Exhibit 10.3
***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.**BUSINESS AGREEMENT****PREAMBLE**This Business Agreement (“Agreement”), effective October 6, 2003 (“Effective Date”) is madeby and between Maxtor Corporation, a Delaware corporation, having principal places of business at500 McCarthy Boulevard, Milpitas, California 95035; (“Maxtor”), and Komag, Inc., a Delawarecorporation, having its principal place of business at 1710 Automation Parkway, San Jose,California 95131 (“Komag”) and its wholly owned subsidiary Komag USA (Malaysia) Sdn., a Malaysiaunlimited liability company, having its principal place of business at Bayan Lepas Free IndustrialZone, Phase 3, 11900 Penang Malaysia. (“Komag Malaysia”) (references to Komag shall be deemed toinclude references to Komag Malaysia).**RECITALS**WHEREAS, “Maxtor” shall include without limit Maxtor Peripherals (S) Pte Ltd (“MSP”), and MaxtorTechnologies (Suzhou) Ltd (“MTS”); and all other subsidiaries and locations of Maxtor worldwide;WHEREAS, “Komag” shall include without limit Komag U.S.A. (Malaysia) SDN (“KMS”), and all othersubsidiaries and locations of Komag worldwide;WHEREAS, Komag is in the business of designing, manufacturing and selling thin film disk media,including without limit, all commercially viable form factors, materials and technologies of mediaand substrates (“Product”) for hard disk drives which are competitive in price, quality andtechnology and wishes to sell such Product to manufacturers of disk drives such as Maxtor;WHEREAS, the parties recognize that the disk drive market is very demanding of quality, timeliness,and price, and that the essence of the relationship between Maxtor and Komag is flexibility; timelydelivery of necessary quantities of qualified, high-yield Products and low costs;WHEREAS, Maxtor appoints Komag as Maxtor’s preferred strategic external media partner and Komagappoints Maxtor as Komag’s most favored customer with the expectation that this relationship willprovide an excellent opportunity for synergy between the two companies and capitalize on the mutualbenefits of sharing of information and technical resources;WHEREAS, Maxtor wishes to secure a supply of Product and to purchase quantities of such Productfrom Komag meeting Maxtor’s specifications set forth on Exhibit A and for use in Maxtor’s hard diskdrives (“HDD”), and, subject to the terms and conditions hereof, Maxtor shall purchase from Komag aproportion of Maxtor’s total needs for Product (“Requirement”);WHEREAS, Komag shall manufacture and deliver to Maxtor, its agents, and/or its subsidiaries,Product as set forth in this Agreement, including its Terms and Conditions;
1

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.WHEREAS, as of the date of execution of this document, Komag has committed to Maxtor a calendar[****] output estimated at [****] disks, based on the then current mix of form factors and testrequirements, to be produced from [****] existing Intevac [****] sputter tools (“Tools” or “IntevacTools”) which Komag currently owns and operates in KMS exclusively for Maxtor;WHEREAS, Komag shall acquire [****] additional Intevac Tools and, with the installation of these[****] additive Tools (“Additive Tools”), increase Komag’s Intevac Tool capacity, dedicatedexclusively to Maxtor, by approximately [****] disks per quarter. Komag shall own and operate theAdditive Tools in KMS exclusively for Maxtor,WHEREAS, [****];WHEREAS, Komag agrees that the target volume for a combined [****] Tools shall be no less than[****] disks per quarter, subject to adjustment as mutually agreed by both parties, based upon themix of form factors and test requirements and a baseline assumption that each Tool, running asingle form factor continuously, should produce approximately [****] disks per quarter;WHEREAS, Komag shall fund the entire cost of this Intevac Tool capacity expansion, including allcosts of facilitization and ancillary equipment;WHEREAS, [****];WHEREAS, Komag shall, at Maxtor’s request, install up to [****] incremental Tools (“IncrementalTools”) beyond the [****] Additive Tools , and under substantially similar terms and conditions,provided that the timing of any secondary expansion by Komag shall be mutually agreed between theParties;WHEREAS, the Parties agree that such request by Maxtor for installation of Incremental Tools shallrequire a lead-time of [****];WHEREAS, the Parties agree to discuss the potential for a separate Maxtor — Komag agreement thatwould increase Komag’s substrate capacity in a manner that would enable Komag to supply MMCTechnology (“MMC”) with up to [****] substrates per quarter for use in MMC’s own thin film mediamanufacturing;WHEREAS, if problems should be encountered with respect to any aspect of this Agreement or if theparties should encounter any problems not covered by this Agreement, Maxtor and Komag shall discussthem in a cooperative and sincere spirit and attempt to arrive at a mutually acceptable solution;andWHEREAS, this Agreement commences on the Effective Date and terminates on October 6, 2008(“Termination Date”) unless terminated earlier or extended as set forth in this Agreement;Now, therefore, for good and valuable consideration, the receipt and adequacy of which ishereby acknowledged, and in consideration of the above premises and the mutual promises containedin this Agreement, the parties agree as follows:
2

 
