduled payment date with respect to, or waiving any right of MC under, any liability of or owing to MC in connection with the Disk Drive Business, other than in the ordinary course of business consistent with past practice; (p) make or agree to make any capital commitment, including for this purpose, the acquisition of any capital asset under a finance lease; C-44 45 (q) create, grant or issue, agree to create, grant or issue, any mortgages, charges (other than liens arising by operation of law), debentures or other securities or give or agree to give any guarantees or indemnities; and (r) engaging in any transaction with respect to the Disk Drive Business with any officer, director, affiliate or associate of MC, or any associate of any such officer, director or affiliate or in relation to the system business, either outside the ordinary course of business consistent with past practice or other than on an arm's length basis. 6.3 Notice of Breach ---------------- To the extent MCUS obtains knowledge that any of the representations or warranties contained in Section 4 would be incorrect in any respect were those representations or warranties made immediately after such knowledge was obtained, MCUS shall notify ST Chatsworth in writing promptly of such fact and MCUS shall or shall procure the MC Affiliates to exercise their best efforts to remedy the same. 6.4 Access ------ MCUS shall or shall procure the MC Affiliates to provide ST and ST's solicitors, auditors, environmental consultants and appraisers, officers, directors, employees, agents, financial advisors, consultants and other representatives, with such information as ST may from time to time reasonably request with respect to the Disk Drive Business and the transactions contemplated by this Agreement, and shall provide ST and such representatives reasonable access during regular business hours and upon reasonable notice to the properties, books and records of the Disk Drive Business as ST may from time to time reasonably request. 6.5 Authorisation from Others ------------------------- MCUS will or will procure the MC Affiliates to:- (a) take all commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable to obtain all consents, approvals or actions of, to make all filings with and to give all notices to Governmental or Regulatory Authority or any other person required of MC to consummate the transactions contemplated hereby and by the Ancillary Documents; (b) provide such other information and communications to such Governmental or Regulatory Authority or other persons as ST or such Governmental or Regulatory Authority or other persons may reasonably request in connection therewith; and C-45 46 (c) co-operate with ST as promptly as practicable in obtaining all consents, approvals or actions of, making all filings with and giving all notices to Governmental or Regulatory Authority or other persons required of ST to consummate the transactions contemplated hereby and by the Ancillary Documents and in connection with the voluntary notice to CFIUS (as defined in Section 15.14). MCUS will provide prompt notification to ST when any such consent, approval, action, filing or notice referred to in Section 6.5(a) is obtained, taken, made or given, as applicable, and will advise ST of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other person regarding any of the transactions contemplated by this Agreement or any of the Ancillary Documents. 6.6 HSR Filings ----------- In addition to and not in limitation of MCUS's covenants contained in Section 6.5, MCUS will:- (a) take promptly all actions necessary to make the filings required or MC under the HSR Act (as defined in Section 15.14); (b) comply at the earliest practicable date with any request for additional information received by MC from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act; and (c) co-operate with ST in connection with ST's filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general and CFIUS under the Exon-Florio Amendment (as defined in Section 15.14) of the transactions contemplated by this Agreement and by the Ancillary Documents and, in connection therewith, provide CFIUS with such information concerning the transactions contemplated by this Agreement and the Ancillary Documents as is reasonably necessary or desirable. 6.7 Consummation of Agreement ------------------------- MCUS and ST Chatsworth shall use their reasonable efforts and due diligence to satisfy all conditions to the Closing to the end that the transactions contemplated by this Agreement shall be fully carried out. C-46 47 6.8 Relationships with Customers and Suppliers ------------------------------------------ MCUS shall and shall procure the MC Affiliates to use their best efforts to keep available until the Closing its key employees and shall not make any material variation to the terms and conditions of employment of such employees and to maintain its relationship with material customers, distributors and suppliers and other persons having material business dealings with it such that the Disk Drive Business will not be impaired. 6.9 Defective Disk Drives --------------------- MCUS shall notify ST Chatsworth on a weekly basis of the number of disk drives that are returned by customers for after-sales service or to meet warranty claims or the subject of complaint by customers and a reasonably detailed description of the reason for the return of the disk drives. 6.10 Stock Verification ------------------ MCUS shall conduct a joint stock verification exercise with ST Chatsworth of the Machinery and Equipment and Inventory as of the Closing Date. Provided that the stock verification exercise shall not in any way relieve or discharge MCUS from any liability for breach of warranty or otherwise which would have arisen under this Agreement. 6.11 Inventory for System Business ----------------------------- MCUS shall ensure that at the Closing the finished goods inventory sold or transferred to or otherwise in the possession or control of its system business shall not exceed the value of US$4,000,000. 6.12 Balance Sheet For Disk Drive Business ------------------------------------- MCUS shall at Closing provide ST Chatsworth with a list of the Acquired Assets owned by, belonging to or to be sold by it and the relevant MC Affiliate and the country of location of the relevant Acquired Assets. 6.13 Financial Statement of Disk Drive Business ------------------------------------------ MCUS shall at Closing deliver to ST Chatsworth the audited accounts of MCUS on a consolidated basis for the twelve months ended 29 December 1995 together with all notes thereto and a division of the audited accounts between the Disk Drive Business and the system business and an analysis supporting such division. C-47 48 6.14 List of Acquired Assets ----------------------- On or before 1 February 1996, MCUS shall deliver to ST Chatsworth a detailed list of all the Acquired Assets together with copies of the relevant contract, agreement or document in relation thereto as ST Chatsworth may require to identify the Acquired Assets. 6.15 Accounts of Purchased Companies ------------------------------- MCUS shall on or before 29 February 1996 deliver to ST Chatsworth the audited accounts of Micropolis Thailand and each of the Purchased Companies for the year ending 29 December 1995. 6.16 Inventory for Evaluation ------------------------ MCUS shall obtain the written consent of ST Chatsworth prior to sending any inventory to any customer for evaluation. 6.17 Purchase of Issued Share Capital -------------------------------- In relation to Micropolis Thailand and each of the Purchased Companies which ST Chatsworth has elected to purchase the issued share capital, MCUS shall not and shall ensure that without the prior written consent of ST Chatsworth:- (a) no dividend or other distribution will be declared, made or paid to its members; (b) no material change will be made in the basis of the emoluments or other terms of employment of its directors or any of its employees; and (c) it has not terminated the lease in relation to any of the premises where the business of the relevant companies are carried on. 7. COVENANTS OF ST CHATSWORTH -------------------------- 7.1 Regulatory and Other Approvals ------------------------------ ST Chatsworth will:- (a) take all commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable to obtain all consents, approvals or actions of, to make all filings with and to give all notices to Governmental or Regulatory Authority or any other person required of ST Chatsworth to consummate the transactions contemplated hereby and by the Ancillary Documents; C-48 49 (b) provide such other information and communications to such Governmental or Regulatory Authority or other persons as MCUS or such Governmental or Regulatory Authority or other persons may reasonably request in connection therewith; and (c) co-operate with MCUS as promptly as practicable in obtaining a consents, approvals or actions of, making all filings with and giving all notices to Governmental or Regulatory Authority or other persons required of MCUS to consummate the transactions contemplated hereby and by the Ancillary Documents. ST Chatsworth will provide prompt notification to MCUS when any such consent, approval, action, filing or notice referred to in Section 7.1(a) is obtained, taken, made or given, as applicable, and will advise MCUS of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other person regarding any of the transactions contemplated by this Agreement or any of the Ancillary Documents. 7.2 HSR Filings ----------- In addition to and without limiting ST Chatsworth's covenants contained in Section 7.1, ST Chatsworth will:- (a) take promptly all actions necessary to make the filings required of ST Chatsworth under the HSR Act; (b) comply at the earliest practicable date with any request for additional information received by ST Chatsworth from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act; and (c) co-operate with MCUS in connection with MCUS's filing under the HSR Act and in connection with resolving any investigation or other regulatory inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general and CFIUS under the Exon-Florio Amendment of the transactions contemplated by this Agreement and by the Ancillary Documents and, in connection therewith, provide CFIUS with such information concerning the transactions contemplated by this Agreement and the Ancillary Documents as is reasonably necessary or desirable. 7.3 Maintenance of Goodwill ----------------------- ST Chatsworth shall use such reasonable efforts to assist MCUS to maintain the goodwill of the Disk Drive Business, including making visits to the suppliers and customers. C-49 50 8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ST CHATSWORTH TO CLOSE ----------------------------------------------------------------- The obligation of ST Chatsworth to acquire the Acquired Assets and assume the Assumed Liabilities as contemplated hereby shall be subject to the fulfilment, on or prior to the Closing Date, unless otherwise waived, in whole or in part, in writing by ST Chatsworth, of the following conditions:- 8.1 Representations and Warranties ------------------------------ The representations and warranties of MCUS set forth in Section 4 hereof shall be true and correct in all respects when made and shall be true and correct in all respects on the Closing Date as if made on and as of such date, except to the extent that such representations and warranties were made as of a specified date as to such representations and warranties the same shall continue on the Closing Date to have been true as of the specified date. 8.2 Performance of Covenants ------------------------ MCUS shall have performed in all material respects all of its obligations contained in this Agreement to be performed on or prior to the Closing Date, and ST Chatsworth shall have received a certificate to such effect, executed by MCUS and dated as of the Closing Date, in form satisfactory to ST Chatsworth. Notwithstanding the provisions of Sections 8.1 and 8.2 hereof, ST Chatsworth shall be entitled to enforce, without regard to materiality, the representations, warranties, agreements, covenants and obligations which are made by MCUS herein and which are not, by their terms, qualified as to materiality. 8.3 Orders and Laws --------------- There shall not be in effect on the Closing Date any order or law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Documents or which could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement or any of the Ancillary Documents to ST and there shall not be pending or threatened on the Closing Date any action or proceeding or any other action in, before or by any Governmental or Regulatory Authority which could reasonably be expected to result in the issuance of any such order or the enactment, promulgation or deemed applicability to ST or the transactions contemplated by this Agreement or any of the Ancillary Documents of any such law. C-50 51 8.4 Regulatory Consents and Approvals --------------------------------- All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit ST and MCUS to perform their obligations under this Agreement and the Ancillary Documents and to consummate the transactions contemplated hereby and thereby:- (a) shall have been duly obtained, made or given; (b) shall be in form and substance reasonably satisfactory to ST Chatsworth; (c) shall not be subject to the satisfaction of any condition that has not been satisfied or waived; and (d) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement and the Ancillary Documents, including under the HSR Act, shall have occurred, including without limitation, the approval of MCUS's stockholders of the transactions contemplated hereby, and ST shall have been furnished with copies of all applicable resolutions certified by the Secretary or Assistant Secretary or other appropriate officer of MCUS. 8.5 Delivery of Certificates and Documents to ST Chatsworth ------------------------------------------------------- MCUS shall have delivered, or caused to be delivered to ST Chatsworth the certificates as to the legal existence and corporate good standing of each of MCUS and the MC Affiliates and copies of their respective memorandum and articles of association, or equivalent, as amended, issued or certified by the Secretary or Assistant Secretary or other appropriate officer of MCUS (except for any jurisdiction in which the concept of good standing is inapplicable). 8.6 Exon-Florio Amendment --------------------- ST Chatsworth shall have received written notice from CFIUS of its determination pursuant to the Exon-Florio Amendment not to undertake an investigation of the transactions contemplated by this Agreement and the Ancillary Documents. 8.7 Pledge ------ That the pledge in favour of the CIT Group/Business Credit Inc, over all the assets of MC and all other Liens shall be discharged to the extent that the Acquired Assets shall cease to be subject to such pledge on or prior to Closing. C-51 52 8.8 Damage or Destruction --------------------- MC shall not have suffered prior to the Closing Date any loss on account of fire, flood, accident or any other calamity or casualty to an extent that would materially interfere with the conduct of the Disk Drive Business or materially impair the value of the Disk Drive Business as a going concern, regardless of whether any such loss or losses have been insured against. 8.9 Title Insurance --------------- In the event ST Chatsworth exercises the option to purchase the US Real Property, ST Chatsworth shall have received a policy of title insurance on forms of and issued by one or more title companies reasonably satisfactory to ST Chatsworth insuring the title of MCUS to the US Real Property, subject only to such exceptions as are reasonably satisfactory to ST Chatsworth, and MCUS shall have paid to such title companies all expenses and premiums of such title companies in connection with the issuance of such policies. 8.10 Completion of Due Diligence --------------------------- The completion of a due diligence investigation on each of MCUS and the MC Affiliates (including, without limitation):- (a) an audit of the financial condition of Micropolis Thailand and each of the Purchased Companies whose issued share capital is to be purchased by ST Chatsworth; and (b) a legal and financial analysis of each of MCUS and the MC Affiliates and the Acquired Assets and the Assumed Liabilities on or before Closing, and the result of such due diligence exercise being satisfactory to ST Chatsworth. Provided that if ST Chatsworth shall not have informed MCUS to the contrary on or before 29 February 1996, it shall be deemed to be satisfied with the said due diligence. 8.11 Approval of Board of Directors ------------------------------ The approval by the board of directors of ST Chatsworth of the purchase or the Disk Drive Business by ST Chatsworth and the entry into this Agreement by ST Chatsworth. C-52 53 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF MCUS TO CLOSE ---------------------------------------------------- The obligation of MCUS to sell or procure the MC Affiliates to sell the Acquired Assets as contemplated hereby shall be subject to the fulfilment, on or prior to the Closing Date, unless otherwise waived in writing by MCUS of the following conditions:- 9.1 Approval of Board of Directors ------------------------------ The approval of the board of directors of MCUS of the sale of the Disk Drive Business by MCUS and the entry into this Agreement by MCUS. 9.2 Approval of MCUS Stockholders ----------------------------- The stockholders of MCUS shall have approved the transactions contemplated hereby. 9.3 Delivery of Certificates and Documents to MCUS ---------------------------------------------- ST Chatsworth shall have delivered, caused to be delivered, to MCUS the certificates as to the legal existence and corporate good standing of ST Chatsworth and the ST Affiliate and copies of their respective memorandum and articles of association or equivalent, as amended, issued or certified by the Secretary or Assistant Secretary or other appropriate officer of ST Chatsworth or the ST Affiliate as appropriate (except for any of such entities organised under the laws of a jurisdiction in which the concept of good standing is inapplicable). 9.4 Exon-Florio Amendment --------------------- ST Chatsworth shall have received written notice from CFIUS of its determination pursuant to the Exon-Florio Amendment not to undertake an investigation of the transactions contemplated by this Agreement and the Ancillary Documents. 9.5 Orders and Laws --------------- There shall not be in effect on the Closing Date any order or law that became effective after the date of this Agreement restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Documents or which could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement or any of the Ancillary Documents to MCUS and there shall not be pending or threatened on the Closing Date any action or proceeding or any other action in, before or by any Governmental or Regulatory Authority which could reasonably be expected to result in the issuance of any such order or the enactment, promulgation or deemed applicability to MCUS or the transactions C-53 54 contemplated by this Agreement or any of the Ancillary Documents of any such law. 9.6 Regulatory Consents and Approvals --------------------------------- All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit MC and ST to perform their obligations under this Agreement and the Ancillary Documents and to consummate the transactions contemplated hereby and thereby:- (a) shall have been duly obtained, made or given; (b) shall not be subject to the satisfaction of any condition that has not been satisfied or waived; and (c) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement and the Ancillary Documents, including under the HSR Act, shall have occurred. 10. CERTAIN RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING ---------------------------------------------------- 10.1 Survival of Representations, Warranties, Agreements, Covenants and ------------------------------------------------------------------ Obligations ----------- All representations, warranties, agreements, covenants and obligations herein or in any exhibit, schedule, certificate or financial statement delivered by any party to another party incident to the transactions contemplated in this Agreement or in any Ancillary Document shall be deemed to have been relied upon by the other party, shall survive the execution and delivery of this Agreement, any investigation made by any party hereto, and the sale and purchase of the Acquired Assets and payment therefor. 10.2 Further Assurances ------------------ From time to time after the Closing and without further consideration, the parties will execute and deliver, or arrange for the execution and delivery of, such other instruments of conveyance and transfer and take such other action or arrange for such other actions as the other parties may reasonably request in order to evidence the consummation of the transactions contemplated hereby and to further effectuate the transactions contemplated by this Agreement. 10.3 Publicity and Disclosures ------------------------- No press release or any public disclosure, either written or oral, of the transactions contemplated by this Agreement shall be made without the prior knowledge and written consent of MCUS and ST Chatsworth, provided that C-54 55 either MCUS or ST Chatsworth may make such disclosures as are required by law or the rules and regulations of any stock exchange on which their shares are quoted after notice to, and, to the extent practicable, consultation with, the other. 10.4 Further Co-operation of the Parties ----------------------------------- (a) MCUS and ST Chatsworth agree to use their reasonable efforts and cooperate in good faith to secure the transfer to ST or the re- issuance or issuance in the name of ST of all consents, licences and permits required under applicable law or regulation, federal, state and local or necessary to the ownership of the Acquired Assets or the operation of the Disk Drive Business. (b) After Closing, ST Chatsworth shall at the request of MCUS provide MCUS access to the records and books sold and transferred herein to ST Chatsworth for the purpose of enabling MCUS to prepare and file its tax returns and to comply with other regulatory requirement. 10.5 Consents of Third Parties ------------------------- To the extent that any transfer or assignment of any Acquired Assets or Assumed Contract to be transferred and assigned to ST as provided herein shall require the consent of the other party thereto, or of any other person or governmental or other authority, and such consent is not obtained, then as between MC and such other party, person or authority this Agreement shall not constitute an agreement to assign the same unless and until such consent shall have been obtained. MCUS agrees that, at the request of ST, they will use their best efforts, before and after Closing, to obtain and deliver the consent of the other parties and the approvals of other persons or authorities, to the extent necessary, to the assignment of all such contracts, leases, licences, commitments or rights to ST. Until such consent or approval is obtained, MCUS, at their expense, shall or shall procure the MC Affiliates to either act as ST's agent in order to obtain for it the benefits thereunder or will co- operate with ST in any reasonable arrangement designed to provide for ST all benefits under such contracts, leases, licenses, commitments or rights and, to the extent ST obtains the benefit of any such Acquired Assets or Assumed Contract, ST shall perform its obligations with respect thereto. 