**TABLE OF CONTENTS**       ARTICLE I PRODUCTS  4 1.1 Product  4   Purchase and Supply  4   Specification  4   Participation in Programs  4   Freedom of Action  4   Second Sources  4 1.2 Warranty  4   Authority Warranty  4   Product Warranty  4   Scope of Warranty  5   Warranty Disclaimer  5 1.3 Remedies  5   Product Remedies  5 1.4 Prices  5   Product Price  5   Terms of Sale  6        ARTICLE II PROCEDURES  6 2.1 Qualification  6   Qualification  6   Changes  6 2.2 Tooling  6 2.3 Commitment, Forecasts, and Orders  7   Volume Commitment  7   Forecasts  8   Maxtor’s Forecast Allocation  8   Shortages  8 2.4 Orders  8   Orders  8   Precedences  9   End of Life  9 2.5 Inspection  9   Inspection by Maxtor  9   Inspection by Komag  9   In Case of Failure of Inspection  9   Stop Ship Order  9 2.6 Shipping  10   Carrier  10   Timeliness  10   Shipping Documents  10   Packing  10 2.7 Just In Time (JIT) Delivery  10 2.8 Acceptance  10 2.9 Returns  10 2.10 Epidemics  10 2.11 Invoicing  11 2.12 Payment  11   Terms  11   Currency  11   Disputes  11 2.13 Order Changes  11   Changes  11   Cancellation  11 2.14 Engineering Changes  12   Definition  12   Komag Change(s)  12   Maxtor Change(s)  12 2.15 Working Relationship  12        ARTICLE III INTELLECTUAL PROPERTY  13 3.1 Confidentiality  13   Confidential Information  13   Items Declared Confidential  13 3.2 Publicity  13 3.3 Licenses  13   License for Ordinary Use  13   No Other Licenses  13 3.4 Assignment of Rights  13   Inventions  13   Ownership  13   Joint Invention  13        ARTICLE IV LIABILITIES  13 4.1 General Indemnity  13 4.2 Infringement Indemnity  14 4.3 Strict Liability  14 4.4 Limitation Of Liability  14        ARTICLE V DISPUTE RESOLUTION  14 5.1 Escalation  14 5.2 Arbitration  14   Binding Arbitration  14   Injunctive Relief  14   Governing Language  14 5.3 Choice of Law  14   Choice of Law  14   Foreign Corrupt Practices Act  14   Export Controls  15 5.4 Limit Of Time To Bring Action  15        ARTICLE VI GENERAL  15 6.1 Term And Termination  15   Term  15   Renewal  15   Termination  15   Duties Upon Termination  15   Survival  15 6.2 General  15   Assignment  15   Audit  16   Consents  16   Counterparts  16   Cumulation of Remedies  16   Independent Parties  16   Force Majeure  16   Governing Language  17   Headings  17   Joint Work Product  17   Notices  17   Severance  17   Time  17   Waiver  17 6.3 Entire Agreement  17 
3

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.**TERMS AND CONDITIONS****ARTICLE I — PRODUCTS**1.1 **Product.**1.1.1 Purchase and Supply. Maxtor wishes to secure a supply of Product and to purchasequantities of such Product from Komag meeting Maxtor’s specifications set forth in Exhibit A andfor use in Maxtor’s HDD’s. Komag shall provide to Maxtor, exclusively, all of the capacity andoutput from the Intevac Tools, Additive Tools, and Incremental Tools required to support thisAgreement. Komag wishes to supply such Product to Maxtor under the terms and conditions of thisAgreement and at the prices set forth on Exhibit B, as more completely detailed elsewhere in thisAgreement, including, but not limited to Section 1.4.1 Pricing. Therefore, subject to the termsand conditions of this Agreement, Maxtor will purchase and Komag will supply Product for the termof this Agreement. Maxtor’s obligation to purchase Product from Komag is contingent upon:     (i) Komag’s Product meeting Maxtor’s requirements, including but not limited to time tomarket, time to volume, Product specifications, performance, quality and functional requirements(including, without limit, media-chargeable HDD yields), Maxtor customer requirements, and theother terms and conditions of this Agreement.     (ii) Komag’s commitment to Maxtor, on a best efforts basis, that the installation of theAdditive Tools shall be at least partially completed by the end of [****] , to a degreesufficient to ensure that Komag can deliver to Maxtor the full quarterly capacity of at least[****] . Komag’s commitment to capacity and production output on these [****]machines shall take into account Maxtor’s normal qualification requirements for Products, tools,and facilities.     (iii) Komag’s commitment to provide the substrate input required for [****] Maxtordisk output per quarter, taking into consideration the yields that are likely for the mix ofprograms and form factors required from Maxtor. Komag shall meet its substrate commitments, eitherby adjusting the allocation of its current internal and external substrate supply, or by addingqualified capacity in its own or a third party facility.1.1.2 Specifications. As of the Effective Date, Exhibit A may not be attached. Theparties will from time to time agree in writing upon specifications for the Product or amendmentsto agreed-upon specifications and such agreed-upon specifications or amendments shall become partsof Exhibit A and shall be incorporated into this Agreement when each such written agreement ismade.1.1.3 Participation in Programs. Maxtor will use reasonable commercial efforts to qualifyand utilize Komag’s Product in all Maxtor programs as they are defined in Maxtor’s product roadmap.Komag will use its best efforts to participate in all Maxtor programs as they are defined inMaxtor’s product roadmap.1.1.4 Freedom of Action. Nothing in this Agreement shall prevent either party fromengaging in similar business with other persons, including, without limit, competitors of the otherparty, provided that the confidentiality and terms of this Agreement are not breached.1.1.5 Second Sources. Komag understands that Maxtor qualifies additional sources forProducts or the same or substantially similar goods or materials from time to time and places itsorders among qualified internal and external suppliers as it sees fit. Nothing in this Agreementwill prevent Maxtor from procuring Products or the same or substantially similar goods or materialsfrom other sources than Komag or from providing the same itself, provided that the confidentialityand intellectual property rights terms of this Agreement are not breached.1.2 **Warranty****.**Each of Komag’s warranties made hereunder is materially relied upon byMaxtor in entering into this Agreement or any Order.1.2.1 Authority Warranty. Each party represents and warrants that all corporate actionnecessary for the authorization, execution and delivery of this Agreement by such party and theperformance of its obligations under this Agreement has been taken. Further, each party representsand warrants that neither the execution of this Agreement nor any performance of this Agreementshall conflict with or be prohibited by any interest, agreement, obligation, contract, order, law,regulation, or duty, oral or written, to which it is a party or by which it is bound.1.2.2 Product Warranty. Komag warrants the Product, upon delivery and for fifteen (15)months thereafter, to:     (i) have a clear title, free of all security interests, encumbrances, or liens;
4

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.     (ii) not infringe any patent, trademark, copyright, trade secret, or other intellectual propertyright of any third person;     (iii) be newly manufactured and not used or reworked (except as provided in Maxtor-approvedprocedures);     (iv) be free from defects in workmanship and materials except as defined in and allowed by theProduct Specification;     (v) conform to applicable specifications, drawings, or other descriptions given, includingthose set forth in this Agreement and Komag’s sales literature;     (vi) possess the qualities of goods which Komag has held out to Maxtor as a sample or model;     (vii) initially meet and continue to meet Maxtor’s qualification criteria and standards (thisspecific warranty shall not apply to any Order which is declared a “Risk Buy” in writing byMaxtor); and     (viii) be contained or packaged according to Maxtor’s specifications as agreed and in effectat the time this Agreement is executed, or as may be mutually agreed thereafter.The above is the Product Warranty (“Product Warranty”). A unit of Product which meets all of thestandards of the Product Warranty shall be a Conforming Product (“Conforming Product”). ReplacedProduct shall be subject to the provisions of this warranty to the same extent as the originalProduct except that the warranty period shall run from its delivery date.1.2.4 Scope of Warranty. The above warranties shall be construed as conditions as well aswarranties and shall be cumulative.1.2.5 Warranty Disclaimer. Except for the warranties set forth above, Komag grants nowarranties, either express or implied, for the Product, and disclaims all implied warrantiesincluding without limit any implied warranties of merchantability or fitness for a particularpurpose.1.3 **Remedies****.**1.3.1 Product Remedies. In the event that Maxtor determines that a Product is not aConforming Product, and Komag has had forty eight (48) hours notice or if Komag must receive partsfrom Maxtor, ninety-six (96) hours notice of such determination, during which time Komag may takesuch actions as it desires to confirm for itself Maxtor’s determination, then Maxtor may elect tohave the Product replaced or to receive a full refund for the Product as follows:     (i) Komag agrees to replace any Product not Conforming to the requirements of this Agreementwhen requested by Maxtor. If Komag, upon such notice of defect, fails to replace the Product,Maxtor may do so without further notice and Komag shall reimburse Maxtor for actual directmanufacturing costs incurred to replace the Media in such actions. No inspection, test or approvalof any kind, including approval of designs, shall affect Komag’s obligation under this Agreement.     (ii) Komag agrees to refund the purchase price (if payment has been made by Maxtor) or tocredit Maxtor’s account for such purchase price (if payment has not been made by Maxtor) of anyProduct not Conforming to the requirements of this Agreement when requested by Maxtor.     (iii) Product which has been used or rejected shall not thereafter be tendered for acceptanceunless the former use or rejection is identified by Komag in writing and Maxtor accepts such tenderin writing.1.4 **Prices****.**1.4.1 Product Price.     (A) The purchase price for Product paid to Komag by Maxtor for the balance of 2003 and for allof 2004 shall be as detailed in Exhibit B “Komag Expansion Pricing Matrix”. This pricing shall beon a not-to-exceed basis, and it is anticipated that yield improvements and/or decreases inmaterial costs will provide lower prices from Komag to Maxtor on a Product by Product basis. Theprices in Exhibit B shall be reviewed at least monthly by Komag and Maxtor, with the specificintent of finding ways to reduce said pricing.     (B) Komag agrees to diligently pursue and to work cooperatively with Maxtor in pursuing costreductions, which shall be reflected in prompt reductions to the prices in Exhibit B when such costreductions are implemented. Such price reductions shall not apply to inventory declared by Komag,except as mutually agreed.     (C) [****] .     (D) It is understood and agreed that any cancelled or rejected portion of an Order which iscancelled or rejected because of Komag’s fault, including without limit warranty, inspection,deliveries, shortages, or epidemic, shall nevertheless be counted as purchased for purposes ofdetermining Maxtor’s right to any discounts or other considerations based on quantity purchased.     (E) [****] .     (F) Komag agrees that prices for new technologies, such as perpendicular magnetic recording