10.6 Mail Received after Closing --------------------------- (a) In the event that ST receives after the Closing any mail or other communications addressed to MC, ST may open such mail or other communications and deal with the contents thereof in its discretion to the extent that such mail or other communications and the contents thereof relate to any of the Acquired Assets or to any of the Assumed Liabilities, including the right to endorse without recourse the name of MC on any cheque received by ST with respect to the Acquired C-55 56 Assets, and to deal with the proceeds in accordance with the terms of this Agreement. ST agrees to deliver or cause to be delivered to MC all other mail and the contents thereof which does not relate to the Acquired Assets or the Assumed Liabilities, including any amounts received by ST on or after the Closing Date not in respect of Acquired Assets or Assumed Liabilities. If any cheque or other evidence of indebtedness endorsed by ST represents a payment not on account of an Acquired Asset or Assumed Liability, ST shall pay MC on the date ST receives payment the amount of such payment. (b) In the event that MC receive after the Closing Date any mail or other communications addressed to MC which relates to any of the Acquired Assets or the Assumed Liabilities, MCUS shall or shall procure the MC Affiliates to promptly deliver or cause to be delivered all such mail or other written communication and the contents thereof to ST. MCUS agrees to co-operate with ST and to make arrangements reasonably necessary in order to properly deal with cheques addressed to MC but which belong to ST pursuant to this Agreement, and to properly direct the proceeds thereof to ST. 10.7 Employment of Business Employees by ST -------------------------------------- (a) ST Chatsworth or the ST Affiliate may at any time hereafter, offer employment to such of the current employees of MC employed in the Disk Drive Business as ST in its absolute discretion deems fit (such employees to whom ST shall offer employment shall hereinafter be referred to as the "Business Employees"). ST's or the ST ------------------ Affiliate's offer of employment to the Business Employees shall be on such terms as ST or the ST Affiliate in its absolute discretion deems fit. Provided that ST shall offer employment to Mr Ray Vapian and Mr Terry Atkins, such offer of employment shall be on such terms as ST in its absolute discretion deems fit and shall commence 120 days after the Closing Date or such earlier date as the parties may agree. Such Business Employees who accept such offers of employment are hereinafter referred to as "Transferred Employees." To the --------------------- extent assignable, MCUS shall and shall procure the MC Affiliates to assign to ST Chatsworth all confidentiality and non-compete covenants related to the Disk Drive Business of all Transferred Employees. (b) For injuries arising out of employment by MC prior to the Closing Date, MC shall be liable for any damages, costs, losses, expenses or liabilities including, without limitation, any workers' compensation (including benefits, medical and rehabilitation expenses and any other expenses or obligations) payable under tort, occupational health and safety laws or otherwise in respect of MC's Business Employees. ST shall be liable for any such damages, costs, losses, expenses or liabilities payable for injuries arising out of the employment of the Transferred Employees by ST on or after the Closing Date. C-56 57 (c) ST shall have no liabilities or obligations under or with respect to MC's Plans (as defined in Section 4.13). (d) ST shall have no liabilities or obligations with respect to MC's employees other than Transferred Employees as set out in Section 1.5(h), and MC shall be solely responsible for such other employees for all purposes, including, without limitation, any health benefit continuation, severance, redundancy or other entitlements under any applicable law. 10.8 Accounts Receivable ------------------- (a) In relation to the accounts receivable related to the Disk Drive Business of MC except the Sundry Assets, ST shall render such reasonable assistance to MC in the collection of the accounts receivable, however, ST shall not be required to initiate legal proceedings or to engage a collection agent for this purpose or to terminate its business relationship with the debtor. (b) ST shall at the written request of MC supported by reasonable grounds, stop or suspend the sale of disk drives to any customer which has unreasonably failed to discharge its debt giving rise to the aforesaid accounts receivable of MC. (c) In the event within a period of 90 days after the Closing Date, any pricing policy adopted by ST Chatsworth has an adverse effect on the price protection policy of MCUS towards customers, resulting in a reduction of the aforesaid accounts receivable, ST Chatsworth will indemnify MCUS for the reduction in the aforesaid accounts receivable during the 90-day period. 10.9 Transfer Tax Liabilities ------------------------ (a) ST Chatsworth shall be responsible for all documentary, stamp, sales, use, notarisation, excise, transfer or other taxes or fees payable in respect of the sale and transfer of the Acquired Assets and Assumed Liabilities including any value added tax, but excluding any income taxes payable by MC in relation to or arising from the sale of the Acquired Assets and the Assumed Liabilities (the "Transfer Tax Liabilities" or "Transfer Taxes"). ------------------------ -------------- (b) ST Chatsworth and MCUS shall use reasonable efforts to minimise the Transfer Tax or to recover any Transfer Taxes paid and shall cooperate with each other in such efforts and in the filing of any exemption, application, returns or reports relating to the Transfer Taxes. MCUS shall deliver on a timely basis to ST Chatsworth any documents which may be used by ST Chatsworth under applicable state or local law to support the position that the sale of any Acquired C-57 58 Assets pursuant hereto is not subject to a Transfer Tax (including resale certificates and similar documents relating to the sale of inventory for resale of property incorporated into inventory for resale), and shall promptly deliver to ST Chatsworth any other documents reasonably requested by ST Chatsworth with respect to the applicability of any Transfer Tax. 10.10 Provisions in Relation to the Name "Micropolis" ----------------------------------------------- (a) MC undertakes that at no time after the Closing Date shall it or the MC Affiliates or related company use as or as part of its corporate name or as, or as part of, any trade mark, service mark or logo (whether any of the foregoing is registered or unregistered) or as or as part of any trading or business name, the name "Micropolis" or any name which is the same as, similar to or a colourable imitation of, the name "Micropolis". (b) Within 3 months, in the case of premises, sales literature and stationery and 6 months in the case of products, following the Closing Date, MCUS shall and shall procure the MC Affiliates or other related company to remove the "Micropolis" name or mark from its premises, products, sales literature and stationery and by the last day of the relevant period and so far as practicable during the relevant period shall delete from existing stocks of sales literature and stationery, references to the "Micropolis" name or mark by taking reasonable steps to delete the same with an ink marker so that no trace can be seen of the "Micropolis" name or mark. (c) Promptly after the Closing, MCUS shall and shall procure the MC Affiliates or other related company whose corporate name or title is or includes the name "Micropolis" to change the corporate name or title to remove the name "Micropolis" therefrom. (d) After the Closing Date, MCUS undertakes to provide ST with such assistance as may be required to enable ST or such party nominated by ST Chatsworth to register the name "Micropolis" with the relevant registry of companies and businesses or other similar or analogous body as ST may determine. 10.11 Warranty Servicing ------------------ After the Closing Date, ST shall take all reasonable steps to perform, in accordance with its normal business standards, the obligations of MC to provide after-sales service or to meet warranty claims of customers in relation to inventory sold in the normal course of the Disk Drive Business by MC prior to the Closing Date, insofar as the same are required by MC's conditions of sale. C-58 59 10.12 Inventory Sent for Evaluation ----------------------------- In relation to the inventory delivered to customers of MC prior to the date hereof for evaluation, on the return of such inventory by the customers, ST shall return the inventory to MCUS. 10.13 AMK Leasehold ------------- At the request of ST Chatsworth, Micropolis Singapore shall use its best endeavours to obtain from the lessor such extension of the lease of the AMK Leasehold as ST Chatsworth may require and upon such extension the irrevocable licence granted to ST Chatsworth to use the leasehold interest in relation to the AMK Leasehold to the exclusion of Micropolis Singapore shall be extended accordingly. 11. INDEMNIFICATION --------------- 11.1 General Indemnification by MCUS ------------------------------- (a) MCUS agrees to indemnify and hold each of ST Chatsworth and the ST Affiliates and their respective officers, directors, affiliates, employees and agents (individually a "ST Indemnified Party" and -------------------- collectively the "ST Indemnified Parties"), harmless from and ---------------------- against any damages, liabilities, losses and expenses and any claims by third persons (including, without limitation, reasonable solicitors' fees, amounts paid in settlement of any claim or suit, fines, penalties or interest, of any kind or nature whatsoever including loss of profits and/or consequential damages) ("Loss" or ---- "Losses"), which may be sustained or suffered by an ST Indemnified ------ Party arising out of or by reason of:- (i) a breach of any representation or warranty of MCUS made in this Agreement, the Disclosure Schedule or any Ancillary Document; (ii) any failure to perform any agreement or covenant of MCUS in this Agreement or in any Ancillary Document to be performed or complied with; and (iii) any liability of MCUS that is not an Assumed Liability. (b) Provided that no claim shall be made in respect of the aforesaid indemnity by the ST Indemnified Parties unless notice shall have been given by ST Chatsworth to MCUS within 12 months following Closing in the case where the claim relates to the Acquired Assets and the Assumed Liabilities (except Micropolis Thailand and the Purchased Companies where ST Chatsworth has elected to purchase the issued share capital thereof) and 24 months following Closing in the case C-59 60 where the claim relates to Micropolis Thailand and the Purchased Companies where ST Chatsworth has elected to purchase the issued share capital thereof. (c) The maximum aggregate liability of MCUS for all claims in respect of the aforesaid indemnity shall not exceed the Purchase Price. (d) No claim shall be made in respect of the aforesaid indemnity unless the aggregate amount of all such claims exceeds US$100,000. 11.2 Environmental Indemnification by MCUS ------------------------------------- MCUS agrees to indemnify and hold each of the ST Indemnified Parties harmless from and against any Losses including any claim by third persons (including, without limitation, any foreign, provincial, state or local agency having jurisdiction over environmental matters or Environmental Laws) (including, without limitation, reasonable solicitors' fees, amounts paid in settlement of any claim or suit and costs of clean-up, restoration, remediation or removal required under Environmental Laws) which may be sustained or suffered by any of the ST Indemnified Parties arising out of or by reason of:- (a) any environmental matters disclosed in the Disclosure Schedule; (b) any of the following occurring prior to the Closing Date; (i) generation, use, treatment, handling, storage or disposal, or arrangement for the treatment, handling, storage or disposal, of Hazardous Materials on, or release of Hazardous Materials to or from, the Real Property permitted, taken or made by any person whomsoever, whether or not in compliance with Environmental Laws then in force; (ii) the removal of Hazardous Materials from the Real Property and/or the ultimate disposition of such Hazardous Materials, by any person whomsoever, whether or not in compliance with Environmental Laws then in force; (iii) the use of the Real Property by any person whomsoever in such a manner as to cause a violation of any Environmental Laws or to potentially give rise to any liability or obligation for the remediation or restoration of the Real Property or any other affected property, or for the treatment, storage, removal, disposal, release or arrangement for removal or disposal or transportation of any Hazardous Materials; (iv) any violation of Environmental Laws in relation to the Real Property; C-60 61 (v) the failure by any person to obtain, maintain current, and comply with the terms and conditions of, all permits, approvals, licenses and other authorisations and renewals thereof, required by the Environmental Laws for the use and operation of the Real Property; and (vi) the exposure of employees of any owner, operator or lessees of the Real Property to Hazardous Materials on or in relation to the Real Property. The obligations of MCUS under this Section 11.2 shall survive indefinitely. 11.3 Notice and Defence of Claim --------------------------- (a) In the event that any party shall incur or suffer any Losses in respect of which indemnification may be sought by such party pursuant to the provisions of this Section 11, the party seeking to be indemnified hereunder (the "Indemnified Party") shall assert a ----------------- claim for indemnification by written notice (a "Notice") to the ------ party from whom indemnification is sought (the "Indemnifying Party") ------------------ stating the nature and basis of such claim. In the case of Losses arising by reason of any third party claim, the Notice shall be given within sixty (60) days of the filing or other written assertion of any such claim against the Indemnified Party, but the failure of the Indemnified Party to give the Notice within such time period shall not relieve the Indemnifying Party of any liability that the Indemnifying Party may have to the Indemnified Party except to the extent that the Indemnifying Party is actually prejudiced thereby. (b) The Indemnified Party shall provide to the Indemnifying Party on request all information and documentation reasonably necessary to support and verify any Losses which the Indemnified Party believes give rise to a claim for indemnification hereunder and shall give the Indemnifying Party reasonable access to all premises (including the Real Property), books, records and personnel in the possession or under the control of the Indemnified Party which would have bearing on such claim. (c) In the case of any claims for which indemnification is sought, the Indemnified Party shall have the option:- (i) to conduct and control or cause the Indemnifying Party to conduct and control any proceedings or negotiations in connection therewith; and C-61 62 (ii) to perform and control or direct or cause the Indemnifying Party to perform and control or direct the performance of activities required, including remedial activities, under Environmental Laws. The parties agree to cooperate fully with one another in connection with the matters set out in this Section 11.3(c). (d) Notwithstanding anything in this Agreement to the contrary, MCUS shall be responsible for any liability or obligation as a result of ST's failure to comply with applicable law in connection with the ownership or operation of the Disk Drive Business by ST after the Closing if the Disk Drive Business is owned or operated after the Closing in the manner owned or operated prior to Closing except that MCUS shall be responsible for such on-going failure to comply until the earlier of:- (i) the first anniversary of the Closing Date; or (ii) the date upon which ST obtains actual knowledge that such manner of operation is in violation of applicable law. 11.4 No Tax Effect; Insurance ------------------------ (a) Indemnification for Losses payable pursuant to the indemnification provisions in this Section 11 shall be on a dollar for dollar basis and shall be determined without regard to deductibility for tax purposes or other tax benefits to the Indemnified Party or any other person or entity resulting therefrom. (b) The Indemnifying Party shall make any indemnification payments determined to be payable to the Indemnified Party hereunder promptly after such determination is made, without delay, and without regard to any expectation that the Indemnified Party will recover insurance proceeds as a direct result of the matter giving rise to the claim for which indemnification payments are to be made. The Indemnified Party shall have no obligation whatsoever to seek to recover or make a claim for insurance proceeds as a result of any matter giving rise to an indemnification claim of the Indemnified Party against the Indemnifying Party. Notwithstanding the foregoing, if the Indemnified Party receives any insurance proceeds as a direct result of the matter giving rise to any indemnification claim of the Indemnified Party prior to the date upon which the Indemnifying Party is given notice of the claim, the Indemnifying Party's indemnification obligation with respect to such claim shall be reduced by the amount of any such insurance proceeds actually received by the Indemnified Party. If the Indemnified Party receives any insurance proceeds as a direct result of the matter giving rise to any indemnification claim of the Indemnified Party against the Indemnifying Party after the C-62 63 Indemnifying Party has paid such indemnification claim to the Indemnified Party, then the Indemnified Party shall promptly turn over my such insurance proceeds received to the Indemnifying Party to the extent of the payments made by the Indemnifying Party to the Indemnified Party on the claim. 12. TERMINATION OF AGREEMENT ------------------------ 12.1 Termination ----------- At any time prior to the Closing Date, this Agreement may be terminated:- (a) by the written agreement of ST Chatsworth and MCUS; (b) by MCUS if there has been a material misrepresentation, breach of warranty or breach of covenant by ST Chatsworth in its representation, warranties and covenants set forth herein and such breach results in a failure to satisfy a condition to MCUS's obligation to consummate the transactions provided herein; (c) by ST Chatsworth if there has been a material misrepresentation, breach of warranty or breach of covenant by MCUS in their representations, warranties and covenants set forth herein and such breach results in a failure to satisfy a condition to ST Chatsworth's obligation to consummate the transactions provided herein; (d) by MCUS if the conditions stated in Section 9 have not been satisfied on or prior to the Closing Date; or (e) by ST Chatsworth if the conditions stated in Section 8 have not been satisfied on or prior to the Closing Date. 12.2 Effects of Termination ---------------------- If this Agreement shall be terminated as above provided, all obligations of the parties hereunder shall terminate without liability of any party to the other whether for costs, damages or otherwise; provided however, that termination pursuant to Section 12.1(b) or (c) by reason of a knowing and wilful breach by ST Chatsworth or MCUS of its representations and warranties or covenants shall not relieve the breaching party from any liability to the other party hereto. 12.3 Right to Proceed ---------------- Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Section 8 have not been satisfied at or prior to the Closing, ST Chatsworth shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder, and if any C-63 64 of the conditions specified in Section 9 have not been satisfied at or prior to the Closing, MCUS may determine to proceed with the transactions contemplated hereby without waiving any of their rights hereunder. 13. MCUS's NON-COMPETITION COVENANTS -------------------------------- 13.1 Non-Competition of MCUS ----------------------- MCUS covenants and agrees with each of ST Chatsworth and each of the ST Affiliates that it and the MC Affiliates and other affiliates which are controlled by or under common control with MCUS and/or the MC Affiliates will not without the prior written consent of ST, directly or indirectly, anywhere within the world (the "Territory"), during the period --------- commencing on the Closing Date and expiring on the fifth (5th) anniversary of the Closing Date (the "Restrictive Period"):- ------------------ (a) form, acquire (except for the ownership of less than five (5%) percent of the issued and outstanding capital stock of a publicly traded company), finance, assist, support, provide premises, facilities, goods or services to, or become associated in any capacity or to any extent, directly or indirectly with, an enterprise which is substantially similar to, as to types of customers or products or otherwise competitive with the Disk Drive Business of MC as heretofore conducted (a "Competing Business") ------------------ provided that the foregoing shall not prohibit MC from engaging in transactions with parties which conduct a Competing Business so long as such transactions with such parties are not directly or indirectly connected with such other parties Competing Business; (b) interfere with or attempt to interfere with or induce or attempt to induce any Transferred Employee to leave the employ of ST or any of it affiliates, or violate the terms of their contract with any of them; (c) cause or attempting to cause:- (i) any client, customer or supplier of the Disk Drive Business to terminate or materially reduce its business with ST, or (ii) any officer, employee or consultant of ST engaged in the Disk Drive Business to resign or sever a relationship with ST; or (d) disclose (unless compelled by judicial or administrative process) or using any confidential or secret information relating to the Disk Drive Business or any client, customer or supplier of the Disk Drive Business. C-64 65 13.2 Injunctive Relief ----------------- The parties hereto acknowledge and agree that the breach by MCUS and the MC Affiliates of the restrictive covenant contained in Section 13.1 would cause irreparable injury to each of ST Chatsworth and/or each of the ST Affiliates or any of them and that the remedy at law for any such breach would be inadequate, and MCUS agrees and consents that, in addition to any other available remedy, temporary and permanent injunctive relief may be granted in any proceeding which may be brought by ST or any ST Affiliate to enforce such restrictive covenant without necessity of proof that any other remedy at law is adequate. 13.3 Enforcement ----------- ST Chatsworth and MCUS intend that the covenants of Section 13.1 shall be deemed to be a series of separate covenants, one for each country or province of each and every state, territory or jurisdiction of, each country included within the Territory and one for each month of the Restrictive Period. If, in any judicial proceeding, a court shall refuse to enforce any of such covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. If, in any judicial proceeding, a court shall refuse to enforce any one or more of such separate covenants because the total time thereof is deemed to be excessive or unreasonable, then it is the intent of the parties hereto that such covenants, which would otherwise be unenforceable due to such excessive or unreasonable period of time, be in force for such lesser period of time as shall be deemed reasonable and not excessive by such court. 14. NON-DISCLOSURE COVENANTS ------------------------ 14.1 Non-Disclosure of Information by MCUS ------------------------------------- It is understood that the Disk Drive Business acquired by ST hereunder is of a confidential nature. MCUS agrees that it will and will procure that the MC Affiliates will never divulge or appropriate to their own use, or to the use of any third party, any Confidential Information (as hereinafter defined). 14.2 Definition of Confidential Information -------------------------------------- As used in this Section 14 and elsewhere in this Agreement, the term "Confidential Information" means the following oral or written ------------------------ information relating to the business operations and affairs of the Disk Drive Business of MC including know-how, technology, inventions, designs, methodologies, trade secrets, patents, secret processes and formula, information and data relating to the development, research, testing, manufacturing, marketing, sale, distribution and use of products, sources of supplies, budgets and strategic C-65 66 plans, the identity and special need of customers, plants and other properties, provided that the term "Confidential Information" shall not include:- (a) any such information that can be shown to have been in the public domain or generally known or available to customers, suppliers or competitors of ST through no breach of the provisions of this Section 14 or other non-disclosure covenants; (b) any such information that rightfully comes into the receiving party's possession after the Closing Date, without violation of the provisions of this Section 14 or other non-disclosure covenants; and (c) any such information that was independently developed after the Closing Date by the receiving party without violation of the provisions of this Section 14 or other non-disclosure covenants; and provided further that MC may retain and use Confidential Information to the extent it relates to any business of MC other than the-Disk Drive Business. 