5

 
(“PMR”) and synthetic anti-ferromagnetic coating (“SAF” or “AFC”) will be based upon the assumptionthat Komag’s costs shall be comparable to MMC’s costs, and that such MMC costs shall be predicatedon MMC using labor costs equivalent to the lesser of MMC’s actual labor costs or the labor costsactually incurred by KMS. Maxtor will help facilitate communication between MMC and Komag shouldthere be wide discrepancies in costs for new technologies.     (G) Maxtor agrees that the prices detailed in Exhibit B include process improvement plansKomag has made known to Maxtor at the time of execution of this Agreement, as detailed in ExhibitC.1.4.2 Terms of Sale. The terms of sale are as follows:     (i) For sales to Maxtor’s research, engineering, qualification, development, or NPIfacilities, or in any case which is not Just in Time (JIT):Title, and risk of loss or damage to the Products passes from Komag to Maxtor, at Maxtor’sreceiving dock. Maxtor selects the common carrier and pays for freight, but Komag is responsiblefor all other shipment and pre-delivery costs including without limit insurance and packingaccording to the terms of this Agreement. If the sale involves international shipment from Komagto Maxtor, then the terms of sale are D.D.P. Maxtor’s designated delivery location; and Komag isresponsible for importation and all customs, taxes, imposts, or duties.     (ii) For sales to Maxtor’s factory facilities under Just In Time (“JIT”) terms:Title, and risk of loss or damage, passes from Komag to Maxtor at Maxtor’s receiving dock. Maxtorpays for all freight from Komag’s origin to the JIT warehouse, but Komag is responsible for allother shipment and pre-delivery costs including without limit inventory, stocking, all warehouseexpense, insurance, packing, and shipment from warehouse to Maxtor according to the terms of thisAgreement. Maxtor selects the common carrier. Excess transportation costs resulting from Komag’sfailure to comply with the provisions of this Agreement will be paid by Komag. Terms of sale areD.D.U. Maxtor’s designated delivery location.**ARTICLE II — PROCEDURES**2.1**Qualification**.2.1.1 Qualification. The respective obligations of the parties pursuant to this Agreementshall be subject to the successful qualification of Komag’s Product and its manufacturing processin Maxtor’s HDD and with Maxtor’s customers, as Maxtor deems necessary. Maxtor and Komag shallcooperate to set up the necessary processes and procedures to accomplish and facilitate suchqualification. Successful qualification means successful qualification with each specified head.After Maxtor’s approval or acceptance of the initial qualification prototypes of the Products,Komag shall not make any changes in the Product design or material according to the Specification,any processes documented in the mutually agreed Process Management Plan; or in plant location.2.1.2 Changes. Komag shall use its best efforts to promptly notify Maxtor in writing ofany change in Product design or material according to the Specification; production processdocumented in the mutually agreed Process Management Plan; or in plant location in order to allowit to re-qualify the Product, before any Product is manufactured by the new design, material,process or in the new location and sold to Maxtor. Failing such written notice andre-qualification, Komag will be responsible for Maxtor’s damages up to the cost of the affectedProduct and any direct expense incurred for the rework of Maxtor’s HDD. Any Product delivered toMaxtor after such change and without re-qualification may be rejected by Maxtor for a full refund.2.2 **Tooling****.**Unless otherwise specified in this Agreement, all tooling and/or all otherarticles required for Komag’s performance under this Agreement shall be furnished by Komag,maintained in good condition and replaced when necessary at Komag’s expense. If Maxtor agrees topay Komag for special tooling or other items either separately or as a stated part of the unitprice of Products, title to same shall be and remain in Maxtor upon payment, and the tooling shallbe treated as property of Maxtor, furnished by Maxtor to Komag.     (A) Maxtor agrees to pay for the prototype tooling required to establish the development ofnew form factors in KUS. This includes tools and cassettes required to transport substrates toKomag, media within Komag’s process, and finished media to Maxtor. Notwithstanding anything to thecontrary in this paragraph, such prototype tooling shall not exceed $250K for any one form factorfor any one program, and Maxtor agrees to pay fifty percent (50%) of such tooling cost uponplacement of purchase order, and the balance of fifty percent (50%) of such tooling cost uponshipment of first samples of material to Maxtor. Komag agrees that if, for any reason, it shouldnot qualify on a program for which Maxtor has authorized and made payments for tooling, Komag shallreimburse Maxtor for said tooling costs. Maxtor’s payments for said tooling shall be made inaccordance with the payment terms and conditions in effect between the two companies at the timeeach payment is due.
6

 
     (B) Komag will pay for all volume tooling, including any special tooling for form factors new tothe Maxtor dedicated Tools at Komag, and make ready said tooling as required in KMS three (3)months prior to the start of DVT.2.3 **Commitment, Forecasts, and Orders****.**2.3.1 Volume Commitment.     (A) Komag agrees to exclusively sell Maxtor the output from the Intevac Tools, Additive Tools,and Incremental Tools and the output from any other Intevac tools that Komag adds to its productioncapacity under the terms of this Agreement.     (B) Komag understands and agrees that Maxtor’s intention is to fully utilize MMC Capacity as afirst priority, followed by fully utilizing Komag’s Maxtor-dedicated capacity as a 2ndpriority. Should market conditions force a drastic downturn in demand, Maxtor may not be able tofully consume 100% of Komag’s installed capacity.     (C) Komag’s failure to deliver Product for any reason, including but not limited to productionproblems, material shortages, quality issues and qualification issues shall relieve Maxtor of anycommitment to purchase Komag Product for so long as such failure continues, plus reasonable timesthereafter for reallocation of commitments, at no penalty to Maxtor. Komag shall have a cureperiod of thirty (30) days in which to cure any default in its volume commitment to Maxtor.Notwithstanding the above, in the event of Komag’s failure to deliver Product for any reason,Maxtor shall specifically have the right to re-allocate material demand to other internal orexternal suppliers subject to reasonable commitments required by said suppliers that may preventMaxtor from meeting its Product purchase commitments to Komag over a period ranging from thebalance of the quarter in which Komag fails to meet its supply commitment plus the two quartersfollowing that quarter, at no penalty to Maxtor. Maxtor shall make every reasonable effort tominimize any such impact to Komag.     (D) Maxtor’s volume forecasts and commitments are not fixed quantities, but may vary withMaxtor’s level of business, tracking to Maxtor’s increasing or decreasing HDD volumes and businessprojections, and such increases or decreases shall be without penalty to Maxtor.     (E) Any cancelled or rejected portion of an Order which is cancelled or rejected because ofKomag’s fault, including without limit warranty, inspection, deliveries, shortages, or epidemic,shall be counted as purchased for the purpose of determining Maxtor’s compliance with the foregoingvolume purchase commitment.     (F) Maxtor’s commitment to purchase Product from Komag is strictly predicated on:          (i) Komag’s ability to qualify as required on multiple Maxtor drive programs across all diskform factors offered by Maxtor, with disks capable of supporting required drive performance usingone Komag disk matched with all head suppliers, or with one Komag disk matched to individual headsuppliers, as solely determined by Maxtor. Maxtor shall assign reasonable Engineering, SQE,Factory and other resources to support Komag’s efforts to get qualified on Maxtor products.          (ii) Komag’s agreement that Maxtor’s volume commitments are contingent upon Komag providingdisks in a qualification time-frame that is equal to or superior to Maxtor’s other supplier(s).Determination of the performance and reliability aspects of the media provided by Komag shall bebased on VCAP yields, RTP yields, FGA results, SGT testing, HTS testing, the DPPM levels of Maxtordrives, and any other tests and/or metrics which Maxtor may from time to time implement or require.Any decision by Maxtor to purchase from an alternative supplier, based on better performance inMaxtor’s drives, may, at Maxtor’s sole option, be deducted from Maxtor’s percentage commitment toKomag without penalty to Maxtor, based on at least one (1) month’s worth of data. Notwithstandingthe above, Komag’s performance will be assessed using at least one (1) month’s work of drive datainvolving no less than 200,000 Komag disks. Differences must be statistically significant.          (iii) Komag’s agreement that if, after reasonable commercial efforts by both parties, Komagfails to qualify on any Head-Disk combinations, then Maxtor has no duty to purchase Product fromKomag for such Head-Disk combinations and Maxtor’s purchase requirements are reduced accordinglywithout penalty to Maxtor.          (iv) Komag agreement to provide disks to Maxtor with no degradation in its ability to meetMaxtor’s glide and certification test specifications, as defined for programs currently qualifiedand in production, or currently being developed and/or tested and/or qualified by Maxtor. Anyplans by Komag to change any test parameters shall be submitted to and approved by Maxtor inMaxtor’s sole discretion, prior to implementation by Komag. Should Komag be unable to providedisks up to and including the anticipated volume of [****] disks per quarter as theresult of tester throughput issues and/or test parameters that do not meet Maxtor’s specificationsfor quality or performance, Maxtor’s purchase requirements are reduced accordingly without penaltyto Maxtor.          (v) Komag’s agreement that, in the event Komag fails to qualify with each head for aparticular Maxtor program on a timely basis, Maxtor may:               (a) reduce Komag’s allocation for that program if Maxtor produces HDD for