14.3 Injunctive Relief ----------------- The parties hereto acknowledge and agree that the breach by MCUS and the MC Affiliates and employees of the restrictive covenant contained in Section 14.1 would cause irreparable injury to each of ST Chatsworth and/or each of the ST Affiliates or any of them and that the remedy at law for any such breach would be inadequate, and MCUS agrees and consents that, in addition to any other available remedy, temporary and permanent injunctive relief may be granted in any proceeding which may be brought by ST or any ST Affiliate to enforce such restrictive covenant without necessity of proof that any other remedy at law is adequate. 15. MISCELLANEOUS ------------- 15.1 Expenses -------- ST Chatsworth and MCUS shall pay the fees and expenses of their respective accountants and legal advisors incurred in connection with the transactions contemplated by this Agreement, except as otherwise provided in Section 3. 15.2 Notices ------- Any notice or other communication required or permitted to be given to any party hereunder shall be in writing and shall be given to such party at such party's address set forth below or such other address as such party may hereafter specify by notice in writing to the other party. Any such notice or other communication shall be addressed as aforesaid and given (and shall be deemed to have been duly given upon receipt) by:- C-66 67 (a) registered air mall; (b) hand delivery; (c) reputable overnight courier; or (d) facsimile transmission. To MCUS: 21211 Nordhoff St. Chatsworth, CA 91311 United States of America Fax: 1 (818) 709 3302 To ST Chatsworth: 83 Science Park Drive #01-01/02 The Curie Singapore Science Park Singapore 118258 Fax: 65 775 3233 15.3 Waiver ------ The failure of any party hereto at any time or times hereafter to exercise any right, power, privilege or remedy hereunder or to require strict performance by the other or another party of any of the provisions, terms or conditions contained in this Agreement or in any other document, instrument or agreement contemplated hereby or delivered in connection herewith shall not waive, affect, or diminish any right, power, privilege or remedy of such party at any time or times thereafter to demand strict performance thereof; and, no rights of any party hereto shall be deemed to have been waived by any act or knowledge of such party, or any of its agents, officers or employees, unless such waiver is contained in an instrument in writing, signed by such party. No waiver by any party hereto of any of its rights on any one occasion shall operate as a waiver of any of its other rights or any of its rights on a future occasion. 15.4 Bulk Sales Act -------------- The parties hereby waive compliance with the bulk sales act or comparable statutory provisions of each applicable jurisdiction. MCUS shall indemnify ST and its officers, directors, employees and agents in respect of, and hold each of them harmless from and against, any and all losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to the failure of MCUS to comply with the terms of any such provisions applicable to the transactions contemplated by this Agreement. C-67 68 15.5 Section Headings ---------------- The Section headings in this Agreement are for convenience of reference only and shall not be deemed to be a part of this Agreement or to alter or affect any provisions, terms or conditions contained herein. 15.6 Exhibits and Schedules ---------------------- Any exhibits, schedules, financial statements and other documents referenced herein shall be deemed to be attached hereto and made a part hereof. 15.7 Severability ------------ Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. If any portion of this Agreement is declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Agreement which shall continue in full force and effect as if this Agreement has been executed with the invalid portions thereof deleted. Furthermore, the entirety of this Agreement shall continue in full force and effect in all other jurisdictions. 15.8 Entire Understanding -------------------- This Agreement sets forth the entire agreement and understanding between the parties with respect to the subject matter hereof and merges any and all discussions, negotiations, letters of intent or agreements in principle between them. None of the parties shall be bound by any conditions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein, or as duly set forth on or subsequent to the date hereof in writing and signed by a duly authorised officer of the party to be bound thereby. 15.9 Binding Effect -------------- This Agreement shall be binding upon and shall inure to the exclusive benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and permitted assigns. Except as otherwise expressly provided in this Agreement, this Agreement is not intended to, nor shall it, create any rights in any other person. 15.10 Governing Law ------------- This Agreement is and shall be deemed to be a contract entered into and made pursuant to the laws of Singapore, and shall in all respects be governed, construed, applied and enforced in accordance with the laws of Singapore. C-68 69 15.11 Choice of Forum and Consent to Jurisdiction ------------------------------------------- Each party hereby irrevocably submits to the exclusive jurisdiction of the district or state court of California in any action, suit or proceeding arising out of or relating to this Agreement or any of the Ancillary Documents or any of the transactions contemplated hereby or thereby, provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section 15.11 and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of California other than for such purpose. Each party hereby irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such action, suit or proceeding brought in such a court and any claim that any such action, suit or proceeding brought in such a court has been brought in an inconvenient forum. Nothing herein shall affect the right of any party to serve process in any other manner permitted by law. 15.12 Assignability ------------- Except as set forth in this Section 15, neither this Agreement nor any rights or obligations hereunder are assignable by MCUS or ST Chatsworth. Rights of ST Chatsworth under this Agreement are assignable in part or wholly to any affiliate of ST Chatsworth and any assignee of ST Chatsworth shall succeed to and be possessed of the rights of ST Chatsworth hereunder to the extent of the assignment made, provided, however, that any such assignment by ST Chatsworth shall not relieve ST Chatsworth of its obligations hereunder and any assignee of ST shall also assume any of the obligations of ST Chatsworth hereunder. In addition, after the Closing, ST Chatsworth may assign all or any part of its rights and/or obligations under this Agreement to any person who acquires substantially all of the assets of the Disk Drive Business from ST Chatsworth. 15.13 Counterparts; Delivery by Facsimile ----------------------------------- This Agreement may be executed in counterparts and by each party hereto on a separate counterpart, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier or facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. 15.14 Certain Definitions ------------------- For the purposes of this Agreement:- (a) an "affiliate" of any specified natural persons shall mean and --------- include the members of such person's immediate family; C-69 70 (b) an "affiliate" of any specified other person shall mean and --------- include any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person; (c) a "person" shall mean and include any natural person, firm, ------ partnership, association, corporation, limited liability company, company, unincorporated organisation, trust, public body or government or any department or agency thereof; and (d) the following defined terms have the meanings indicated below:- "CERCLA" means the Comprehensive Environmental Response, ------ Compensation and Liability Act of 1980, as amended, and the rules and regulations promulgated thereunder. "CERCLIS" means the Comprehensive Environmental Response and ------- Liability Information System, as provided for by 40 C.F.R. S300.5. "CFIUS" means The Committee on Foreign Investments in the United ----- States. "Environmental Claim" means, with respect to any person, any ------------------- written or oral notice, claim, demand or other communication (collectively, a "claim") by any other person alleging or asserting such person's liability for investigatory costs, cleanup costs, Governmental or Regulatory Authority response costs, damages to natural resources or other property, personal injuries, fines or penalties arising out of, based on or resulting from:- (a) the presence, or release into the environment, of any Hazardous Material at any location, whether or not owned by such person; or (b) circumstances forming the basis of any violation or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any Governmental or Regulatory Authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. C-70 71 "Exon-Florio Amendment" means Section 721 of the Defense Production --------------------- Act of 1950, as amended, and any successor thereto and the regulations issued pursuant thereto or in consequence thereof. "Governmental or Regulatory Authority" means any court, tribunal, ------------------------------------ arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision. "HSR Act" means Section 7A of the Clayton Act (Title II of the ------- Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules and regulations promulgated thereunder. "Liens" means any mortgage, pledge, assessment, security interest, ----- lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale contract, title retention contract or other contract to give any of the foregoing. "Micropolis Limited" means the company registered in the Cayman ------------------ Islands with its address c/o Roy West Trust Corporation (Cayman) Limited, Post Office Box 707, Grand Cayman, British West Indies. "Micropolis Thailand" means Micropolis Corporation (Thailand) Ltd ------------------- with its address at 733/1-8 Phaholyothin Road, Lumlookkar Pathumthani, Thailand. "Micropolis Singapore" means the Singapore branch of Micropolis -------------------- Limited with its address at Block 5004, Ang Mo Kio Avenue 5 #01-11, Singapore 569872. "NPL" means the National Priorities List under CERCLA. --- "Purchased Companies" means Micropolis GmbH, Micropolis Ltd., ------------------- Micropolis S.A.R.L., Micropolis Japan Limited and Micropolis Australia Pty. Limited. "ST's Accountants" means Messrs Arthur Andersen. ---------------- "Taxes" means all forms of taxation, whenever created or imposed ----- of any jurisdiction, and whether imposed by a local, municipal, governmental, state, federation or other body, and without limiting the generality of the foregoing, shall include income, capital- based, sales, use, ad valorem, gross receipts, license, value added, franchise, transfer, recording, withholding, payroll, employment, excise, occupation, premium, utility and property taxes, together with any deficiencies, related interest, penalties and additions to any such tax, or additional amounts imposed by any taxing authority (domestic or foreign). C-71 72 "US Dollars" and "US$" mean the lawful currency of the United ---------- --- States of America. 15.15 No Rights to Third Parties -------------------------- Nothing in this Agreement is intended, or shall be construed, to confer upon or give any person or entity other than the parties to this Agreement any rights or remedies under or by reason of this Agreement. 15.16 Pronouns and Plurals -------------------- All pronouns used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require in the context, and the singular form of nouns, pronouns and verbs will include the plural, and vice versa, whichever the context may require. C-72 73 Schedule 1 ---------- 21223 Nordhoff Chatsworth California United States of America C-73 74 Schedule 2 ---------- 21211 Nordhoff Chatsworth California United States of America C-74 75 Schedule 3 ---------- First, Second, Third and Fifth Storey Block 5004, Ang Mo Kio Avenue 5 TechPlace II Singapore First to Fifth Storey Block 5002, Ang Mo Kio Avenue 5 TechPlace II Singapore C-75 76 Schedule 4 ---------- Private Lot A14269 forming part of Government Survey Lots 7634, 9419, 10979 and 12500, Mukim No. 18, Ang Mo Kio, Singapore. C-76 77 Schedule 5 ---------- MICROPOLIS CORPORATION WORLD-WIDE LOCATIONS
ADDRESS/ START DATE LESSOR/ DATE END SQ. FT. /TERM MO. RENT 1995 1996 -------------------------------------------------------------------------------------------- UNITED STATES MUSA - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $2,300.00 $27,600 $27,600 South Central District Sales Office PLANO, TX 75093 1/31/97 Plano, TX, USA # of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC. SQ. FT. 2,253 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $4,212.00 $50,544 $50,544 Western Regional Sales Office SAN JOSE, CA 95112 4/30/98 San Jose, CA, USA # of Employees: 7 LESSOR: 100 HOMELAND CORP SQ. FT. 2,568 Lease Signed 3/1/94 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $1,905.00 $22,860.00 $0 Micropolis Corporation SUITE 320 12/31/96 Southern Calif. District Sales Office IRVINE, CA 92715 Irvine, CA, USA # of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL SQ. FT. 1,732 Month-to-Month Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 1 STILES ROAD 2/1/93 $4,350.00 $52,200 $0 Micropolis Corporation UNIT 303 11/30/96 Eastern Regional OEM Sales Office SALEM, NH Salem, NH, USA # of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST SQ. FT. 3,527 Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE SQ. FT. /TERM 1997 1998 1999 - ------------------------------------------------------------------------------------------------------------------------------------ UNITED STATES MUSA - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $2,300 $0 $0 South Central District Sales Office PLANO, TX 75093 1/31/97 Plano, TX, USA # of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC. SQ. FT. 2,253 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $50,544 $16,848 $0 Western Regional Sales Office SAN JOSE, CA 95112 4/30/98 San Jose, CA, USA # of Employees: 7 LESSOR: 100 HOMELAND CORP SQ. FT. 2,568 Lease Signed 3/1/94 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $0 $0 $0 Micropolis Corporation SUITE 320 12/31/96 Southern Calif. District Sales Office IRVINE, CA 92715 Irvine, CA, USA # of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL SQ. FT. 1,732 Month-to-Month Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 1 STILES ROAD 2/1/93 $0 $0 $0 Micropolis Corporation UNIT 303 11/30/96 Eastern Regional OEM Sales Office SALEM, NH Salem, NH, USA # of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST SQ. FT. 3,527 Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE TOTAL FUTURE SQ. FT. /TERM THEREAFTER COMMITMENTS - ------------------------------------------------------------------------------------------------------------------------------------ UNITED STATES MUSA - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 4975 PRESTON PARK BLVD., STE 320 12/15/93 $0 $29,900 South Central District Sales Office PLANO, TX 75093 1/31/97 Plano, TX, USA # of Employees: 3 LESSOR: H.D. DELAWARE PROPERTIES, INC. SQ. FT. 2,253 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE Micropolis Corporation 100 CENTURY CENTER CT., #410 5/1/94 $0 $117,936 Western Regional Sales Office SAN JOSE, CA 95112 4/30/98 San Jose, CA, USA # of Employees: 7 LESSOR: 100 HOMELAND CORP SQ. FT. 2,568 Lease Signed 3/1/94 Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 19782 MAC ARTHUR BLVD. 1/1/96 $0 $0 Micropolis Corporation SUITE 320 12/31/96 Southern Calif. District Sales Office IRVINE, CA 92715 Irvine, CA, USA # of Employees: 5 LESSOR: INTEGRITY FUND II/COLTON CAPITAL SQ. FT. 1,732 Month-to-Month Facility Leased Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 1 STILES ROAD 2/1/93 $0 $0 Micropolis Corporation UNIT 303 11/30/96 Eastern Regional OEM Sales Office SALEM, NH Salem, NH, USA # of Employees: 8 LESSOR: GUDEK ENTERPRISES REALTY TRUST SQ. FT. 3,527 Branch of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------
* Approximate number of employees based on 12/15/95 Manpower Report Page 1 C-77 78 MICROPOLIS 1/17/96 MICROPOLIS CORPORATION WORLD-WIDE LOCATIONS
ADDRESS/ START DATE LESSOR/ END DATE SQ FT. /TERM MO. RENT 1995 1996 -------------------------------------------------------------------------------------------- Type: SALES OFFICE 220 E. DEVON 11/1/95 $1,325.00 $9,135.00 $15,900 North Central District Sales Office SUITE 215 10/31/97 Des Plaines, IL, USA DES PLAINES, IL # of Employees: 3 LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC. Branch of: Micropolis Corporation SQ. FT. 1,116 -------------------------------------------------------------------------------------------- SUBTOTAL - US PROPERTIES $1,065,819 $94,044 - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE SQ FT. /TERM 1997 1998 1999 -------------------------------------------------------------------------------------------- Type: SALES OFFICE 220 E. DEVON 11/1/95 $0 $0 $0 North Central District Sales Office SUITE 215 10/31/97 Des Plaines, IL, USA DES PLAINES, IL # of Employees: 3 LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC. Branch of: Micropolis Corporation SQ. FT. 1,116 -------------------------------------------------------------------------------------------- SUBTOTAL - US PROPERTIES $52,844 $16,848 $0 - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE TOTAL FUTURE SQ FT. /TERM THEREAFTER COMMITMENTS -------------------------------------------------------------------------------------------- Type: SALES OFFICE 220 E. DEVON 11/1/95 $0 $15,900 North Central District Sales Office SUITE 215 10/31/97 Des Plaines, IL, USA DES PLAINES, IL # of Employees: 3 LESSOR: HIFFMAN, SHAFFER, ANDERSON, INC. Branch of: Micropolis Corporation SQ. FT. 1,116 -------------------------------------------------------------------------------------------- SUBTOTAL - US PROPERTIES $0 $163,736 - ------------------------------------------------------------------------------------------------------------------------------------
* Approximate number of employees based on 12/15/95 Manpower Report Page 2 C-78 79 MICROPOLIS CORPORATION WORLD-WIDE LOCATION
ADDRESS/ START DATE LESSOR/ END DATE SQ.FT. /TERM MO.RENT 1995 1996 1997 ------------------------------------------------------------------------------------------------------- EUROPE ENGLAND Type: WAREHOUSE ACRE ROAD 10/23/86 (Pounds)5,208 $98,119 $98,119 $98,119 Micropolis Ltd. READING 7/7/11 AT 1.57 $/(Pounds) Berkshire, England BERKSHIRE 25 years # of Employees: N/A ENGLAND Facility: Leased LESSOR: GRIMWADE AND MORRELL wholly owned subsidiary of: SQ.FT. 8,000 Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE 4 WORTON DRIVE 9/21/93 (Pounds)15,583 $0 $85,629 $293,584 Micropolis Ltd. WORTON GRANGE 9/17/05 AT 1.57 $/(Pounds) Berkshire, England READING # of Employees: 36 BERKSHIRE 12 years Note: 1 or 2 yrs - free ENGLAND Facility: Leased wholly owned subsidiary of: LESSOR: LLOYDS BANK SF NOMINEES LTD Micropolis Corporation SQ.FT. 34,000 - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE MICROPOLIS SARL 12/1/87 FF10,000 $20,636 $0 $0 Micropolis S.A.R.L. 2 RUE DE BUISSON AUX FRAISES 11/30/95 AT .1876 $/FF Massey, France Z.1. DE LA BLONDE, 91300 MASSEY # of Employees: 3 FRANCE Facility: Leased LESSOR: ACTIPIERRE wholly owned subsidiary of: SQ.FT. Cancellable every 3 years with 6 month notice Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE MICROPOLIS GmbH 9/1/93 DM 6,809 $53,061 $55,719 $58,501 Micropolis GmbH BEHRINGSTRASSE 10 8/31/98 AT .6494 $/DM Munchen, Germany 8033 PLANEGG BEI MUNCHEN # of Employees: 6 WEST GERMANY LESSOR: HERR FRANZ BAUER wholly owned subsidiary of: SQ.FT. 3,600 Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE MICROPOLIS SRL 6/1/95 IL 1,668,122 $12,395 $0 $0 Micropolis S.r.l. VIA STEPHENSON, 43/A 5/31/96 AT IL 1,588/$ Milan, Italy 20157 MILAN # of Employees: 3 ITALY Facility: Leased LESSOR: wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE MICROPOLIS A.B. 7/1/92 SEK 5170 $9,274 $0 $0 Micropolis A.B. APRIL VAGEN 3 AT 6.69 Krona/$ Jardalla, Sweden 17540 JARFALLA Mo. to Mo. # of Employees: 1 SWEDEN LESSOR: wholly owned subsidiary of: SQ.FT. 269 Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - EUROPEAN PROPERTIES $193,484 $239,466 $450,203 ------------------------------------------------------------------------------------------------------- TOTAL FUTURE 1998 1999 THEREAFTER COMMITMENTS ------------------------------------------------------------------------------------------------------ EUROPE ENGLAND Type: WAREHOUSE $98,119 $98,119 $1,177,425 $1,569,900 Micropolis Ltd. Berkshire, England # of Employees: N/A Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE $293,584 $293,584 $1,761,502 $2,727,882 Micropolis Ltd. Berkshire, England # of Employees: 36 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE $0 $0 $0 $0 Micropolis S.A.R.L. Massey, France # of Employees: 3 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE $40,949 $0 $0 $ 155,168 Micropolis GmbH Munchen, Germany # of Employees: 6 wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE $0 $0 $0 $0 Micropolis S.r.l. Milan, Italy # of Employees: 3 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Type: SALES OFFICE $0 $0 $0 $0 Micropolis A.B. Jardalla, Sweden # of Employees: 1 wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - EUROPEAN PROPERTIES $432,651 $391,702 $2,938,927 $4,452,949 -------------------------------------------------------------------------------------------------------
*Approximate number of employees based on 12/15/95 Manpower Report Page 3 C-79 80
ADDRESS/ START DATE LESSOR/ END DATE SQ.FT. /TERM MO.RENT 1995 1996 1997 ----------------------------------------------------------------------------------------------------- TYPE WAREHOUSE BLK 302 UBI AVE 1 - 17 UNITS 7/1/94 S$11900 $0 $0 $0 Micropolis Limited SINGAPORE 1440 6/30/95 AT .685 $/S$ Singapore Mo. to Mo. # of Employees: N/A LESSOR: HOUSING & DEVELOPMENT BOARD SINGAPORE Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL - SINGAPORE $2,785,270 $1,247,714 $616,500 ------------------------------------------------------------------------------------------------------ TOTAL FUTURE 1998 1989 THEREAFTER COMMITMENTS ------------------------------------------------------------------------------------------------------ TYPE WAREHOUSE $0 $0 $0 $0 Micropolis Limited Singapore # of Employees: N/A Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL - SINGAPORE $616,500 $616,500 $15,412,500 $21,294,983 ------------------------------------------------------------------------------------------------------
*Approximate number of employees based on 12/15/95 Manpower Report Page 4 C-80 81
MICROPOLIS CORPORATION WORLD-WIDE LOCATIONS ADDRESS/ START DATE LESSOR/ END DATE SQ. FT. /TERM MO. RENT 1995 - ------------------------------------------------------------------------------------------------------------------------------------ SUBTOTAL - SINGAPORE $52,200 - ------------------------------------------------------------------------------------------------------------------------------------ TAIWAN Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 NT$ 114,434 $33,534 Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96 AT 27.30$/NT$ Micropolis Corporation ROOM 1111, 11F, NO. 333 Taipei, Taiwan KEELUNG ROAD, SEC. 1 # of Employees: 2 TAIPEI, TAIWAN, ROC Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ AUSTRALIA A.$6,692 $53,536 Type: SALES OFFICE LEVEL 21, 201 MILLER STREET AT 1.35S/A.$ Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA North Sydney, Australia # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ JAPAN Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312 Y707,797 $82,462 Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU AT 103.00Y/$ Tokyo, Japan TOKYO, JAPAN 102 # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ASIAN PROPERTIES $3,007,001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ALL PROPERTIES $4,266,305 - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE SQ. FT. /TERM 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------------ SUBTOTAL - SINGAPORE $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------------------ TAIWAN Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 $33,534 $0 $0 Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96 Micropolis Corporation ROOM 1111, 11F, NO. 333 Taipei, Taiwan KEELUNG ROAD, SEC. 1 # of Employees: 2 TAIPEI, TAIWAN, ROC Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ AUSTRALIA Type: SALES OFFICE LEVEL 21, 201 MILLER STREET Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA North Sydney, Australia # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ JAPAN Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312 Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU Tokyo, Japan TOKYO, JAPAN 102 # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ASIAN PROPERTIES $1,281,247 $616,500 $616,500 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ALL PROPERTIES $1,614,757 $1,119,547 $1,065,999 - ------------------------------------------------------------------------------------------------------------------------------------ ADDRESS/ START DATE LESSOR/ END DATE TOTAL FUTURE SQ. FT. /TERM 1999 THEREAFTER COMMITMENTS - ------------------------------------------------------------------------------------------------------------------------------------ SUBTOTAL - SINGAPORE $0 $0 $0 - ------------------------------------------------------------------------------------------------------------------------------------ TAIWAN Type: SALES OFFICE MICROPOLIS CORP. 9/1/94 $0 $0 $33,534 Asia/Pacific Sales Headquarters (TAIWAN BRANCH) 8/31/96 Micropolis Corporation ROOM 1111, 11F, NO. 333 Taipei, Taiwan KEELUNG ROAD, SEC. 1 # of Employees: 2 TAIPEI, TAIWAN, ROC Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ AUSTRALIA Type: SALES OFFICE LEVEL 21, 201 MILLER STREET Micropolis Corporation NORTH SYDNEY, NSW 2060 AUSTRALIA North Sydney, Australia # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ JAPAN Type: SALES OFFICE MADRE MATSUDA BLDG. 3F-312 Micropolis Corporation 4-13 KIO-CHO, CHIYODA-KU Tokyo, Japan TOKYO, JAPAN 102 # of Employees: 2 Facility: Leased wholly owned subsidiary of: Micropolis Corporation - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ASIAN PROPERTIES $616,500 $15,412,500 $21,328,517 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ALL PROPERTIES $1,008,202 $18,351,427 $25,945,202 - ------------------------------------------------------------------------------------------------------------------------------------
* Approximate number of employees based on 12/15/95 Manpower Report Page 5 C-81 82 Schedule 6 ---------- 1. Leased data transmission lines from AT&T with a monthly payment of US$26,500. 2. Computer rental equipment leases from Hewlett-Packard, with a total amount to be financed of US$116,820 and monthly payments of US$3,893.61. 3. One car leasing agreement, with a remaining amount to be financed of approximately US$90,000. 4. Leases of photocopy machines, at a monthly rate of approximately $4,500. C-82 83 Schedule 7 ---------- 1. Distribution Agreements 2. OEM Contracts for the sale of disk drives 3. Spring Board Agreement 4. Sales Agreement/Representative Agreements 5. Advertising Contracts and Contracts/Commitments for Trade shows with a total commitment of not more than US$1,000,000 6. Computer software, licence and maintenance agreements related to the purchase of the Chatsworth Corporate Assets. C-83 84 Schedule 8 ---------- 1. Deed of Assignment of Building Agreement dated 27 September 1995 between Micropolis Limited and ST Capital Limited. 2. Deed of Assignment of Building Contract dated 27 September 1995 between Micropolis Limited and ST Capital Limited. 3. Mortgage in Escrow between Micropolis Limited and ST Capital Limited. 4. Deed of Assignment of Building Agreement between Micropolis Limited and Singapore Technologies Construction Pte Ltd. 5. Mortgage in Escrow between Micropolis Limited and Singapore Technologies Construction Pte Ltd. 6. Pledge Agreement dated 18 March 1992 between Micropolis Corporation, Micropolis Limited and The CIT Group/Business Credit, Inc. C-84 85 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Seller - ------ Signed by J. LARRY SMART ) for and on behalf of ) MICROPOLIS CORPORATION ) in the presence of:- ) Buyer - ----- Signed by CHEN YUK FU ) for and on behalf of ) ST CHATSWORTH PTE LTD ) in the presence of:- ) C-85 EX-10.54 5 DEVELOPMENT AGREEMENT EXHIBIT 10.54 DEVELOPMENT AGREEMENT Page 1 of 64 DEVELOPMENT AGREEMENT --------------------- THIS AGREEMENT having an effective date at the date of the last signature hereto and is entered into by and between MICROPOLIS Corporation with an office and principal place of business at 21211 Nordhoff Street, Chatsworth, California 91311, USA and BTS Broadcast Television Systems GmbH, with an office and principal place of business at Im Leuschnerpark 1, 64347 Griesheim, Germany. WHEREAS, MICROPOLIS and BTS want to cooperate in the design, development and manufacturing of a family of video disk recorders. NOW, THEREFORE, the PARTIES agree that the PRODUCT development activities shall be conducted under this AGREEMENT subject to the following terms and conditions 1 DEFINITIONS 1.1 MICROPOLIS shall mean MICROPOLIS CORPORATION and its AFFILIATES. 1.2 BTS shall mean BTS BROADCAST TELEVISION SYSTEMS GMBH and its AFFILIATES. 1.3 AFFILIATE shall mean any company. partnership Joint venture, or other entity which is controlled by a PARTY. Control shall mean the possession of fifty percent (50%) or more of the voting stock or the power to direct or cause the direction of the management and policies of the controlled entity, whether through the ownership of voting securities by. contract or otherwise. 1.4 PARTY or PARTIES shall mean MICROPOLIS and/or BTS. 1.5 PRODUCT shall mean a family of video disk recorders with SPECIFICATIONS as described in Appendices A and B. 1.6 CUSTOMER SPECIFICATION shall mean a written document setting forth the customer-observable characteristics of the PRODUCT, including but not limited to the performance, interfaces and user features as defined in Appendix A. Page 2 of 64 1.7 TECHNICAL SPECIFICATION shall mean a written document setting forth the measurable characteristics of the PRODUCT and the SPARE PARTS including internal and external interfaces and components as described in the Appendix B. 1.8 SPECIFICATION shall mean CUSTOMER and TECHNICAL SPECIFICATION jointly. 1.9 PROGRAM shall mean the development program undertaken pursuant to Article 2 for the purposes of developing a PRODUCT. 1.10 BACKGROUND TECHNOLOGY shall mean any and all patents, know-how, methods procedures processes, computer programs, information, designs and data which a PARTY owns solely or jointly with any third party and have the free right to grant licenses without payment to third parties, which are pertinent to the PRODUCT, and have a priority date (or date of first written documentation in the case of unpatented know-how and designs) that is earlier than the effective date of this AGREEMENT. 1.11 INVENTION shall mean any technological discovery relating to the PRODUCT made in the performance of work under the PROGRAM, not being BACKGROUND TECHNOLOGY. 1.12 PROGRAM PATENT(S) shall mean all valid or enforceable patents, utility models, and patent applications filed in any country by a PARTY, which are based on or cover INVENTIONS, including any and all divisions, continuations, continuations-in-part, extensions, additions substitutions, renewals, or reissues thereof. 1.13 PROGRAM TECHNOLOGY shall mean any and all unpatented know-how, methods, procedures, processes, computer programs, information, designs, data, materials, compositions, equipment, devices, components and prototypes, including unpatented INVENTIONS, which are made or developed by or on behalf of either PARTY or jointly by the PARTIES in the performance of work under the PROGRAM. 1.14 PURCHASE AND SALE AGREEMENT shall mean an agreement to be concluded between the PARTIES in which the conditions for selling the PRODUCT from MICROPOLIS to BTS will be fixed. 1.15 SPARE PARTS shall be the modules, as defined in Appendix B. Page 3 of 64 2 PROGRAM 2.1 The PROGRAM to be performed hereunder shall comprise the activities of the PARTIES directed to development of the PRODUCT as described in Appendix D. BTS and MICROPOLIS shall share the responsibility to provide the technological means to achieve the TECHNICAL SPECIFICATION. 2.2 The PARTIES shall participate in the PROGRAM in accordance with the timetable contained in Appendix C and the responsibilities of the PARTIES as described in Appendix D. 2.3 Except as otherwise specifically described herein or agreed upon between the PARTIES, each Party shall conduct its own work under the PROGRAM at its own facilities. BTS shall provide development funding to MICROPOLIS presuming to MICROPOLIS meeting its designated milestones as described in Appendix E. 2.4 During the PROGRAM term as described in Article 4 neither PARTY shall enter into any cooperative development agreement regarding video disk recorders similar to or identical with the PRODUCT with any third party that develops, manufactures or markets such video disk recorders. 2.5 Each PARTY shall make its best efforts to realize the PROGRAM targets pursuant to the timetable described in Appendix C. In the event that a PARTY foresees a possible delay in its development work, such PARTY shall promptly inform the other PARTY. Penalty Clauses as follows will apply: 2.5.1 BTS will be entitled, to withhold a) for a delay of more than 2 weeks in meeting any funding development milestone, as defined in Appendix E, a sum of 10% of the development funding. b) for a delay of more than 4 weeks in meeting any funding development milestone, as defined in Appendix E, a sum of 20% of the development funding. 2.5.2 In case MICROPOLIS will be at least able to avoid a delay in meeting the milestone "Acceptance test", (even a delay of meeting a previous milestone event occurred) and this milestone will be passed by successfully, BTS will be obliged to provide the development funding in total. This means that if the last milestone, "Acceptance test" is met, BTS will pay to Micropolis the agreed development funds associated with that milestone, and the agreed development funds that were earlier withheld due to the failure of Micropolis to meet one or several milestones. Page 4 of 64 3 PROGRAM DIRECTION 3.1 The following PROGRAM Directors are hereby appointed to direct the course of PROGRAM activities in accordance with Article 2: BTS PROGRAM Director: Adam Schmidt MICROPOLIS PROGRAM Director: Reza Rassool Any change in the designated PROGRAM Directors shall require advance written notice to the other PARTY. The PROGRAM Directors shall have no authority to modify or amend the terms of this AGREEMENT. All decisions with regard to changes in any of the Appendices, including any changes as described in Articles 2.1 and 2.2, and any proposals, issues and courses of action under the PROGRAM shall be made by agreement of the PROGRAM Directors unless otherwise specified herein. 3.2 Subject to the provisions of Article 2, the Program Directors shall be responsible for the following: a) Overall guidance of the PROGRAM; b) Scheduling and conducting timely reviews of the PROGRAM; c) Reviewing, updating and disseminating the SPECIFICATIONS and WORK PLAN in a timely manner; and d) Controlling any form of communication between BTS and MICROPOLIS regarding the PROGRAM. 3.3 Each PARTY agrees to make its employees and nonemployee consultants reasonably available at their respective places of employment to consult with the other PARTY during the PROGRAM on issues arising from work performed under the PROGRAM. 3.4 Each PARTY agrees to make technical specialists reasonably available for a specified period of time to assist in the development of the PRODUCT at the other PARTY's facility. The costs for the respective travels will be borne by each PARTY itself. 3.5 During the PROGRAM, both PARTIES shall have meetings for the purpose of periodic status reviews of the PROGRAM. The costs for the respective travels will be borne by each PARTY itself. Page 5 of 64 4 TERM AND TERMINATION OF THE PROGRAM 4.1 The PROGRAM shall commence on the effective date of this AGREEMENT and continue until completion of the PROGRAM in accordance with Appendices C (Timetable) and D (Responsibilities) unless earlier extended by agreement of the PARTIES or terminated as a part of termination of this AGREEMENT as provided in Article 11.0 The PROGRAM shall be completed when the PRODUCT meets its respective SPECIFICATIONS in accordance with the procedure as specified in article 5. 4.2 In the event that technical support is needed during the phase of the introduction of the PRODUCT into the market, or if a customer requests a PARTY for improvement of the PRODUCT which requires the assistance by the other PARTY for the period of two (2) years after termination of this AGREEMENT, both PARTIES will discuss in good faith how to cope with such request. 4.3 MICROPOLIS agrees that if during the term of this AGREEMENT it develops any new video disk recorders, BTS shall be given the opportunity to purchase and/or distribute, with limited exclusivety, such products. In such event MICROPOLIS shall give BTS written notice of the availability of such a product and shall provide BTS with appropriate and necessary product information to make a reasoned decision. On receipt of such notice, BTS shall have three (3) months to accept the offer and/or to commence contract negotiations with MICROPOLIS and BTS will inform MICROPOLIS before expiration of said period of its decision. This time period may be extended by the mutual agreement of the PARTIES. Notwithstanding any time extensions, if MICROPOLIS and BTS do not agree upon reasonable terms and conditions for incorporation of such product into this AGREEMENT, MICROPOLIS shall be free to market such products in any manner it seems fit, provided an exclusive distributorship is not offered to anyone else on terms better than those offered to BTS. Page 6 of 64 5 ACCEPTANCE 5.1 The progress of the development PROGRAM, in terms of functionality and deliverables is defined in Appendix D. 5.2 The acceptance of the first regular production PRODUCT will take place at the site of BTS at the date specified in Appendix E. The acceptance to be carried out jointly by MICROPOLIS' and BTS' inspection personnel will cover the SPECIFICATION. 5.3 The results of the acceptance shall be laid down in an acceptance certificate which is to be signed by both parties. 5.4 In case the PRODUCT does not meet SPECIFICATION, the responsible PARTY shall correct such defects without delay. Upon completion of the corrective measures the acceptance procedure to be applied shall be the same as described above. 5.5 If no defects should be discovered during the acceptance, the PRODUCT shall be deemed to be successfully accepted at the date of acceptance inspection. 5.6 Once the PRODUCT is accepted by BTS as evident of article 5 above, MICROPOLIS shall not make any changes or modifications in the PRODUCT without prior written consent of BTS. This requirement, however, does not preclude MICROPOLIS from using equivalent components and parts that do not affect form, fit, function or interchangeability of SPARE PARTS. In the event MICROPOLIS uses such equivalent components and/or parts, MICROPOLIS shall immediately inform BTS thereof and provide BTS with an updated version of the Documentation as soon as possible and at MICROPOLIS' costs. Each successor model of the PRODUCT or any other model agreed upon between the PARTIES to be incorporated herein shall be subject to the procedure set forth in this Article 5. Page 7 of 64 6 TRANSFER OF TECHNOLOGY 6.1 During the term of this PROGRAM, both PARTIES will, if necessary for the -- continuation of the PROGRAM, disclose and exchange INVENTIONS, PROGRAM PATENTS and PROGRAM TECHNOLOGY. 6.2 During the term of the Purchase and Sale Agreement MICROPOLIS will disclose all information, documentation and PROGRAM TECHNOLOGY sufficient to enable BTS to independently develop enhancements of the PRODUCT. Micropolis will, upon the request from BTS, support BTS in its development of such enhancements, over and above, the SPECIFICATION and disclosure according to article 6.1 and 6.2 above, to the PRODUCT. Micropolis will then, at its sole discretion, charge BTS industry standard rates for this support. Any disclosure of such information do not constitute any guarantee that BTS developed enhancements will perform according to BTS's expectations. Page 8 of 64 7 INVENTIONS AND PATENTS ON INVENTIONS 7.1 Although it is expected that the ownership of most, if not all, INVENTIONS shall be governed by the following provisions of this Article, both PARTIES agree to discuss in good faith the ownership of those INVENTIONS which arise under unusual and unforeseen circumstances, such ownership to be governed by applicable patent law. 7.2 INVENTIONS and any patents, copyrights, know-how and designs based on INVENTIONS, shall be owned as follows: a) if invented solely by MICROPOLIS, ownership shall vest in MICROPOLIS, and, MICROPOLIS hereby grants BTS a paid-up, worldwide, unrestricted, nonexclusive license (without sublicensing rights) to undertake manufacturing as agreed in Appendix F, and to use and sell or otherwise dispose of product incorporating such INVENTION and PROGRAM PATENTS relating thereto. b) if invented solely by BTS, on request and accepted, in writing by MICROPOLIS, ownership shall vest in BTS, and BTS hereby grants MICROPOLIS a paid-up, worldwide unrestricted, non-exclusive license (without sublicensing rights) to undertake manufacturing, use and sell products incorporating such INVENTION and PROGRAM PATENTS relating thereto, all in accordance with Appendix F. c) if invented jointly by both PARTIES of which the respective contributions cannot be separately filed (hereinafter called JOINT INVENTIONS), any patent applications and patents issued thereon shall be in the name of both PARTIES and be jointly owned by both PARTIES. Each PARTY is free to grant a license to any third party without obtaining a consent of the other PARTY and without assuming any obligation to the other PARTY. d) In each case of such a JOINT INVENTION, the PARTIES will promptly agree which of them shall file the first patent application and further decide in mutual consultation in which country or countries such applications are to be made. 7.3 Patent and copyright procurement activity in regard to INVENTIONS shall be pursued at the discretion and expense of the owner set forth in Article 7.2. The costs and expenses for filing and prosecuting patent applications on Joint INVENTIONS and for the issuance of the respective patents, except for the internal cost of the patent department filing the first patent application shall be borne equally by the PARTIES. Each PARTY will notify the other upon the preparation of any written report based on a JOINT INVENTION and upon the filing of any patent or copyright application based on a JOINT INVENTION, furnish the filing PARTY with all documents or other assistance that may be necessary for the filing and prosecution of each application provide the other with a copy of any such INVENTION report or patent or copyright application and any issued patent or statutory copyright granted thereon and on request update the other as to the status of any such patent or copyright application. Each PARTY further agrees to sign documents to vest or maintain title to patents and/or copyrights in the owner designated in Article 7.2 and to provide reasonable assistance to the other with respect to preparation and prosecution of such patents copyrights. Page 9 of 64 7.4 In case a PARTY is not or no more interested in participating in a patent or patent application on JOINT INVENTIONS or the maintenance thereof, then this PARTY shall give written notice to the other PARTY. The other PARTY shall be entitled to file or maintain said patent or patent applications in its name and at its costs. The first PARTY shall have the right to receive against reasonable royalties mutually to be agreed between the PARTIES, a worldwide, unrestricted, non-exclusive license (with sublicensing rights) under said applications and patents. Page 10 of 64 8 PROPRIETARY RIGHTS OTHER THAN INVENTIONS 8.1 MICROPOLIS hereby grants to BTS a paid-up, worldwide, nonexclusive license (without sublicensing rights) to undertake manufacturing as agreed in Appendix F, and to use and sell or otherwise dispose of PRODUCT incorporating (i) MICROPOLIS' rights to the extent that they do not relate to INVENTIONS, and (ii) BACKGROUND TECHNOLOGY. 8.2 BTS hereby grants to MICROPOLIS a paid-up, worldwide, non-exclusive license (without sublicensing rights) to undertake manufacturing and to use and sell-all in accordance with Appendix F-the PRODUCTS incorporating (i) BTS' proprietary rights, to the extent that they do not relate to INVENTIONS, and (ii) BACKGROUND TECHNOLOGY. Page 11 of 64 9 CONFIDENTIAL INFORMATION 9.1 The PARTIES recognize that the conduct of the PROGRAM may require the transfer of confidential information between them. As used herein, "confidential" or "proprietary" information shall include only information, data or samples relating to the PROGRAM. Disclosures of confidential or proprietary information hereunder by either PARTY will be made in writing (or promptly confirmed in writing if made in another form), and will be clearly marked confidential. Such confidential information will be safeguarded by the recipient and will not be disclosed to third parties. This mutual obligation of confidentiality will apply until three (3) years after termination of this AGREEMENT, but will not apply to any information to the extent that such information: a) is or hereafter becomes generally available to the public other than by reason of any default under this AGREEMENT; or b) was already known to the recipient as evidenced by prior written documents in its possession; or c) is disclosed to the recipient by a third party who is not in default of any confidentiality obligation to the disclosing PARTY hereunder; or d) is developed by or on behalf of the receiving PARTY, without reliance on confidential information received hereunder; or e) is disclosed with the permission of the disclosure to any third party on a non-confidential basis; f) is submitted to governmental or non-governmental agencies to facilitate the issuance of marketing or safety approvals for PRODUCT; or g) is disclosed in patents filed under the terms of this AGREEMENT on INVENTIONS related to PRODUCT or to the manufacture or use of such PRODUCT; or h) has been approved for publication by the PROGRAM Directors; or i) is in furtherance of the licenses and rights granted herein for the manufacture and marketing of PRODUCTS, provided that a) the other PARTY prior to such disclosure will be informed hereof and b) declares its consent in written form. Page 12 of 64 10 GENERAL TERMS AND CONDITIONS 10.1 Notices All notices required or permitted hereunder shall be in writing and shall be deemed duly given when personally delivered or sent by registered or certified mail return receipt requested, postage prepaid, or by cable confirmed by letter as aforesaid, as follows: Notice to MICROPOLIS: for technical matters: Program Director MICROPOLIS Corporation 21211 Nordhoff Street Chatsworth, California 91311 USA for other matters: General Manager of the System Business Unit MICROPOLIS Corporation 21211 Nordhoff Street Chatsworth, California 91311 USA Notice to BTS for technical matters: Program Director Business Unit Griesheim Broadcast Television Systems GmbH Im Leuschnerpark 1 64347 Griesheim Germany for other matters: General Manager of BTS-ICC Weiterstadt Business Unit Griesheim Broadcast Television Systems GmbH Im Leuschnerpark 1 64347 Griesheim Germany or to such other address as either PARTY may hereafter designate in writing by like notice. Page 13 of 64 10.2 Publicity Neither PARTY will issue any press release or make any public statement in regard to this AGREEMENT without the prior written approval of the other PARTY. Neither PARTY shall use in advertising, publicity or other promotional activities any name, trade name, trademark, or other designation of the other PARTY without the express written approval of the other PARTY, which shall not be unreasonably withheld. 10.3 Export License This AGREEMENT and any technical information provided under this AGREEMENT may be subject to restrictions concerning the export of PRODUCT or SPARE PARTS or technical information from the Federal Republic of Germany or USA which may be imposed by the respective Government or any other competent authority. Accordingly, the PARTIES agree that they shall not export or re-export, directly or indirectly, any technical information acquired under this AGREEMENT or any PRODUCT utilizing any such technical information to any country for which the Government or other competent authority at the time of export requires an export license or other approval, without first obtaining the written consent to do so from the competent authority when required by an applicable statute or regulation. 