7

 
the program with the head that Komag failed to qualify (and use reasonable commercial effortsto award Komag compensating volumes in other Programs) without penalty to Maxtor; and                      (b) determine that the foregoing volume commitments shall thereafter be measured withoutreference to such reduced program if Maxtor produces HDD for the program with the head that Komagfailed to qualify without penalty to Maxtor.          (G) In the event that Komag fails to qualify for any two (2) Maxtor programs in a row, or forany three (3) Maxtor programs in any twelve (12) month period, then Maxtor, in its sole discretion,may terminate this Agreement without any penalty or payment whatsoever, and such termination shallnot be a breach of this Agreement.2.3.2 Forecasts. During the term of this Agreement, Maxtor shall provide Komag, on amonthly basis, with a four (4) quarter rolling forecast setting forth its estimated Product needsand shall provide Orders for the first thirteen (13) weeks of the forecast. Orders will be placedsixty (60) days in advance of the date as of which the Products are to be delivered. Maxtor mayrequest a shorter lead time and Komag shall use its reasonable commercial efforts to meet suchdate. Maxtor’s forecast is provided solely for Komag’s convenience and for its planning purposes;no forecast shall be construed as an authorization by Maxtor to order any materials for, or toallocate any labor or equipment for the manufacture of the Product nor impose on Komag anyobligation to supply additional Product. Maxtor will not be responsible for any of Komag’s cost orexpense for materials, Product, labor, or other commitments or expenses, other than as authorizedin Orders.2.3.3 Komag’s Capacity. Komag covenants to provide Maxtor with the right of first refusalto fifty percent (50%) of any new, uncommitted capacity in order to meet Maxtor’s Product needs.2.3.4 Maxtor’s Forecast Allocation. Allocation of the forecast among Maxtor’s programs issolely at Maxtor’s discretion and it is understood that Maxtor shall have no duty under thisAgreement to take or refrain from taking any action which might, in Maxtor’s judgment,substantially and adversely impact Maxtor’s relationships with or commitments to internal orexternal media vendors or customers.     (i) If Komag fails to meet the requirements for any Maxtor program at any time, the Productquantities allocated for that Maxtor program within the forecast may be reduced or eliminated byMaxtor. Maxtor will use reasonable commercial efforts to award to Komag compensating increases inother Maxtor programs.     (ii) If Maxtor forecasts increased Product needs for any particular Maxtor program, Maxtorwill use reasonable commercial efforts to provide Komag with the opportunity to supply increasedquantities for such program, provided that Komag is qualified to the configurations and customersdriving the increased forecast and is meeting Maxtor’s specifications and functional requirements,including production ramp and yield. In such case, Maxtor will notify Komag of any such resultantforecasted increased allocation and Komag will promptly notify Maxtor of Komag’s available capacityand commitment to supply such increase.     (iii) If Maxtor forecasts decreased Product needs for any particular Maxtor program, Maxtorwill use reasonable commercial efforts to award to Komag compensating increases in other Maxtorprograms, subject to the terms of Section 2.3.1 (A).     (iv) Should Maxtor not utilize Komag’s reserved capacity for a period greater than ninety (90)days, and should Maxtor have no forecast to use said capacity for an additional and successiveninety (90) days, then Komag may, with Maxtor’s prior written agreement, utilize said capacity fora third (3rd) party, subject to the terms and conditions following: (a) Komag may offerto and utilize the capacity for any third (3rd) party only if such party agrees withKomag in writing in advance to give up such capacity with thirty (30) days of written notice byKomag; and (b) Komag can and will start production for Maxtor for an existing qualified Maxtorproduct within forty-eight (48) hours of the end of said thirty (30) day notice period, or suchshorter period if the demand requirements from the third (3rd) party should end in lessthan thirty (30) days.2.3.5 Shortages. With the exception of substrates, as set forth in Section 1.1.1 (iii),Komag agrees that in the event of a shortage of capacity or material that will affect the supply ofthe Product, Maxtor’s Order(s), subject to normal lead-time requirements, shall be filled accordingto an allocation plan at least as favorable as those provided to all other Komag customers withsimilar or lesser quantity forecasts and Orders. Komag shall provide Maxtor with as much notice aspossible if it anticipates or has reason to believe that Komag’s output of the Product will not besufficient to meet all of Maxtor’s Product needs for any period.2.4 **Orders****.**2.4.1 Orders. All purchases and sales shall be initiated by Maxtor’s issuance of writtenpurchase orders sent via airmail, E-mail, web-based, facsimile, or courier (“Order”). Such Ordersshall reference this Agreement and state the unit quantities, unit descriptions, price, requesteddelivery dates and shipment instructions. The