10.4 Force Majeure Neither MICROPOLIS nor BTS shall be liable for delay or failure in the performance of the obligations contained in this AGREEMENT arising solely from any one or more of the following matters: a) acts of God, or public enemy or war (declared or undeclared); b) acts of governmental or quasi-governmental authorities or regulations or restrictions imposed by law or by court action, except as they may result from the unreasonable failure of MICROPOLIS or BTS to perform as required hereunder; c) acts of persons engaged in subversive activities or sabotage; d) fires, floods, explosions or other catastrophes; e) epidemics or quarantine restrictions; f) strikes, lockouts or similar labour disruptions; g) freight embargoes, or interruption of transportation; h) unusually severe weather; i) delays of a supplier of one PARTY due to any of the above causes or events; or j) any other extraordinary event beyond the control of the PARTY concerned; and provided that due diligence is exercised to cure such cause and resume performance, and the time for performance by such PARTY shall be extended by a period of any such delay. Page 14 of 64 10.5 Conflicts in Obligations MICROPOLIS warrants to BTS that this AGREEMENT does not conflict with MICROPOLIS' obligations under any other agreement to which MICROPOLIS is or was a party, and that MICROPOLIS is free to fulfill all obligations stated herein. BTS warrants to MICROPOLIS that this AGREEMENT does not conflict with BTS' obligations under any other agreement to which BTS is or was a party and that BTS is free to fulfill all obligations stated herein. 10.6 Conflicts in Documentation In case of any conflicts between this AGREEMENT and any prior agreements on the same subject correspondence, and other documents during the term of this AGREEMENT, this AGREEMENT shall govern and prevail, and the conflicting terms and conditions of any such documents shall be deemed deleted and shall not be binding upon either PARTY. In the event the provisions of this AGREEMENT conflict with provisions of the Appendices, this AGREEMENT shall prevail unless otherwise specifically agreed upon. 10.7 Amendments No addition to, deletion from or modification of any of the provisions of this AGREEMENT shall be binding upon the PARTIES unless made in writing and signed by a duly authorized representative of each PARTY. Any such additions, deletions or modifications shall refer specifically to this AGREEMENT. 10.8 Severability If one or more of the provisions of this AGREEMENT is held invalid, illegal or unenforceable by a competent court of law, the remaining provisions shall not in any way be affected or impaired thereby. In the event any provision is held invalid illegal or unenforceable, the PARTIES shall use reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as is practical, implements purposes of the article held invalid, illegal and unenforceable. 10.9 Assignment The rights of either PARTY under this AGREEMENT shall not be assigned, in whole or in part, by either PARTY (whether by operation of law or otherwise) without the prior written consent of the other, except that either PARTY may assign its rights hereunder to a successor, subsidiary or affiliated corporation Page 15 of 64 without releasing the assignor from liability hereunder. Any assignment contrary to the terms hereof shall be null and void and of no force or effect. 10.10 Applicable Law This AGREEMENT shall be governed by and construed and enforced in accordance with the laws of Germany. 10.11 Arbitration All disputes, controversies or differences which may arise between the PARTIES in relation to or in connection with this AGREEMENT may be settled by amicable negotiation by both PARTIES if the PARTIES so agree. If both PARTIES are unable to settle such disputes, then such disputes shall be referred to and finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. The Arbitration shall be conducted in the English Language and take place in USA if it is initiated by BTS or in Germany if it is initiated by MICROPOLIS. The award of arbitration shall bind both PARTIES. 10.12 Entire Agreement This AGREEMENT constitutes the entire understanding of the PARTIES with regard to the development of PRODUCT and supersedes all prior discussions, representations and understandings. 10.13 Limitation of Liability Neither PARTY shall be liable to the other for any indirect, special or consequential damages whether grounded in tort, strict liability or contract, and under no circumstances shall either PARTY's liability to the other PARTY exceed the obligations described herein. Page 16 of 64 11 TERM AND TERMINATION OF THE AGREEMENT 11.1 This AGREEMENT shall become effective at the date of the last signature hereto or the date on which this AGREEMENT is approved by the USA or German Government if such approval is required, whichever is later, and shall continue in effect until the PROGRAM has been completed, unless sooner terminated by a PARTY in accordance with this Article 10. 11.2 This AGREEMENT may be terminated by either PARTY in the event that the other PARTY, despite its best efforts, provides cause for termination due to material lack of performance in the PROGRAM, such termination to be effective not less than sixty (60) days after written notice to the other PARTY citing alleged deficiencies and failure of the other PARTY to remedy, such termination shall be effective not less than sixty (60) days after written notice to the other PARTY and failure of the PARTIES to agree on any such revision. 11.3 This AGREEMENT may be terminated by either PARTY upon written notice to the other (without prejudice to either PARTY'S rights to claim direct damages or seek other equitable relief). a) in the event of a material breach by the other PARTY of any terms or conditions of this AGREEMENT and the failure to cure such breach within sixty (60) days after written notice or b) in the event that MICROPOLIS fails to meet any milestone event as per Appendix E for more than eight weeks. c) if, at any time during the term of this AGREEMENT, the other PARTY shall become a voluntary debtor party to any bankruptcy, insolvency, or reorganisation proceeding, or shall be declared bankrupt or reorganised by a court of competent jurisdiction, or enter into any composition with its creditors, or shall begin any proceeding for the liquidation or winding up of its business or for termination of its corporate charter. 11.4 If MICROPOLIS stops production of PRODUCTS or terminates this Agreement which is disputed by BTS or if MICROPOLIS is found in breach of this Agreement, BTS is hereby granted by MICROPOLIS an unconditional, non- exclusive, worldwide, unrestricted license under its know-how, patents, etc. to develop and/or manufacture and/or sell and/or license and/or dispose of products. These consequences shall also apply in case of Article 11.3 a), b) and c) hereof. 11.5 Termination of this AGREEMENT shall not relieve BTS or MICROPOLIS of any rights and obligations then accrued hereunder or which extend beyond the date of termination or expiration by the terms of this AGREEMENT, including but not limited to rights and obligations contained in Articles 4.4, 4.5, 6, 7, 8, and 11. Page 17 of 64 12 APPENDICES The following appendices. as referred to in this AGREEMENT. form an integral part of the AGREEMENT: Appendix A: Customer Specifications Appendix B: Technical Specifications Appendix C: Project Timetable Appendix D: Responsibilities of the Parties Appendix E: Milestones and development funding Appendix F: Manufacturing Conditions UNDERSTOOD AND AGREED: UNDERSTOOD AND AGREED: BTS Broadcast Television MICROPOLIS Corporation Systems GmbH By: /s/ H. Hock /s/ H.D. Geise By: /s/ Per Sjofors Title: CFO General Manager Title: Director Marketing VSD Date: 9/15/95 Date: 15 Sept 1995 Page 63 of 64 APPENDIX E: MILESTONES AND DEVELOPMENT FUNDING
Mini-Pool milestones When Funding 1 Memorandum of Agreement (MoA) signed 31. Jul 95 100.000 $ 2 Kick off Meeting 10. Aug 95 3 BTS supply serial digital interface (SDI) design 30. Aug 95 4 Joint Development Agreement signed with appendices 30. Aug 95 5 Supply BTS with Luigi Board and files 07. Sep 95 6 Brand Name Reseller's Agreement signed 15. Sep 95 200.000 $ 7 Design Review AV CODEC in Chatsworth 02. Okt 95 8 Spec finalized Poolnet VDCP UI functionality 13. Okt 95 9 Supply VMC and Devlib spec 15. Okt 95 10 VDRx40 and VDRx40F full design review and sign-off 10. Nov 95 150.000 $ 11 MC3000 Ctl Panel ready 01. Dez 95 12 VDR110 prototype sign off in Chatsworth 20. Dez 95 200.000 $ 13 VDR110 prototype delivered to Weiterstadt 15. Jan 96 14 VDR110 beta units 05. Feb 96 15 VDRx40 lab model to Weiterstadt 15. Feb 96 150.000 $ 16 VDR110 Acceptance test 15. Mar 96 17 NAB 01. Apr 96 18 VDRx40 prototype 01. Apr 96 19 VDR110 ships 01. Apr 96 20 VDRx40 BTS-W Release to manufacturing 15. Apr 96 21 VDRx40 betasite release 01. Mai 96 22 VDRx40 Acceptance test 15. Jun 96 23 VDRx40 deliveries to customer 28. Jun 96 200.000 $ 24 Data link integration begins 01. Aug 96 TOTAL 1.000.000 $
Page 64 of 64 APPENDIX F: MANUFACTURING CONDITIONS BTS has the option to buy on an exclusive basis from Micropolis complete units, VDR110 and VDRX40, as specified in appendix A and B; or, at BTS' own discretion BTS may buy from Micropolis VDR sub-assemblies as defined in Appendix B for BTS's own manufacturing, further development, final testing, assembly and for re-sale. MICROPOLIS is granted the BTS licenses for the purpose of manufacturing and selling PRODUCTS and similar PRODUCTS to BTS and a low-cost MICROPOLIS version of the VDR110 to Tyrell corporation PURCHASE AND SALES AGREEMENT Page 1 of 22 PURCHASE AND SALE AGREEMENT This Purchase and Sale Agreement ("Agreement") having an effective date at the date of the last signature is made by and between Micropolis Corporation ("COMPANY"), a Delaware corporation, and BTS Broadcast Television Systems GmbH ("BTS"), a German corporation. WHEREAS, the Parties have entered into a product development agreement on the basis of which the COMPANY intends to develop PRODUCT for Professional Broadcast Industry for exclusive sale to BTS. WHEREAS, BTS desires to have said PRODUCT, key components and other PRODUCT sold to BTS on the terms and conditions set forth in this Agreement: NOW THEREFORE, the parties hereto agree as follows: 1 Certain Definitions 1.1 All terms defined in the Development Agreement shall have the same meaning when used in this Agreement. 1.2 "PRODUCT Software" means any computer software that is a component or part of a PRODUCT, regardless of whether such software is embedded in semiconductors. 1.3 "Distributor" means a dealer, distributor, reseller, brand name reseller, original equipment manufacturer, value added reseller, systems integrator, independent sales representative or agent. 1.4 Similar PRODUCTs shall mean a PRODUCT which in view of the average customer of PRODUCT would compete with the PRODUCT respectively, taking only price and performance into account. Page 2 of 22 2 Exclusivity 2.1 Subject to the terms and conditions of this Agreement, COMPANY hereby agrees to sell on an exclusive basis to BTS the PRODUCT worldwide, and grants worldwide license to BTS to sublicense the PRODUCT Software in connection with the sale of other BTS Products. The only exception to this exclusivity shall be that COMPANY is allowed to conduct business for the sale of a low cost COMPANY's version of the VDR110 to Tyrell Corporation, 50 Malborough Street, London, U.K. 2.2 COMPANY agrees that if during the term of this Agreement it develops any video disk recorder, BTS shall be given the opportunity to exclusively purchase and/or exclusively distribute such Products on the basis of the same terms and conditions (same for pricing) as laid down in this Agreement. In such event COMPANY shall give BTS written notice of the availability of such a product and shall provide BTS with appropriate and necessary product information to make a reasoned decision. On receipt of such notice, BTS shall have three (3) months to accept the offer and/or to commence price negotiations with COMPANY and BTS will inform COMPANY before expiration of said period of its decision. This time period may be extended by the mutual agreement of the parties. Notwithstanding any time extensions, if COMPANY and BTS do not agree upon reasonable pricing for incorporation of such product into this Agreement, COMPANY shall be free to market such products in any manner it seems fit, provided an exclusive Distributorship is not offered to anyone else on comparable terms better than those offered to BTS. 2.3 Exclusive Appointments. The PRODUCT for the purpose of clause 2.1 includes any upgrades, updates, documentation, accessories, spare parts and PRODUCT Software. Page 3 of 22 3 Terms of Sale and Payment. 3.1 Price. COMPANY shall supply PRODUCT to BTS at prices which, including their period of validity, are specified in Exhibit A In the event of unforeseen circumstances affecting COMPANY or BTS or both and/or in the event the price/performance ratio of PRODUCT deteriorates as compared to competitive products, the parties hereto will jointly review the situation and attempt to find a solution reasonably acceptable to both parties. 3.2 Prices will be reviewed when deemed necessary by any PARTY, but at least on a quarterly bases. The PARTIES will make best effort to review and agree any changes in prices, depending on, but not limited to expected order volume, changes in component prices etc. Price decreases will become effective immediately upon the written mutual agreement, price increases will only apply 60 days after the written mutual agreement. Price increases or decreases will only apply to all orders placed after such written agreement period. In case after serious negotiations the parties remain unable to reach agreement on new prices, taking the parameters of section 3.1 into account, the following procedure shall apply: The prices will be set by a committee of three (3) members. COMPANY and BTS each will appoint one member ('Party-Arbitrator'), a senior manager from the respective organizations, who jointly will appoint an independent third member (hereinafter the 'Chairman'). The committee starts working not later than 3 months after the expiration of the quarterly period. The Party- arbitrators will submit to the Chairman the proposed prices along with their justifications. The Chairman will inform the parties of the proposals so submitted, after which the Party-Arbitrators must submit their final pricing proposal within seven (7) days. The Chairman must then choose between the two proposals within fourteen (14) days. The prices announced are binding for both parties. The prices announced will be effective from the first day of the new month following on the day of the announcement, even for orders in the pipeline. The prices valid for the previous period will remain valid during the arbitration period. Costs of arbitration will be shared by COMPANY and BTS. 3.3 Price increases are not applicable to PRODUCT for which a binding orders are placed. COMPANY undertakes to grant BTS its best prices and discounts for PRODUCT. In the event BTS looses exclusivity, as of article 4.1 hereof, COMPANY would not grant one or more of its other customers more favorable prices, discounts, delivery terms, payment terms and/or guarantees than those applicable to BTS for PRODUCT. 3.4 Payment conditions are forty-five (45) days after invoice date and receipt of PRODUCT and invoice. Payment shall be made in U.S. Dollars. All prices for shipments to BTS shall be FOB Chatsworth, California. 3.5 PRODUCT shall be supplied in suitable packing in a form to be approved by BTS and as specified in the SPECIFICATION. Changes in approved packing Page 4 of 22 may be introduced only on BTS' written request or after BTS' prior written approval. Packing and PRODUCT shall be labeled by COMPANY in accordance with BTS' instructions and as specified in the SPECIFICATION. 3.6 BTS is entitled to have any of the BTS MSS and/or ICC Companies and Graner COMPANY, Port Chester, N.Y. execute logistic procedures, such as, without limitation, placing Purchase Orders, payment of invoices, transport arrangements, shipping instructions and handling of return shipments for repair or replacement on behalf of BTS. 3.7 PRODUCT Software. PRODUCT Software is licensed for distribution only and not sold. Each sale of the PRODUCT to BTS shall be deemed also to include the granting of an exclusive license to use the PRODUCT Software in the PRODUCT so purchased and to sublicense the same with the resell of PRODUCT. 3.8 PRODUCT hardware and software that forms an integrated part of the PRODUCT, and is originated by BTS, shall be subject to a royalty fee, to be paid by Micropolis to BTS for PRODUCT, including the version of the PRODUCT sold to Tyrell Corporation and sold to other 3d parties, as described in Exhibit B herein. 3.9 Spare Inventory. During the duration of this Agreement and six (6) years thereafter COMPANY shall supply BTS with such Spare Parts and at prices as specified in Exhibit A. During the 6th year, BTS will issue to COMPANY a Spare Part order to meet customer demands for access to spares in excess of 6 years, and COMPANY will accept such order and delivery same during the 6th year. 3.10 It is agreed that if during the duration of this Agreement, but not sooner then 3 years from effective date, COMPANY wishes to stop production of PRODUCT, COMPANY shall inform BTS thereof no later than 12 month prior to the date of envisage production stop. 3.11 If a vendor or subcompany stops production of one or more components that might affect availability of PRODUCT, COMPANY shall immediately inform BTS thereof in writing. Such information shall preferable be passed to BTS within six (6) month of any expected availability disruption. 3.12 Pursuant to Article 3,8,3,9 and/or 3.10 hereof, BTS shall have an opportunity to place a Purchase Order for PRODUCT and/or Spare Parts in such quantity as BTS may reasonably require and COMPANY shall accept such Purchase Order at the then prevailing price. 3.13 Prices for Spare Parts shall not be considerably higher than the prices for the equivalent modules in PRODUCT. In no event may the sum of the individual Page 5 of 22 Spare Parts making one (1) PRODUCT exceed one hundred and ten percent (110%) of the PRODUCT price for said PRODUCT as charged to BTS. 3.14 Training. COMPANY shall provide appropriate PRODUCT training and service training courses for up to ten (10) BTS personnel with respect to PRODUCT purchased by BTS for up to five (5) days, and at locations to be mutually agreed upon by BTS and COMPANY. BTS shall bear transportation, food and lodging expenses, if any, of its participants, and/or the companies participants and COMPANY shall bear all other costs of such training. BTS may purchase additional training at a rate of $800.00 per day, per instructor, plus pre-approved expenses. 3.15 Engineering control: During the term of this Agreement and the continuing Spare Parts supply period the PRODUCT shall be under COMPANY's engineering control and COMPANY undertakes to sustain PRODUCT as such, as well as Software parts thereof. 3.16 Engineering Changes. COMPANY will inform BTS in writing by means of the Standard Engineering Change Notice of any and all engineering changes to both hardware, firmware and software if applicable, that result from its continuing engineering activities as they occur. Any changes proposed by COMPANY which affect form, fit, function, SPECIFICATION and/or use, including interfacing, of PRODUCTs and/or Spare Parts will be subject to the prior written consent of BTS. BTS will within thirty (30) days after receipt of notification inform COMPANY by means of the Standard Form for Decision of Change Request or otherwise of the proposed change. Failure to react within said 30 days period will constitute acceptance by BTS and COMPANY will proceed with the change. 3.17 In the event BTS requests an engineering change e.g. in order to meet SPECIFICATION, in any of the PRODUCT or parts thereof, such as, without limitation, in the Software, the provision of article 3.15 hereof shall apply mutatis mutandis. 3.18 In case of changes proposed by BTS and implemented by COMPANY, in the PRODUCTs and/or the production process which affect the manufacturing costs of the PRODUCTs and which result in a decrease of said manufacturing and PRODUCT's costs, COMPANY shall share the profit of said decrease by offering to BTS a price reduction equal to half the actual cost reduction the change will make. Similarly, any change proposed by COMPANY and implemented by BTS which result in a reduction of BTS's manufacturing cost will render COMPANY a more favorable position in price negotiations. Page 6 of 22 4 BTS and COMPANY Obligations 4.1 At the COMPANY's option and subject to the terms hereof, Section 2.1 shall cease to be of force and effect in the event that BTS fails to purchase an aggregate dollar amount of PRODUCT as specified in Exhibit C ("Minimum Orders"), as amended. During the term of the agreement, BTS and Micropolis shall, during the fourth quarter 1997, in good faith negotiate minimum purchase requirements for the 12 month period starting 24 months after the first delivery of PRODUCT, however, such minimum purchase requirement will not be lower then the amount as specified in Exhibit C. The loss of BTS' rights under Section 2.1 shall be the sole and exclusive remedy and result for any failure by BTS to make the minimum dollar amount negotiated. In the event that BTS is unable to obtain or is delayed in obtaining export authorizations or licenses to export the PRODUCT, the parties agree to review in good faith the amount agreed to as specified in Exhibit C, as amended, to determine what reductions, if any, should be made in light of such inability or delay in obtaining such authorizations or licenses. 4.2 Purchase Orders shall be submitted on separate Purchase Order forms and each Purchase Order shall specify the quantity, items, and agreed upon delivery dates Purchase Orders may include additional terms relating to the purchase, shipment and other conditions if previously agreed upon between BTS and COMPANY. 4.3 As soon as feasible, but no later than delivery of the first PRODUCT, BTS shall provide COMPANY with twelve (12) months rolling forecast of its needs for PRODUCT to be renewed every month and issued to COMPANY at the beginning of each month according to the following schedule: a) a firm commitment for the first 2 full calendar months; b) a non-binding orientation for the 3 up to and including the twelfth calendar month. 4.4 BTS agrees to confirm before the 5th working day of each month the above mentioned firm commitment by means of a Purchase Order to cover the second month (e.g. the 5th December ultimately a Purchase Order will be issued for deliveries equally divided over the month of February). Delivery lead time is normally sixty (60) calendar days after receipt of order. From time to time, on BTS request, COMPANY agrees to make every effort to meet shorter delivery times and to meet BTS request. Purchase Orders so placed by BTS shall be acknowledged by COMPANY within one (1) week after receipt by issuing a Purchase Order confirmation and such Purchase Orders may be canceled by BTS only if COMPANY defaults its execution. 4.5 If for any reason not attributable to BTS, COMPANY does not deliver the ordered PRODUCT 10 working days later than confirmed delivery date in accordance with the agreed upon delivery dates set forth in the applicable Purchase Order(s), and order confirmation, COMPANY shall reduce it's price to BTS one percent (1%) of the purchase price of the applicable delayed PRODUCTs per week of delay or part thereof. BTS has the right to claim Page 7 of 22 indemnification of damages only if delivery of PRODUCT is more than 8 weeks delayed from the confirmed delivery thereof. 4.6 BTS may require for additional deliveries outside the tolerance ranges as specified in Exhibit C and COMPANY shall use its best efforts to supply such additional quantities. 4.7 In the event of a change in laws or a case of force majeure, BTS is unable to obtain permission to export or import PRODUCTs into any country of the world where previously they have been selling such, upon BTS' request the Purchase Orders then placed with COMPANY shall be reduced proportionally by the percentage which the expected sales in such countries bear to the total of such Purchase Orders. 4.8 In the event COMPANY wishes to stop production of the PRODUCT, COMPANY shall inform BTS thereof as early as possible in writing, but at least twelve (12) month prior to the date of envisaged Production stop and BTS shall then have an opportunity to place a Purchase Order for PRODUCTs in such quantity as BTS may require and COMPANY shall accept such Purchase Order at the then prevailing price. Notwithstanding the foregoing COMPANY guarantees to produce and supply to BTS PRODUCTs during a period of at least three (3) years starting as from the signing date of this Agreement. 4.9 In the event COMPANY is no longer able to or envisages that it shall not (at short notice) be able to supply PRODUCTs to BTS due to shortage or lack of components and/or Spare Parts, COMPANY shall immediately inform BTS thereof and COMPANY shall then be fully responsible for a proper re- design of the PRODUCT without affecting form, fit or function thereof, all at COMPANY's costs. The re-designed PRODUCT shall be subject to the procedure set forth in Article 4 of the Development Agreement and be subject to the terms and conditions of this Agreement. 4.10 BTS shall endeavor to successfully market and support (including installation, and other support) PRODUCTs on a continuing basis and to comply with good business practices and all laws and regulations relevant to this Agreement or the subject matter hereof. COMPANY shall provide BTS with the documentation and the necessary technical service. 4.11 BTS will do all field service of PRODUCT. Such service can be defined as replacement of SPARE PARTS and updating PRODUCT software. BTS will send said faulty SPARE PARTS to MICROPOLIS for its repair, and MICROPOLIS shall supply to BTS repaired SPARE PARTS and new released and updated software. 4.12 All PRODUCTs to be supplied by COMPANY to BTS pursuant to this Agreement shall be checked and tested by COMPANY in accordance with the SPECIFICATION and COMPANY shall deliver such written test result with PRODUCT. COMPANY shall only supply PRODUCTs which comply with the agreed Specifications and other agreed requirements and which have Page 8 of 22 successfully passed the agreed tests. BTS is entitled to have its representatives present at these tests. It is explicitly understood by COMPANY that BTS is not obligated to execute any incoming inspection or other inspection concerning non- compliance with the Specification of PRODUCTs delivered hereunder by COMPANY and COMPANY shall be fully responsible for and hold BTS and the BTS Associated Companies harmless from any claims for whatever damages resulting from any such non-compliance. 4.13 BTS shall inform the COMPANY as to any material problems encountered by its customers with PRODUCT and to communicate to COMPANY any and all material modifications, design changes or improvements of PRODUCT suggested by any customer. BTS will also promptly notify COMPANY of any claims of infringement of any trademarks or other proprietary rights relating to PRODUCT that are brought to the attention to an officer of BTS. 4.14 BTS shall comply to the extent applicable with all export laws and restrictions and regulations of the Department of Commerce or other United States or foreign agency or authority, and agrees not to export, or allow the export or re-export of any PRODUCT in violation of any such restrictions, laws or regulations. BTS shall obtain any necessary licenses and/or exemptions with respect to the export from the U.S. of any PRODUCTs by BTS and upon request by the COMPANY shall demonstrate to COMPANY compliance with all applicable laws and regulations. COMPANY shall certify that no export licenses are required; however, if such export licenses are required, COMPANY shall assist BTS to acquire such licenses 4.15 As additional consideration for Micropolis' contribution to the joint development of the PRODUCT, upon certification by the BTS International Competence Center (ICC) in Salt Lake City, Utah, of Micropolis' disk drives, BTS intends to utilize Micropolis as its primary COMPANY of disk drives for the BTS "Media Pool Video Server." This primary COMPANY status shall only remain in effect as long as Micropolis supplies a PRODUCT equal in performance and price to units available from other Companies. A nonbinding forecast for these drives are included as Exhibit D. Page 9 of 22 5 Private Label. 5.1 Brand name. BTS shall market the PRODUCT under a BTS brand name ("Brand Name") selected by BTS. The COMPANY shall label (without additional charge) all PRODUCT sold to BTS with the BTS name, the Brand Name and/or any logos specified by BTS. Such labeling shall comply with specifications provided by BTS in writing and approved by the COMPANY, the approval of which shall not be unreasonably withheld. The PRODUCT sold to BTS shall include (without charge to BTS) an electronic version of the Technical Reference and Maintenance Manual, including but not be limited to electrical schematics, mechanical drawings and maintenance procedures. BTS at its cost, with the assistance of the COMPANY, shall develop its own operator and installation manual and any other marketing and sales materials. BTS shall own all right, title and interest in the Brand Name and any tradenames, trademarks or copyrights relating thereto. The COMPANY shall not use the Brand Name without BTS' consent. Page 10 of 22 6 Warranty; Disclaimer; Indemnity. 6.1 Warranty. COMPANY guarantees the good quality and the good performance in accordance with the SPECIFICATION of each PRODUCT supplied pursuant to this Agreement during a period of eighteen (18) months from date of delivery by COMPANY to BTS or twelve (12) months from delivery by BTS or any of the BTS Associated Companies to its/their ultimate customers, whichever is sooner. Under this guarantee COMPANY shall provide BTS free of charge with replacement parts or PRODUCTs, or shall repair PRODUCTs at COMPANIES option. It is explicitly understood that BTS bear all transportation and labour costs in connection with returning said parts or PRODUCTs to COMPANY's site, and that COMPANY bear all transportation and labour costs in connection with repairing and returning said parts or PRODUCTs to BTS or to the pertaining BTS Associated Company(ies). The above warranty does not extend to any PRODUCT that is modified or altered or operated in a manner other than that specified by COMPANY, has its serial number removed or altered or is treated with abuse, negligence or other improper treatment by BTS, any of BTS Associated Companies or its/their customer. COMPANY MAKES NO OTHER WARRANTIES WITH RESPECT TO THE PRODUCT OR ANY OTHER SERVICES AND DISCLAIMS ANY OTHER WARRANTIES, INCLUDING WARRANTIES FOR FITNESS FOR A PARTICULAR PURPOSE. 6.2 In the event of epidemic faults (faults which appear in more than 10% out of sequentially delivered PRODUCT during a 12 month period, and which faults are either the same or similar or have the same or similar cause) BTS will inform COMPANY as soon as possible about the event. COMPANY and BTS shall after consultation in order to find the cheapest solution decide in joint consultation, it being understood that all costs connected with the transportation of such replacements and the building in thereof and the building out of the defective part(s) shall be for the account of COMPANY: a) which corrections and repairs can be made by BTS against the reimbursement by COMPANY for labour another expenses incurred by BTS in correcting and repairing PRODUCTs; b) which parts and/or PRODUCTs shall be replaced free of charge by COMPANY and within which period of time such replacement shall be effected. The warranty with respect to epidemic faults shall terminate eighteen (18) months after delivery by COMPANY of the last PRODUCTs delivered to BTS hereunder. 6.3 Notwithstanding any references in this Agreement to the purchase of PRODUCTs by BTS hereunder, the parties agree that the Software is not being sold by COMPANY or purchased by BTS. Page 11 of 22 6.4 In the event of any non-compliance with the Specifications of the Software, notified by BTS to COMPANY in writing, COMPANY shall respond as follows: a) In the event of a Major Defect, as defined by BTS, COMPANY shall within 24 hours acknowledge receipt of such notification from BTS, and make best effort to provide a permanent solution for such defect or at least a workaround within 5 days, or, if a permanent solution or workaround can not be found, in good faith together with BTS negotiate with the ultimate customer how to solve such defect COMPANY shall provide BTS and the applicable BTS Associated Companies with a corrected version of the Software as soon as possible thereafter, free of charge. b) In the event of a Minor Defect, a defect that, in the opinion of BTS is a defect that is not likely to reduce materially the usability of the applicable PRODUCT for its intended purpose, or is a departure from established standards having little bearing on the effective use or operation of the PRODUCT, COMPANY shall correct same and implement said correction in the following new release of the Software. Said new releases shall be provided by COMPANY at most twice per calendar year. However, if required and notwithstanding the foregoing, COMPANY shall provide BTS and the applicable BTS Associated Companies with a work- around within ultimately ten (10) days after receipt of notification of such request. 6.5 Indemnification. COMPANY shall indemnify and hold BTS and its officers, directors, shareholders, agents and employees harmless from and against liability resulting from infringement by a PRODUCT of any United States or other patent, any United States or other copyright or any trademark, tradename or other intellectual property right provided COMPANY is promptly notified of any and all threats, claims and proceedings related thereto and given reasonable assistance and the opportunity to assume control over the defense and negotiations for a settlement or compromise (if the COMPANY assumes control, the COMPANY shall however permit BTS to participate in such defense and negotiations, at BTS' expense if BTS so requests); COMPANY will not be responsible for any settlement it does not approve in writing. The foregoing obligation of COMPANY does not apply with respect to a PRODUCT or portions or components thereof (i) not supplied by COMPANY, (ii) labeling made in whole or in part in accordance to specifications provided by BTS, or (iii) which are modified by BTS, any of BTS Associated Companies or its/their customer after shipment by COMPANY, if the alleged infringement relates to such modification. 6.6 In case a PRODUCT is held to constitute infringement, as defined in Article 6.6 hereof, and the use thereof is enjoined, COMPANY shall, at its option and expense, either procure for BTS, the BTS Associated COMPANY and its/their customer(s) the right to continue using said PRODUCT, or replace same, or a part thereof with a non-infringing modification in a manner such that performance of the PRODUCT is not degraded. 6.7 COMPANY shall be responsible for and it shall defend, indemnify and hold harmless BTS, all of the BTS Associated Companies and their respective customers from and against any losses, expenses and liability to third parties resulting from injuries and/or damages arising out of the use of PRODUCTs, if such injuries and/or damages are attributable to any part of the PRODUCT(s), not meeting SPECIFICATION, and being Page 12 of 22 delivered by COMPANY. In connection with this obligation, it shall be BTS' responsibility that COMPANY is promptly notified of any and all claims made against it, the BTS Associated Companies or any of their customers for any such personal injuries and/or damages alleged to be the result of defective parts of PRODUCT manufactured by or for COMPANY hereunder. 7 Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. NEITHER PARTY SHALL BE LIABLE FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL. Page 13 of 22 8 Proprietary Rights 8.1 Without limiting COMPANY's liability to BTS hereunder in any way whatsoever, it has been agreed that in case COMPANY: a) intends to enter or actually enters liquidation procedures (either voluntarily or forced); or b) has entered bankruptcy procedures (either voluntarily or forced); or c) notifies BTS in writing that it desires to stop production of the PRODUCTs, after the agreed upon period; or d) within sixty (60) days of notification by BTS has not remedied any material breach of this Agreement, e) in the event of a change of control of COMPANY. BTS itself, any of the BTS Associated Companies or a third party to be agreed upon between the parties hereto, shall have immediate access to all manufacturing know-how and documentation related to the PRODUCT and the Spare Parts and as soon as possible thereafter shall acquire all relating know-how and inventory of Spare Parts needed for the production of PRODUCTs, if and to the extent required by BTS, against compensation for COMPANY's purchase price therefor. 8.2 Know-how according to this Article 8 shall mean all the information relating to the design, development, production, testing, and servicing of PRODUCTs as manufactured by or for COMPANY, which is in its possession or under its control and as will be sufficient to enable BTS, a BTS Associated COMPANY or said third party to manufacture and service PRODUCTs. All such know-how shall be in a legible and reproducible form. 8.3 Accordingly, COMPANY hereby grants to BTS the option upon occurrence of any of the cases referred to under a, b, c, d and/or e of Article 8.1 above to receive against a royalty of 2% of BTS sales price of PRODUCT, a perpetual worldwide irrevocable license with the right to sublicense under any and all patent and other proprietary rights relating to the PRODUCTs, and know-how (as specified above) to make, have made, use, lease, sell or otherwise dispose of PRODUCTs or other video disk recorders or parts thereof by making use of COMPANY's proprietary rights and know-how as specified above. 8.4 In order to secure BTS' rights set forth above the parties agree to the following: COMPANY undertakes to deposit not later than 4 (four) weeks from date of signature of this Agreement a copy of all drawings and other technical information needed for the production and servicing of PRODUCT with the firm of Nauta Dutilh, notary public, Eindhoven, the Netherlands, ("the Escrow Agent") and COMPANY undertakes to, during the term of this agreement, supply Escrow Agent with quarterly updates of such PRODUCT information, and that all present and future drawings of PRODUCT and other information of PRODUCT will remain with the Escrow Agent during the term of this Agreement and ten (10) years thereafter. COMPANY represents that it has instructed the Escrow Agent to make available to BTS copies of the drawings and other technical information without any charges, provided BTS informs Page 14 of 22 the Escrow Agent that COMPANY has entered liquidation procedures (either voluntary or forced) or, has entered bankruptcy procedures (either voluntary or forced) or that COMPANY is in breach of a contractual obligation hereunder towards BTS, or that COMPANY has stopped production of the PRODUCTs a in case of a change of control of COMPANY. 9 Assignment. This Agreement and the rights hereunder are not transferable or assignable without the prior written consent of the parties hereto, except for rights to payment and except to a person or entity who acquires all or substantially all of the assets or business of a party, whether by sale, merger or otherwise. Page 15 of 22 10 Term and Termination. 10.1 Term. Unless terminated earlier as provided herein, this Agreement shall have a term of thirty-six (36) months, extending from the date of this Agreement. The term of this Agreement shall automatically be renewed for consecutive twelve (12) month periods unless a party gives written notice of termination to the other not less than 120 days prior to the expiration of the term of the Agreement. In such case, article 4.8 applies. If the parties continue to do business with each other after such termination without full documentation, the relevant terms hereof will continue to govern the relationship unless otherwise expressly agreed in writing. 10.2 Termination. This Agreement may be terminated by a party for cause immediately by written notice upon the occurrence of any of the following events: a) If the other materially breaches any material provision of this Agreement and fails to fully cure such breach within 30 days of written notice describing the breach; or b) If the other becomes insolvent or enters into bankruptcy procedures. This Agreement may be terminated at any time with the mutual consent of the parties hereto. 10.3 Effect of Termination. Each party understands that the rights of termination hereunder are absolute. Neither party shall incur any liability whatsoever for any damage (including, but not limited to, incidental or consequential damage), loss or expenses of any kind suffered or incurred by the other (or for any compensation to the other) arising from or incident to any termination of this Agreement by such party which complies with the terms of the Agreement whether or not such party is aware of any such damage, loss or expenses. Termination is not the sole remedy under this Agreement and, whether or not termination is effected, all other remedies will remain available. The provisions of Sections 6, 7, 8, 10.2 and 10.3 shall survive any termination of this Agreement. Page 16 of 22 11 General 11.1 General Conditions Neither BTS' general conditions of purchase nor COMPANY's general conditions of sales are applicable to this Agreement or to any Purchase Orders and Purchase Order confirmations. 11.2 Relationship of Parties. The parties hereto are independent contractors with respect to each other. Nothing in this Agreement shall be construed as constituting BTS as a joint venture, partner or agent of the COMPANY and BTS shall have no authority to bind the COMPANY (except pursuant to Section 6 relating to the COMPANY's warranties). The COMPANY shall have no right to exercise any control whatsoever over the activities or operations of BTS, other then defined in the Memo of Agreement, attached hereto, including the prices at which BTS may resell PRODUCTs. 11.3 Amendment and Waiver. Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties. However, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non-pre-printed agreements clearly understood by both parties to be an amendment or waiver. 11.4 Governing Law and Legal Actions. This Agreement shall be governed by and construed and enforced in accordance with the laws of Germany. All disputes, controversies or differences which may arise between the Parties in relation to or in connection with this Agreement may be settled by amicable negotiation by both Parties if the Parties so agree. If both Parties are unable to settle such disputes, then such disputes shall be referred to and finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. The Arbitration shall be conducted in the English Language and take place in USA if it is initiated by BTS or in Germany if it is initiated by COMPANY. The award of arbitration shall bind both Parties. No waiver by a party of a right or remedy under this Agreement shall constitute a waiver of any other right or remedy under this Agreement. No waiver of a right or remedy shall be effective unless made in writing. 11.5 Headings. Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement. 11.6 Notices. Notices under this Agreement shall be sufficient only if personally delivered, delivered by a major commercial rapid delivery courier service or mailed by certified or registered mail, return receipt requested to a party at its addresses set forth below or as amended by notice pursuant to this Page 17 of 22 subsection. If not received sooner, notice by mail shall be deemed received five (5) days after deposit in the U.S. mails. If to BTS: Brunnenweg 9 64331 Weiterstadt Germany Attn.: General Manager If to COMPANY: 21211 Nordhoff Street Chatsworth, CA 91311 USA Attn.: VP and General Manager Systems Business Unit 11.7 Entire Agreement. This Agreement supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among parties relating to the subject matter of this Agreement and all past dealing or industry custom. 11.8 Confidentiality. Neither party shall disclose the terms of this Agreement or any attachment to any third party without the prior written consent of the other party. Article 9 of the Development Agreement continues to govern any possible exchange of confidential information. 11.9 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. 11.10 Force Majeure: Neither MICROPOLIS nor BTS shall be liable for delay or failure in the performance of the obligations contained in this AGREEMENT arising solely from any one or more of the following matters: a) acts of God, or public enemy or war (declared or undeclared); b) acts of governmental or quasi-governmental authorities or regulations or restrictions imposed by law or by court action, except as they may result from the unreasonable failure of MICROPOLIS or BTS to perform as required hereunder; c) acts of persons engaged in subversive activities or sabotage; d) fires, floods, explosions or other catastrophes; e) epidemics or quarantine restrictions; f) strikes, lockouts or similar labour disruptions; g) freight embargoes, or interruption of transportation; h) unusually severe weather; i) delays of a supplier of one PARTY due to any of the above causes or events; or Page 18 of 22 j) any other extraordinary event beyond the control of the PARTY concerned; and provided that due diligence is exercised to cure such cause and resume performance, and the time for performance by such PARTY shall be extended by a period of any such delay. 11.11 Advertisements: COMPANY shall not without BTS' prior written consent use BTS' name or trademark as such and/or use same in connection with any advertisement or sales literature nor advertise that it is a COMPANY of BTS and/or that this Agreement between COMPANY and BTS has been concluded. Exhibit. The following Exhibit, as referred to in this Agreement, form an integral part of the Agreement: Exhibit A: Prices of PRODUCT/Modules Exhibit B: BTS software license fee Exhibit C: Minimum order quantity and order forecast Exhibit D: Purchasing forcast of Micropolis drives to be used in the Media Pool Video server. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above. Micropolis Corporation By: /s/ Per Sjofors Name: Per Sjofors Title: Director Marketing VSD BTS BROADCAST TELEVISION SYSTEMS GmbH By: /s/ H. Hock /s/ H.D. Geise Name: H. HOCK H.D. GEISE Title: CFO Gen. Manager 15. Sept. 1995 MEMORANDUM OF AGREEMENT This memorandum of agreement (MoA) is made between Micropolis Corporation (Micropolis) of 21211 Nordhoff Street Chatsworth, CA 91311 USA and BTS Broadcast Television Systems GmbH (BTS) of Im Leuschnerpark 1 D-64347 Griesheim Germany Whereby Micropolis and BTS (hereafter the "Parties") agree to collaborate in accordance with the following terms and conditions. SCOPE The Parties shall together define and Micropolis and BTS (Weiderstadt) shall jointly develop a family of video disk recorders for sale worldwide by BTS. For purpose of this agreement these products shall be called "Mini-Pools". The parties agree that they participate in this collaboration on a non-exclusive basis in accordance with the conditions described below. PRINCIPLES The Mini-Pools shall be branded with the BTS logo and product name. The Mini-Pool family shall consist of a family of products as outlined on the attached preliminary specifications identified as exhibit "A". The Parties agree to make a best effort for completion of the Mini-Pools as follows: VDR110 Prototypes completed by Dec. 31, 1995 Beta site deliveries to BTS customers by Feb. 1, 1996 Production deliveries to BTS customers starting April 1, 1996 VDRx40 Prototypes completed by March 31, 1996 Beta site deliveries to BTS customers by May 1, 1996 Production deliveries to BTS customers starting July 1, 1996 A development plan called the "Joint Development Agreement" detailing the tasks and identifying the resources will be developed within 30 days of signing this MoA. A business agreement called the "Brand Name Reseller's Agreement" detailing the pricing and sales volumes will be developed by Oct. 15, 1995. BTS International Competence Center (Wiederstadt) and Micropolis will jointly develop the Mini-Pool according to the "Joint Development Agreement". The Parties agree that the total development cost of Mini-Pool will not exceed $2M. BTS agrees to cover a percentage of Micropolis's development cost in cash and through contribution of engineering resources. Micropolis shall deliver to BTS various VDR related sub-assemblies for BTS to configure and make final test. Payment to Micropolis is of the BTS contribution to development shall be as follows:
LATEST DATE AMOUNT PURPOSE AUG 7, 1995 $100,000 This amount is intended to allow development 10 working days to continue while the terms of the "Joint after execution of Development Agreement" are being completed. If this MoA. for any reason, the parties are unable to reach agreement within 30 days of the execution of the MoA, the parties must mutually agree to continue negotiations or they shall cease and Micropolis may keep this payment. SEPT 25, 1995 $200,000 This amount is part payment of the total 10 working days payment by BTS to Micropolis, as further after execution of detailed in the "Brand Name Reseller's the "Brand Name Agreement". If for any reason, the parties Reseller's are unable to reach agreement by September 15, Agreement" 1995, the parties must mutually agree to continue negotiations and payment is then due on execution of the "Brand Name Resellers Agreement".