8

 
acceptance by Komag of an Order shall be indicated by written or E-signature acknowledgment withinthree (3) work days. Maxtor will have the right to deem its order as accepted by Komag if Komag’sacknowledgment does not reach Maxtor within ten (10) days from the date of the Order. By shippingthe Products, or by confirming or accepting an Order, or by performing the work described in anOrder, or by allowing an Order to be deemed accepted, Komag agrees to the Order and to the termsand conditions of this Agreement. All Orders meeting the terms and conditions of this Agreementshall be accepted by Komag.2.4.2 Precedences. Any terms and conditions added or referenced by either party in anypurchase order, confirmation, acceptance or any similar document purporting to modify the terms andconditions contained in this Agreement, shall be disregarded unless expressly agreed upon inwriting signed by the parties, which expressly amends this Agreement. The preprinted terms andconditions of purchase orders, acceptances, confirmations and similar business documents shall haveno effect as amendments of, objections to, or modifications of this Agreement.2.4.3 End of Life. Komag commits to supply Product to Maxtor for the duration of theMaxtor HDD program for which the Product is qualified and until one (1) calendar quarter afterMaxtor’s last production build for the program. The last purchase order date and the last shipmentdate for the Product for each program shall be agreed to by the parties.2.5 **Inspection****.**Maxtor and Komag shall cooperate to inspect Products, and nothing in thissection shall limit Maxtor’s other rights and remedies.2.5.1 Inspection by Maxtor. Maxtor may test each lot or Order of Product to ensure thatthe Products meet Maxtor’s specifications and acceptance criteria, and Komag shall not ship anyProducts that do not Conform. Product may be inspected and tested by Maxtor or Maxtor’s agent atall reasonable times and places after manufacture and before or after shipment. . If any inspectionor test is made on the Komag’s premises, Komag shall, without additional charge, provide reasonablefacilities and assistance for the safety and convenience of inspectors in such manner as not undulyto delay the work. Inspection of Products at Komag’s facility shall be without prejudice toMaxtor’s right to inspect and reject such Products upon delivery to Maxtor’s facility. Whereapplicable, Maxtor may, at its option, inspect all Products or inspect a statistical sampleselected from each lot, and Product, lots or Orders may be inspected more than once. Productdelivered to and inspected by Maxtor and deemed acceptable by Maxtor will be transferred toMaxtor’s ownership and invoiced according to terms set forth in this agreement.2.5.2 Inspection by Komag. Komag will ensure that all Products are tested in accordancewith Maxtor’s specifications and requirements, as may be amended from time to time. Komag willprovide only those Products conforming to Maxtor’s specifications and requirements, unless Komaghas obtained prior written approval from Maxtor for any deviation from such specifications. Komagfurther agrees to maintain adequate authenticated inspection test documents that relate to workperformed under this Agreement. Such records shall be retained by Komag for a period of two (2)years after Product shipment and made available to Maxtor upon request. Komag agrees to supplyMaxtor with inspection and test reports, affidavits, certifications or any other documents as maybe reasonably requested. Komag agrees to collect and send to Maxtor, data on failure rates andcauses on a monthly basis in a mutually agreed format.2.5.3 In Case of Failure of Inspection. If the above inspection or testing detectsProducts which do not conform to the specifications or the requirements of this Agreement, Maxtorand Komag will closely cooperate to identify and find a way to correct the causes of theproblem(s). Maxtor may refuse to accept Product which does not conform. Maxtor may reject entirelots if lot acceptance criteria established in the specifications are not fulfilled. The rejectedProduct may, at Maxtor’s discretion, be returned to Komag and Komag may verify the nonconformance.Maxtor will use its reasonable commercial efforts to assist Komag in identifying and rectifying thecause(s) for rejection.2.5.4 Stop Ship Order. Maxtor may stop future shipments of Product until the cause(s) fornon-conformity, as mutually determined by parties, have been corrected. A stop ship order may beissued by Maxtor, without limiting its other rights and remedies, when one half of one percent(.5%) or the threshold amount stated in the Specification, whichever is less, of the Product shallbe non-conforming over a period of seven (7) days or more or over ten percent (10%) of an Order ormore, whichever occurs sooner. In the event Maxtor issues a stop ship order, Komag mustimmediately cease shipment of the Products, and all Orders which have been or would have beenfilled by the nonconforming Product are terminated without liability to Maxtor until such stop shiporder is lifted and Maxtor retains all of its rights and remedies under this Agreement. Maxtorwill use commercially reasonable efforts to work with Komag to determine the cause of thenonconformance problem and to develop solutions