The schedule of the balance of the BTS contribution to Micropolis of $700,000 cash and engineering resources shall be as defined in the "Joint Development Agreement". The Parties shall exchange monthly reports, in a form to be mutually agreed, detailing the technical progress achieved. Further to this reporting process, each party shall allow the other party's Project Manager to inspect development work at intervals longer than 15 days apart. The Parties shall share the intellectual property acquired in the development of the "MiniPools", exclusive of property previously developed by either party, which shall remain the property of the initial developing company. The "Joint Development Agreement" shall outline the extent of the previously developed intellectual property of each party. Subject to the terms and conditions of the Brand Name Reseller's Agreement, Micropolis shall appoint BTS as the worldwide exclusive reseller of the "Mini-Pools". Micropolis grants BTS the right to sub-license the Mini-Pool system software. The only exception to this exclusivity shall be that BTS shall allow Micropolis to conduct business for the sale of a Micropolis version of the VDR110 to the following company: Tyrell Corporation Although there may be other differentiating features, this version will utilize analog I/O for video and will incorporate a 'flat' file system. This version could also be sold by BTS. It is to be understood that if the version of the VDR110 sold to the above company incorporates any BTS developed technology, Micropolis agrees to pay BTS a royalty based upon standard industry practices. If additional sales opportunities are identified by Micropolis, BTS agrees to sell the "Mini-Pools" to other companies for their resale, provided they operate outside the professional television industry or such companies are acceptable to BTS. In these cases, BTS must make a minimum of 15% gross margin on the sale. As additional consideration for Micropolis contribution to the joint development of the "Mini-Pools", upon certification by the BTS International Competence Center (ICC) in Salt Lake City of Micropolis disk drives, BTS intend to utilize Micropolis as their primary supplier of disk drives for the BTS Media Pool Video Server. This primary supplier status shall only remain in effect as long as Micropolis supplies a product equal in performance and price to units available from other suppliers. The reseller's agreement shall include projected quantities for Micropolis manufacturing forecast purposes and will not constitute any firm order commitments. This MoA shall come into force at the date of signatures of both Parties. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date indicated below. MICROPOLIS CORPORATION BTS BROADCAST TELEVISION SYSTEMS By: /s/ Larry Smart By: /s/ Ruttger Keienburg Name: Larry Smart Name: Ruttger Keienburg Title: President and CEO Title: CEO and President Date: July 25, 1995 Date: July 31, 1995 Page 20 of 22 Exhibit B: BTS license fee Hardware and Software that is independently developed by BTS, and where the development is not paid by Micropolis, and that forms an integral part of PRODUCT shall, in the event that PRODUCT is sold by Micropolis to other 3d parties, be subject to a license fee. This license fee shall be subject to good faith negotiations. In case after serious negotiations the parties remain unable to reach agreement on the license fee, the following procedure shall apply: The license fee will be set by a committee of three (3) members. COMPANY and BTS each will appoint one member ('Party-Arbitrator'), a senior manager from the respective organizations, who jointly will appoint an independent third member (hereinafter the 'Chairman'). The committee starts working not later than 1 month before Micropolis sells PRODUCT to 3d parties. The Party-arbitrators will submit to the Chairman the proposed license fee along with their justifications. The Chairman will inform the parties of the proposals so submitted, after which the Party-Arbitrators must submit their final license fee proposal within seven (7) days. The Chairman must then choose between the two proposals within fourteen (14) days. The license fee announced are binding for both parties. Cost of arbitration will be shared by MICROPOLIS and BTS. Page 21 of 22 Exhibit C: Minimum order quantity and order forecast In order to enjoy it's limited exclusivity, as defined in Article 2.1 herein, BTS agrees to order a minimum volume of PRODUCT from MICROPOLIS. The order volume is based on the prices as agreed in Exhibit A, as amended, hereto.
Period, number of month from first Minimum purchase agreement, production shipment of VDR110 in US dollars 0 - 12 month $4m 12 - 24 month $12m 24 - 36 month $14m
Notes: 1) The above Minimum purchase agreement, in US dollars, is based on the assumption that the VDR110 product will have an actual performance that is in excess of the SPECIFICATION in one respect that the minimum compression ratio is 4:1 rather than the 8:1 as per the SPECIFICATION. 2) The minimum order volume per period and for the duration of the AGREEMENT is accumulative; if BTS orders in excess of it's minimum order quantity in any period, the excess amount will be counted into the next period. BTS will provide COMPANY with a 12 month rolling forecast. In any given 12 month period the forecast can not be changed more than
Month May Change 1,2 No change as Purchase Orders are issued 3-6 No more than plus or minus 20% 7-12 No more than plus or minus 30%
Page 22 of 22 Exhibit D: Purchasing forecast of Micropolis drives to be used in the Media Pool Video server. The purchasing forecast of Micropolis drives to be used in the Media Pool Video server will be supplied by BTS to MICROPOLIS and attached to this agreement no later then 30 days after execution. EX-10.55 6 FACILITY AGREEMENT EXHIBIT 10.55 DATED FEBRUARY 16, 1996 MICROPOLIS CORPORATION as Borrower -and- ST CHATSWORTH PTE LTD as Lender ------------------------ US$10,000,000 FACILITY AGREEMENT ------------------------ C O N T E N T S --------------- CLAUSE HEADING PAGE - ------ ------- ---- 1. INTERPRETATION 1 2. THE FACILITY 2 3. CONDITIONS PRECEDENT 2 4. DRAWDOWN 2 5. REPAYMENT 3 6. INTEREST 3 7. TAXES 4 8. REPRESENTATION AND WARRANTIES 5 9. UNDERTAKINGS 6 10. EVENTS OF DEFAULT 6 11. DEFAULT INTEREST 8 12. INDEMNITIES 9 13. SET-OFF 9 14. EXPENSES AND STAMP DUTY 10 15. ASSIGNMENT 10 16. REMEDIES, WAIVERS, AMENDMENTS AND CONSENTS 11 17. COMMUNICATIONS 11 18. PARTIAL INVALIDITY 11 19. GOVERNING LAW AND JURISDICTION 11 20. EXECUTION 12 SCHEDULE 1--CONDITIONS PRECEDENT 13 SCHEDULE 2--FORM OF REQUEST FOR ADVANCE 14 THIS AGREEMENT is made on February 16, 1996 BETWEEN: ------- (1) MICROPOLIS CORPORATION (the "Borrower"); and ---------------------- (2) ST CHATSWORTH PTE LTD (the "Lender"). -------------------- WHEREAS:- ------- (A) The Borrower and the Lender have pursuant to an Asset Purchase Agreement, as defined below agreed to sell and purchase the Disk Drive Business as defined in the Asset Purchase Agreement. (B) At the request of the Borrower, the Lender is prepared to make certain advances to the Borrower to assist the Borrower in carrying on the Disk Drive Business prior to the Closing Date as defined in the Asset Purchase Agreement. IT IS AGREED as follows:- 1. INTERPRETATION -------------- Definitions: In this Agreement, except to the extent that the context ----------- requires otherwise:- "Advance" means, depending on the context, an advance made or to be made --------- by the Lender to the Borrower pursuant to this Agreement; "Asset Purchase Agreement" means the Asset Purchase Agreement dated 24th ------------------------- January, 1996 made between (1) Micropolis Corporation and (2) ST Chatsworth Pte Ltd; "Available Amount" means the Facility Amount less (i) that part of it ------------------ (if any) which has been cancelled in accordance with this Agreement and (ii) the Advances made by the Lender to the Borrower under this Agreement; "Business Day" means a day (other than Saturday or Sunday) on which -------------- commercial banks and the foreign exchange market are open for business in Singapore and, if on that day a payment or transfer of funds is to be made under or pursuant to this Agreement, New York City also; "Event of Default" means one of the events mentioned in Clause 10(A); ------------------ "Facility" means the facility granted under this Agreement; --------- "Facility Amount" means US$10,000,000; ----------------- -2- "Margin" means 1 per cent.; -------- "Potential Event of Default" means any event or circumstance which, if it ---------------------------- continued after the giving of any notice, the expiry of any grace period and/or (as the case may be) the making of any determination by the Lender, provided for in Clause 10(A), would become an Event of Default; "Repayment Date" means 29th March, 1996; and ---------------- "US Dollar(s)" and "US$" mean the lawful currency of the United States of -------------- ----- America. 2. THE FACILITY ------------ (A) Amount: Subject to the Lender's right of review as stated in sub-Clause (C) ------- below, the Lender agrees to make to the Borrower Advances, in an aggregate principal amount not exceeding US$10,000,000 upon the terms and subject to the conditions of this Agreement. (B) Purpose: The Borrower shall use the proceeds of each Advance to repay the -------- suppliers approved by the Lender. (C) Review of Facility: Notwithstanding anything herein to the contrary, ------------------ expressed or implied, the Facility hereby agreed to be made available and granted from time to time to the Borrower shall, at the absolute discretion of the Lender, be reviewed from time to time and at any time and may be subject to cancellation by the Lender as the Lender deems fit, and except where the Lender has given the notice to the Borrower pursuant to Clause 4(B) that it is prepared to make an Advance requested, nothing in this Agreement shall be deemed to impose on the Lender any obligation either at law or in equity to make or continue to make the Facility available to the Borrower or to make any Advance to the Borrower. 3. CONDITIONS PRECEDENT -------------------- The Borrower may not make its request for an Advance until the Lender has confirmed to it that the Lender has received each of the documents listed in Schedule 1 and has found them satisfactory. 4. DRAWDOWN -------- (A) Drawdown Notice: Subject to the provisions of this Agreement, Advances may ---------------- be made by the Lender to the Borrower at its request if the following additional conditions are fulfilled:- (i) not later than 10 a.m. on the third Business Day before the proposed date of the relevant Advance (or such other Business Day before the proposed date of the relevant Advance as the Lender may agree), the Lender has received from the Borrower a notice substantially in the form set out in Schedule 2 specifying:- -3- (a) the proposed advance date (which must be a Business Day) (b) the amount of the Advance (which must be equal to or less than the Available Amount); and (c) a list of the suppliers and the amount owing to them by the Borrower, which is to be discharged by the proceeds of the Advance. (ii) all representations and warranties in Clause 8 (except to any extent waived in accordance with Clause 16(B)) have been complied with and would be correct in all respects if repeated on the proposed date of the Advance by reference to the circumstances then existing; (iii) no Event of Default or Potential Event of Default has occurred on or before the proposed date of the Advance or will occur as a result of the making of the Advance (unless otherwise waived in accordance with Clause 16(B)); and (iv) not later than 10 a.m. on the proposed date of the Advance, the Lender has received and found satisfactory such additional information, legal opinions and/or other documents relevant in the context of or relating to this Agreement as it may request. (B) Acceptance by Lender: (i) On receipt of the notice of drawdown pursuant to -------------------- sub-Clause (A), the Lender shall not later than 2 Business Days thereafter inform the Borrower as to whether it is prepared to make the Advance and the amount of the Advance it is prepared to make. (ii) In the event the Lender notifies the Borrower that it is prepared to make the Advance, it shall make available the amount of the Advance it is prepared to make in accordance with the terms of the notice of drawdown. 5. REPAYMENT --------- Subject as otherwise provided in this Agreement, the Advances outstanding shall be repaid in full by the Borrower on the Repayment Date. 6. INTEREST -------- (A) Interest Periods: Interest shall be calculated on each Advance by reference ---------------- to the term of the Advance and shall begin on the proposed date of that Advance and shall accrue from day to day based on a year of 360 days. -4- (B) Normal Interest Rate: The rate of interest applicable to each Advance shall --------------------- be the rate per annum (as determined by the Lender) equal to the sum of the Margin and the US Dollar prime lending rate of Citibank N.A. Singapore branch prevailing from time to time. (C) Payment of Interest: Subject as otherwise provided in this Agreement, the -------------------- Borrower shall pay the interest accrued on each Advance at the rate applicable on the Repayment Date. 7. TAXES ----- (A) Payments to be Free and Clear: All sums payable by the Borrower under this ------------------------------ Agreement shall be paid (i) free of any restriction or condition, (ii) free and clear of and (except to the extent required by law) without any deduction or withholding for or on account of any tax and (iii) without deduction or withholding (except to the extent required by law) on account of any other amount, whether by way of set-off or otherwise. (B) Grossing-up of Payments: (i) If the Borrower or any other person (whether or ------------------------ not a party to, or on behalf of a party to, this Agreement) must at any time deduct or withhold any tax or other amount from any sum paid or payable by, or received or receivable from, the Borrower under this Agreement, the Borrower shall pay such additional amount as is necessary to ensure that the Lender receives on the due date and retains (free from any liability other than tax on its own overall net income) a net sum equal to what it would have received and so retained had no such deduction or withholding been required or made. (ii) If the Borrower or any other person (whether or not a party to, or on behalf of a party to, this Agreement) must at any time pay any tax or other amount on, or calculated by reference to, any sum received or receivable by the Lender under this Agreement (except for a payment by the Lender of tax on its own overall net income), the Borrower shall pay or procure the payment of that tax or other amount before any interest or penalty becomes payable or, if that tax or other amount is payable and paid by the Lender, shall reimburse it on demand for the amount paid by it. (iii) The Borrower shall:- (a) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any tax or other amount which it is required by paragraph (ii) to pay, deliver to the Lender evidence satisfactory to the Lender of that deduction, withholding or payment and (where remittance is required) of the remittance thereof to the relevant taxing or other authority; and (b) promptly after receipt from the relevant taxing or other authority of its acknowledgement of receipt for any payment made pursuant to paragraph (ii) above, deliver an original or certified copy thereof to the Lender. (iv) as soon as the Borrower is aware that any such deduction, withholding or -5- payment is required (or of any change in any such requirement), it shall notify the Lender. 8. REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to and for the benefit of the Lender that:- (1) Powers: (a) it has the power to enter into, exercise its rights and ------ perform and comply with its obligations under this Agreement; (ii) Authorisation and Consents: all action, conditions and things -------------------------- required to be taken, fulfilled and done (including the obtaining of any necessary consents) in order (a) to enable it lawfully to enter into, exercise its rights and perform and comply with its obligations under this Agreement, (b) to ensure that those obligations are valid, legally binding and enforceable, (c) to ensure that those obligations rank and will at all times rank in accordance with Clause 9(i) and (d) to make this Agreement admissible in evidence in the courts of Singapore have been taken, fulfilled and done; (iii) Non-Violation of Laws by Borrower: its entry into, exercise of its --------------------------------- rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate, or exceed any borrowing or other power or restriction granted or imposed by, (a) any law to which it is subject, (b) any provision of its constitutive documents or (c) any agreement to which it is a party or which is binding on it or its assets and do not and will not result in the creation of, or oblige it to create, any security over those assets; (iv) Obligations Binding: its obligations under this Agreement are ------------------- valid, binding and enforceable; (v) Litigation: no litigation, arbitration or administrative proceeding ----------- is current or pending or, so far as it is aware, threatened to restrain the entry into, exercise of its rights under and/or performance or enforcement of or compliance with its obligations under this Agreement; (vi) Winding-up of Borrower: no meeting has been convened for its ---------------------- winding-up or for the appointment of a receiver, trustee, judicial manager or similar officer of it, its assets or any of them, no such step is intended by it and, so far as it is aware, no petition, application or the like is outstanding for its winding-up or for the appointment of a receiver, trustee, judicial manager or similar officer of it, its assets or any of them; and (vii) Repetition: each of the above representations and warranties will ----------- be correct and complied with in all respects so long as any sum remains -6- to be lent or remains payable under this Agreement as if repeated then by reference to the then existing circumstances. 9. UNDERTAKINGS ------------ The Borrower undertakes that, so long as any sum remains to be lent or remains payable under this Agreement:- (i) Ranking of Obligations: its payment obligations under this Agreement ----------------------- rank and will at all times rank at least equally and rateably in all respects with all its other unsecured and/or unsubordinated indebtedness except for such indebtedness as would, by virtue only of the law in force in the United States of America, be preferred in the event of its winding-up; (ii) Negative Pledge: except for security existing at the date hereof ---------------- notice of which has been given to the Lender, it will not create or have outstanding any security on or over any of its assets; (iii) Use of Advance: it will use the proceeds of each Advance to repay the --------------- suppliers approved by the Lender and as directed by the Lender; and (iv) Further Assurance: it will from time to time on request by the Lender ------------------ do or procure the doing of all such acts and will execute or procure the execution of all such documents as the Lender may consider necessary or desirable for giving full effect to this Agreement or securing to the Lender the full benefits of all rights, powers and remedies conferred upon the Lender in this Agreement. 10. EVENTS OF DEFAULT ----------------- (A) Events of Default: The following are Events of Default:- ------------------ (i) Non-Payment: the Borrower does not pay in the manner provided in this ------------ Agreement any sum payable under it when due; (ii) Breach of Other Obligations: the Borrower does not perform or comply ---------------------------- with any one or more of its obligations (other than the payment obligation of the Borrower referred to in paragraph (i)) under this Agreement and, if in the opinion of the Lender that default is capable of remedy, it is not in the opinion of the Lender remedied within 14 days of its occurrence; (iii) Breach of Warranty: any representation, warranty, certification or ------------------- statement by the Borrower in this Agreement or in any other document delivered under this Agreement is not complied with or is or proves to have been incorrect in any respect when made or, if it had been made on any later date by reference to the circumstances then existing, -7- would have been incorrect in any respect on that later date, or is not complied with or is or proves to have been incorrect when made or deemed repeated; (iv) Cross Default: any other indebtedness of the Borrower or any of its -------------- subsidiaries in respect of borrowed money is or is declared to be or is capable of being rendered due and payable before its normal maturity by reason of any actual or potential default, event of default or the like (however described) or is not paid when due nor within any applicable grace period in any agreement relating to that indebtedness or, as a result of any actual or potential default, event of default or the like (however described) any facility relating to any such indebtedness is or is declared to be or is capable of being cancelled or terminated before its normal expiry date or any person otherwise entitled to use any such facility is not so entitled; the foregoing shall not apply to default under the CIT Financing Agreement. (v) Insolvency: the Borrower or any of its subsidiaries is (or is, or ----------- could be, deemed by law or a court to be) insolvent or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its indebtedness; (vi) Enforcement Proceedings: a distress, attachment, execution or other ------------------------ legal process is levied, enforced or sued out on or against the assets of the Borrower or any of its subsidiaries and is not discharged or stayed within 14 days; (vii) Security Enforceable: any security on or over the assets of the --------------------- Borrower or any of its subsidiaries becomes enforceable; (viii) Winding-up: any step is taken by any person with a view to the ----------- winding-up of the Borrower or any of its subsidiaries or for the appointment of a liquidator (including a provisional liquidator), receiver, judicial manager, trustee, administrator, agent or similar officer of the Borrower or any of its subsidiaries or over any part of the assets of the Borrower or any of its subsidiaries; (ix) Cessation of Business: the Borrower or any of its subsidiaries ceases ---------------------- or threatens to cease to carry on all or a substantial part of its business; (x) Authorisations and Consents: any action, condition or thing ---------------------------- (including the obtaining of any necessary consent, approvals or licences) at any time required to be taken, fulfilled or done for any of the purposes stated in Clause 8(ii) is not taken, fulfilled or done, or any such consent, approval or licence is revoked, withdrawn, cancelled or otherwise ceases to be in full force and effect without modification or any condition in or relating to any such consent is not complied with (unless that consent or condition is no longer required or applicable); -8- (xi) Illegality: it is or will become unlawful for the Borrower to ----------- perform or comply with any one or more of its obligations under this Agreement; (xii) Cessation: this Agreement ceases for any reason (or is claimed by ---------- the Borrower) not to be the legal and valid obligations of the Borrower binding upon it in accordance with its terms; (xiii) Litigation: any litigation, arbitration or administrative proceeding ----------- is current or pending to (a) restrain the exercise of any of the rights and/or the performance or enforcement of or compliance with any of the obligations of the Borrower under this Agreement or (b) which has or could have a material adverse effect on the Borrower or on the Borrower and its subsidiaries taken as a whole; (xiv) Analogous Event: any event occurs which, under the law of any --------------- relevant jurisdiction, has an analogous or equivalent effect to any of the events mentioned in paragraphs (v), (vi), (viii) or (ix); and (xv) Material Adverse Change: any event occurs or circumstances arise ----------------------- which the Lender reasonably determines give(s) reasonable grounds for believing that the Borrower may not (or may be unable to) perform or comply with any one or more of its obligations under this Agreement. (B) Cancellation/Acceleration: If at any time and for any reason (and whether -------------------------- within or beyond the control of either party to this Agreement) any Event of Default has occurred then at any time thereafter, whether or not any Event of Default is continuing, the Lender may by notice to the Borrower declare:- (i) the Facility to be cancelled, whereupon it shall be cancelled; and/or (ii) all Advances, all unpaid accrued interest and any other sum then payable under this Agreement to be immediately due and payable, whereupon they shall become so due and payable. 11. DEFAULT INTEREST ---------------- (A) Interest on Overdue Sums: If the Borrower does not pay any sum payable ------------------------- under this Agreement (including, without limitation, any sum payable under this Clause) when due, it shall pay interest on the amount from time to time outstanding in respect of that overdue sum for the period beginning on its due date and ending on the date of its receipt by the Lender (both before and after judgment) in accordance with this clause. (B) Default Interest Periods and Rates: Interest under this Clause shall be ----------------------------------- calculated by reference to successive interest periods, each of which (other than the first, which shall begin on the due date) shall begin on the last day of the previous one. Each such interest period shall be of one month or such shorter period as the Lender may from time to time select and the rate of interest applicable for all or any part of a particular interest period -9- shall be the rate per annum equal to the sum of five per cent. and the US Dollar prime lending rate of Citibank N.A. Singapore branch prevailing from time to time (as certified by it and expressed as a rate per annum). (C) Payment and Compounding of Default Interest: (i) On the last day of each -------------------------------------------- interest period, the Borrower shall pay the unpaid interest accrued during that interest period on the overdue sum to which it relates at the rate applicable for that interest period. (ii) Interest accrued under this Clause on an overdue sum shall be due on demand by the Lender but, if not previously demanded, shall be paid when due in accordance with paragraph (i). If not paid when due, the interest shall be added to that overdue sum and itself bear interest accordingly. 12. INDEMNITIES ----------- (A) Miscellaneous Indemnities: The Borrower shall on demand indemnify the -------------------------- Lender against any funding or other cost, loss, expense or liability sustained or incurred by it as a result of:- (i) the occurrence or continuance of any Event of Default or Potential Event of Default; or (ii) the receipt or recovery by the Lender of all or any part of any Advance otherwise than on the Repayment Date. (B) Currency Indemnity: (i) US Dollars is the sole currency of account and ------------------- payment for all sums payable by the Borrower under or in connection with this Agreement, including damages. (ii) Any amount received or recovered in a currency other than US Dollars (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up of the Borrower or otherwise) by the Lender in respect of any sum expressed to be due to it from the Borrower under this Agreement shall only constitute a discharge to the Borrower to the extent of the amount in US Dollars which it is able, in accordance with its usual practice, to purchase with the amount so received or recovered in such other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). (iii) If that amount in US Dollars is less than the amount in US Dollars expressed to be due to the Lender under this Agreement, the Borrower shall indemnify it against any loss sustained by it as a result. In any event, the Borrower shall indemnify the Lender against the cost of making any such purchase. For the purpose of this sub-Clause (B), it will be sufficient for the Lender to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 13. SET-OFF ------- The Borrower authorises the Lender to apply (without prior notice) any credit -10- balance (whether or not then due) to which it is at any time beneficially entitled on any account at, any sum held to its order by and/or any liability of the Lender including the liability of the Lender to make the payments under the Asset Purchase Agreement in or towards satisfaction of any sum then due from it to the Lender under this Agreement and unpaid and, for that purpose, to convert one currency into another (but so that nothing in this Clause shall be effective to create a charge). The Lender shall not be obliged to exercise any of its rights under this Clause, which shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which it is at any time otherwise entitled (whether by operation of law, contract or otherwise). 14. EXPENSES AND STAMP DUTY ----------------------- Whether or not any Advance is made under this Agreement, the Borrower shall pay:- (i) on demand, all costs and expenses (including legal fees) incurred by the Lender in connection with the preparation, negotiation or entry into of this Agreement and/or any amendment of, supplement to or waiver in respect of this Agreement; (ii) on demand, all costs and expenses (including legal fees) incurred by the Lender in protecting or enforcing any rights under this Agreement and/or any such amendment, supplement or waiver; and (iii) promptly, and in any event before any interest or penalty becomes payable, any stamp, documentary, registration or similar duty or tax payable in connection with the entry into, performance, enforcement or admissibility in evidence of this Agreement and/or any such amendment, supplement or waiver, and shall indemnify the Lender against any liability with respect to or resulting from any delay in paying or omission to pay any such duty or tax. 15. ASSIGNMENT ---------- (A) Benefit and Burden of Agreement: This Agreement shall benefit and be -------------------------------- binding on the parties, their permitted assignees and their respective successors. Any reference in this Agreement to either party shall be construed accordingly. (B) Borrower: The Borrower may not assign or transfer all or part of its rights --------- or obligations under this Agreement. (C) Lender: the Lender may assign all or part of its rights or transfer all or ------- part of its obligations (if any) under this Agreement without the consent of the Borrower. Any such assignee or transferee shall be and be treated as a party for all purposes of this Agreement and shall be entitled to the full benefit of this Agreement to the same extent as if it were an original party in respect of the rights or obligations assigned or transferred to it. -11- 16. REMEDIES, WAIVERS, AMENDMENTS AND CONSENTS ------------------------------------------ (A) No Implied Waivers: No failure on the part of the Lender to exercise, and ------------------- no delay on its part in exercising, any right or remedy under this Agreement will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any other rights or remedies (whether provided by law or otherwise). (B) Amendments, Waivers and Consents: Any provision of this Agreement may be --------------------------------- amended or supplemented only if the Borrower and the Lender so agree in writing and any Event of Default, Potential Event of Default, provision or breach of any provision of this Agreement may be waived before or after it occurs only if the Lender so agrees in writing. Any consent by the Lender under any provision of this Agreement must also be in writing. Any such waiver or consent may be given subject to any conditions thought fit by the Lender and shall be effective only in the instance and for the purpose for which it is given. 17. COMMUNICATIONS -------------- Each communication under this Agreement shall be made by fax or otherwise in writing. Each communication or document to be delivered to any party under this Agreement shall be sent to that party at the fax number or address, and marked for the attention of the person (if any), from time to time designated by that party for the purpose of this Agreement. The initial fax number, address and person (if any) so designated by each party are set out under its name at the end of this Agreement. 18. PARTIAL INVALIDITY ------------------ The illegality, invalidity or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 19. GOVERNING LAW AND JURISDICTION ------------------------------ (A) Governing Law: This Agreement shall be governed by, and construed in -------------- accordance with, the laws of Singapore. (B) Singapore Courts: For the benefit of the Lender, the parties irrevocably ----------------- agree that the courts of Singapore are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that, accordingly, any legal action or proceedings arising out of or in connection with this Agreement ("Proceedings") may be brought in those courts and the ------------- Borrower irrevocably submits to the jurisdiction of those courts. (C) Other Competent Jurisdiction: Nothing in this Clause shall limit the right ----------------------------- of the Lender to take Proceedings against the Borrower in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the -12- Lender from taking Proceedings in any other jurisdiction, whether concurrently or not. (D) Venue: The Borrower irrevocably waives any objection which it may at any ------ time have to the laying of the venue of any Proceedings in any court referred to in this Clause and any claim that any such Proceedings have been brought in an inconvenient forum. (E) Service of Process: (i) The Borrower irrevocably consents to any process in ------------------- any Proceedings anywhere being serviced by mailing a copy by registered prepaid airmail post to it in accordance with Clause 17. Such service shall become effective 14 days after mailing. (ii) Nothing shall affect the right to serve process in any other manner permitted by law. (F) Consent to Enforcement, etc: The Borrower irrevocably and generally ---------------------------- consents in respect of any Proceedings anywhere to the giving of any relief or the issue of any process in connection with those Proceedings including, without limitation, the making, enforcement or execution against any assets whatsoever (irrespective of their use or intended use) of any order or judgment which may be made or given in those Proceedings. 20. EXECUTION --------- This Agreement may be executed in counterparts and by each party hereto on a separate counterpart, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier or facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. -13- S C H E D U L E 1 ------------------ CONDITIONS PRECEDENT -------------------- 1. A copy certified by a director or the Borrower of the Charter and By-Laws of the Borrower. 2. A copy certified by a director of the Borrower of the resolutions of the Borrower's Board of Directors approving this Agreement and authorising the persons specified therein to sign this Agreement, give any certificate or communications and take any other action required under or in connection with this Agreement on its behalf. 3. Legal opinions dated on or after the date of this Agreement from Latham & Watkins, legal advisers in the United States of America to the Borrower, as to such matters of the laws of the United States of America relevant to this Agreement as the Lender may request. -14- S C H E D U L E 2 ------------------ FORM OF REQUEST FOR ADVANCE --------------------------- To: ST Chatsworth Pte Ltd 83 Science Park Drive #01-01/02 The Curie Singapore Science Park Singapore 118288. For the attention of: [Name and Title of relevant person] Dear Sirs, Micropolis Corporation US$10,000,000 Facility Agreement dated [ ] 1996 -------------------------------- We refer to the above Agreement between (i) ourselves, as Borrower, and (ii) yourselves, as Lender. Terms defined in the Agreement have the same meaning in this notice. We give you notice that we request an Advance of US$[ ] to be made to us under the Agreement on [date] (or, if that is not a Business Day, the next succeeding Business Day). We confirm that no Event of Default or Potential Event of Default has occurred or will occur as a result of the making of the Advance, we represent and warrant that the representations and warranties contained in Clause 8 of the Agreement have been complied with and would be correct in all respects if repeated today by reference to the circumstances now existing and we confirm that all the undertakings on our part contained in Clause 9 of the Agreement have been fully performed and observed by us. We annex herewith a list of the suppliers and the amount owing to them which is to be discharged by the proceeds of the Advance. -15- You are requested to make the proceeds of the Advance to us by credit to our account as provided from time to time. Dated February 16, 1996. Yours faithfully, For and on behalf of MICROPOLIS CORPORATION By: /s/ B. V. Scherer --------------------------------- Name: B. V. Scherer ------------------------------- Title: V.P. Finance, CFO & Treasurer ------------------------------ -16- IN WITNESS WEREOF this Agreement has been entered into on the date stated ----------------- at the beginning. The Borrower - ------------ MICROPOLIS CORPORATION 21211 Nordhoff St. Chatsworth, CA 91311 United States of America Fax Number: 1818709 3302 Attention: Ms Barbara Scherer By: /s/ B. V. Scherer Witness: /s/ Vivien Avella -------------------------------- ----------------------------- Name: B. V. SCHERER Name: VIVIEN AVELLA ------------------------------ ------------------------------- Title: V.P. Finance, CFO & Treasurer Address: 21211 Nordhoff Street ----------------------------- ----------------------------- Chatsworth, CA 91311 ----------------------------- The Lender - ---------- ST CHATSWORTH PTE LTD 83 Science Park Drive #01-01/02 The Curie Singapore Science Park Singapore 118288. Fax Number: 65-775-3233 Attention: Mr Joe Chen By: /s/ Joe Chen -------------------------------- Name: JOE CHEN ------------------------------ Title: President, ST Chatsworth EX-10.56 7 STEAMLOGIC OEM SUPPLY AGREEMENT EXHIBIT 10.56 STREAMLOGIC OEM SUPPLY AGREEMENT PARTIES TO THE AGREEMENT: ST Chatsworth Pte Ltd (to be renamed Micropolis Pte Ltd) (hereinafter called "Micropolis Pte Ltd") and Micropolis Corporation (to be renamed StreamLogic Corporation) (hereinafter called "StreamLogic"). ITEMS SUBJECT TO THE AGREEMENT: All disk drives ("Drives") manufactured or sold by Micropolis Pte Ltd for the term of this agreement. TERM: Subject to the last paragraph of this Agreement, this agreement shall be in full force and effect on the Closing Day of the Asset Purchase Agreement and run until April 2, 1998 unless earlier terminated by either party as a result of the material default of the other party. It shall be renewable annually thereafter with the mutual consent of both parties. OEM AGREEMENT: This is an OEM agreement. Under no conditions is StreamLogic to resell Drives into the distribution, or other market under the Micropolis name, or any other name. All Drives sold to StreamLogic are to be incorporated in its systems or products, and sold under StreamLogic's brand names. RIGHT OF FIRST REFUSAL: StreamLogic must offer all its Drive business and requirements to Micropolis Pte Ltd on a right-of-first refusal basis. If Micropolis Pte Ltd is unable to provide at least 50% of StreamLogic's quarterly volume and delivery requirements and meet the other competitive terms, conditions and availability of other disk drive providers, StreamLogic may purchase its disk drive requirements from the other providers. However, StreamLogic will offer its business to Micropolis Pte Ltd at least quarterly. BUSINESS COOPERATION AND PRACTICES: Micropolis Pte Ltd and StreamLogic will work to provide one another with all information reasonably required by each to make their respective business decisions. StreamLogic will provide to Micropolis Pte Ltd a six month rolling forecast of its drive requirements. Micropolis Pte Ltd will share its technology road maps with StreamLogic, and will provide price projections to StreamLogic for its use in product planning. Neither party will be bound by the forecasts and/or projections made to the other. LEAD-TIME: Micropolis Pte Ltd will work aggressively to reduce lead times, and will publish its lead times (defined as time from receipt of order to delivery in Chatsworth) on a regular basis to StreamLogic. In no event will lead time exceed 30 days. PURCHASE ORDERS: StreamLogic will order Drives on the basis of purchase orders which it shall issue monthly; such orders will be binding only upon Micropolis Pte Ltd's acceptance of the order. The terms and other conditions of the sale and purchase of drives not covered in this Agreement shall be governed by StreamLogic's purchase order terms, as may be modified by Micropolis Pte Ltd and mutually agreed by both parties. Prices and other detailed matters will be governed by the purchase order. Purchase orders will cover lead time. Such orders may be canceled or rescheduled unless the delivery date is within 15 days from the proposed cancellation date. Page 2 OEM Supply Agreement READYSTOCK: Micropolis Pte Ltd will make its ReadyStock program available to StreamLogic on the following key terms. StreamLogic will issue a purchase order for each calendar quarter, subject to acceptance by Micropolis Pte Ltd in accordance with the prior paragraph. Micropolis Pte Ltd will maintain ReadyStock in Chatsworth based on a rolling three-month forecast from StreamLogic. Up to 10% of any purchase order may be canceled by StreamLogic. On the last day of every fiscal quarter, product remaining in the ReadyStock, less the amount which can be canceled, will be shipped to StreamLogic. No change in the payment terms will result if StreamLogic adopts the ReadyStock program. PRICE: The prices to be paid for the Drives by StreamLogic will be US dollar prices and shall be either the lower of 1) most favored OEM, or 2) a 15% markup over the standard factory cost of Micropolis Pte Ltd. Standard factory cost is defined as actual material cost, labor and factory burden as set on a quarterly basis by Micropolis Pte Ltd using its accounting practices. Prices will be set quarterly, and StreamLogic will have the right to select, at the commencement of each calendar quarter, the price basis (cost plus or most favored OEM) on a product by product basis. Prices will be verified to be in accordance with this agreement by a mutually agreed upon third-party audit firm which shall be appointed on an annual basis. The cost of the third-party audit, which shall be conducted quarterly, will be shared equally by the parties to this agreement. The third-party audit firm shall be required only to verify whether the prices paid by StreamLogic are in accordance with their selection (cost plus or most favored OEM) and it shall not reveal any other information, in particular prices paid by Micropolis Pte Ltd's other customers. PAYMENT TERMS: Payments will be due 60 days from invoice date, in US dollars, to the remittance address provided by Micropolis Pte Ltd. ACCOUNT MANAGER: Micropolis Pte Ltd will appoint an account manager to be the point of contact for StreamLogic staff on all Drive issues. The account manager will have the authority and ability to interact with all levels of the Micropolis Pte Ltd organization in order to meet the requirements of StreamLogic. WARRANTY: Drives shall come with the standard Micropolis Pte Ltd's warranty, as shall be published from time to time by Micropolis Pte. Ltd. WARRANTY REPAIR: Upon verbal request (which shall be followed up in writing), Micropolis Pte Ltd will issue a Returned Goods Authorization (RGA) to StreamLogic to return failed drives for warranty repair. Such RGA shall be issued within 24 hours of a request for same. Replacement Drives will be shipped to StreamLogic within 7 days after the receipt by Micropolis Pte Ltd of the failed units. StreamLogic must properly label all such returns, clearly showing the RGA number and other required, customary documentation in order to facilitate the processing of the return by Micropolis Pte Ltd. Page 3 OEM Supply Agreement Micropolis Pte Ltd reserves the unconditional right to inspect all such returns and determine the cause of failure. If the cause of failure is found to be "customer damage", i.e. damage as a result of handling or other procedures, Micropolis Pte Ltd will notify StreamLogic of its findings and offer a price to repair the drive. StreamLogic may accept or decline such offer. DEAD ON ARRIVAL: Drives which fail out-of-the-box , which shall be defined as no more than 90 days after receipts by StreamLogic, shall be deemed "dead on arrival". Such drives will be replaced within 48 hours by Micropolis Pte Ltd; if replacement Drives are not so furnished, StreamLogic may return the Drives for a full credit of the purchase price which had been charged StreamLogic. ASSIGNMENT: This Agreement shall not be assigned by either party without the prior written consent of the other party. GOVERNING LAW: This agreement shall be construed in accordance with, and all disputes arising hereunder shall be governed by, the laws of the State of California. The parties hereto subject themselves to the jurisdiction of the state and federal courts to the State of California with respect to any dispute, disagreement or claim arising hereunder, and agree that any such dispute, disagreement or claim shall be resolved by such California state and federal courts. SUBJECT TO CLOSING OF ASSET PURCHASE AGREEMENT: The rights and obligations of the parties to this agreement are conditional upon the closing of the sale of the disk drive assets by StreamLogic to Micropolis Pte Ltd as set forth in the Asset Purchase Agreement dated January 24, 1996, made between the parties hereto. Agreed to this 4th of March 1996. --- /s/ Joe Chen - ----------------------------------- Dr. Joe Chen President, ST Chatsworth Pte. Ltd. (to be renamed Micropolis Pte Ltd) /s/ J. Larry Smart - ----------------------------------- Mr. J. Larry Smart Chairman of the Board, CEO and President Micropolis Corporation (to be renamed StreamLogic Corporation) EX-21 8 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT MICROPOLIS, INC. c/o Professional Corporate Service Group, Inc. Post Office Box 3627 Christiansted St. Croix, U.S. Virgin Islands 00820 MICROPOLIS LIMITED c/o Roy West Trust Corporation (Cayman) Limited Post Office Box 707 Grand Cayman British West Indies MICROPOLIS LTD. MICROPOLIS GMBH 4 Worton Drive Behringstrasse 10 Worton Grange 8033 Planegg bei Munchen Reading, Berkshire West Germany RG2 ODW England MICROPOLIS A.B.--SCANDINAVIA Aprilvagen 3 MICROPOLIS S.A.R.L. 17540 Jarfalla 2 Rue du Buisson aux Fraises Sweden Z.I. de la Bonde 91300 Massy MICROPOLIS JAPAN LIMITED France Madre Matsuda Bldg. 3F-312 4-13 Kioi-cho, Chiyoda-ku MICROPOLIS CORPORATION (THAILAND) LTD. Tokyo, Japan 102 733/1-8 Moo 8, Phaholyothin Road Kookot, Lumlookkar MICROPOLIS AUSTRALIA PTY. Pathumthani 12130 Thailand LIMITED Level 21, 201 Miller Street MICROPOLIS CORPORATION--TAIWAN BRANCH North Sydney, NSW Room 1111, 11F, No. 333 2060 Australia Keelung Road, Sec. 1 Taipei, Taiwan, R.O.C. MICROPOLIS BV % Executive Management Trustmij BV MICROPOLIS S.R.L. Via G. Stephenson 43A DeBoeleaan 14 20157 Milan 1083 HJ Amsterdam Italy The Netherlands EX-23 9 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 Nos. 2-86334, 2-90423, 2-96906, 33-4569, 33-22619, 33-29469, 33- 42454, 33-44456, 33-50204, 33-64706, 33-53313 and 33-55737) pertaining to the Stock Option Plan for Executive and Key Employees of Micropolis Corporation, as amended, Employees' Stock Option Plan, as amended, the Stock Option Plan for Directors of Micropolis Corporation, as amended, and Employee Stock Purchase Plan of Micropolis Corporation and in the related Prospectuses of our report dated February 1, 1996, with respect to the consolidated financial statements and schedule of Micropolis Corporation included in the Annual Report (Form 10-K) for the year ended December 29, 1995. Our audits also included the financial statement schedule of Micropolis Corporation listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Los Angeles, California February 1, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF MICROPOLIS CORPORATION AS OF AND FOR THE YEAR ENDED DECEMBER 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 12-MOS DEC-29-1995 DEC-29-1995 27,896 0 38,676 5,427 59,777 124,355 135,689 81,544 180,393 58,398 113,102 15,580 0 0 7,173 180,393 211,264 211,264 205,628 205,628 86,743 0 5,961 (85,349) (1,061) (84,288) 0 0 0 (84,288) (5.46) (5.46)
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