9

 
2.6 **Shipping****.**The following terms apply to all shipments, whether Just In Time (JIT) orotherwise.2.6.1 Carrier. Komag and Maxtor shall agree upon the common carrier.2.6.2 Timeliness. Komag shall use its best efforts to meet one hundred percent (100%)on-time delivery commitments to Maxtor’s JIT HUBs, unless relieved of such JIT HUB obligation inwriting in advance by Maxtor. Notwithstanding the above, Komag shall in all cases use its bestefforts to ensure zero shortages to any Maxtor production line. If Komag’s performance falls belowone hundred percent (100%) on-time deliveries, then Komag shall implement a corrective action planacceptable to Maxtor which brings the deliveries back to one hundred percent (100%) on-time. IfKomag is unable to deliver any Product on schedule, Komag shall promptly notify Maxtor giving a newdelivery date, and Maxtor may:     (i) accept the new delivery date; or     (ii) reschedule the delivery by means of a Change Order; or     (iii) cancel the delayed portion of the Order without liability, if (i) and (ii) above are notcommercially reasonable for Maxtor.At Maxtor’s request, Komag will provide Maxtor with daily notification of shipping delays or of theprogress of delayed Products in transit. Such notification will include action plans to forrecovery or expediting of the affected Product.2.6.3 Shipping Documents. Either invoice or delivery orders may be used when makingdeliveries. Each set must contain three (3) copies. Each copy must identify this Agreement, itemnumber and description of Products, purchase order number, and quantity of Products shipped. Acomplete packing list specifying Maxtor’s applicable purchase order number, quantity of Productsshipped, and part number shall be enclosed with all shipments under this Agreement. All documentsaccompanying the Products shall reference the purchase order number.2.6.4 Packing. Unless otherwise specified in writing, all Products are to be packed andmarked in accordance with Maxtor’s specifications.2.7 **Just In Time (JIT) Delivery****.**Komag shall maintain a buffer stock of Products in aquantity and location to be agreed upon from time to time in writing in order to provideJust-In-Time (JIT) delivery to Maxtor. All expenses of maintaining the buffer stock shall be borneand covered by Komag, including without limit the expense of establishing EDI and/or E-mail linksas required by Maxtor, unless otherwise expressly provided by this Agreement. Maxtor recognizesthat Singapore law requires the payment of a tax on inventory that is held in a JIT Hub more thanthirty (30) days, and shall make reasonable efforts to pull all such inventory within thirty (30)days, subject to drive build schedules. A minimum of fourteen (14) days of buffer stock shall bemaintained at the warehouse; fourteen (14) days of buffer stock shall be determined as one half(1/2) of the next four (4) weeks of Product on Order, unless the parties shall agree to anotherlevel of buffer stock in writing. Such JIT buffer stock shall be required at both Maxtor’sSingapore plants and Maxtor’s China plant. All Products in the buffer stock shall have passedsource inspection by Komag, Maxtor, or both, before shipment to the warehouse. Maxtor will, fromtime to time, typically daily, request deliveries from the buffer stock in quantities that are evenmultiples of pallet loads by means of a pull signal.2.8 **Acceptance****.**If, after thirty (30) days from the date of receipt by Maxtor, Maxtor hasnot rejected the Product, it will be deemed to have been accepted by Maxtor. The act of inspectionor payment by Maxtor for the Product will not be construed as Maxtor’s acceptance of any Product.Acceptance of any Product shall not affect the warranty or any remedy provided hereunder.2.9 **Returns****.**Returns of product to Komag are at Komag’s expense for shipping for allreturns which are caused by Komag’s fault and for reasonable and customary packing in the event ofsignificant returns which are caused by Komag’s fault, including without limit warranty,inspection, and epidemics and are F.O.B. Maxtor, and title and risk of loss pass to Komag upondelivery to the common carrier at Maxtor’s dock. Komag shall pay all expenses for shipment ofreplacement Product, which is caused by Komag’s fault, including without limit warranty,inspection, and epidemics. Return shipments are F.O.B. Maxtor, and title and risk of loss pass toKomag upon delivery to Maxtor’s dock. If Komag requests, Maxtor will apply Komag’s ReturnMaterials Authorization (RMA) or similar number to the returned Products and/or relateddocumentation, provided, however, that Komag must supply such RMA number to Maxtor on a timelybasis.2.10 **Epidemics****.**Epidemic or sweeping failures of Product may be detected directly or byvirtue of failures of Maxtor’s HDD’s, and the procedures and remedies for epidemics are in additionto all other of Maxtor’s rights and remedies available under this Agreement. An epidemic failureshall occur when one percent (1%) of Maxtor’s HDD delivered to one or more
10

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.customers shall fail within six (6) months of delivery for reasons Maxtor determines to be relatedto Product and which the parties have discussed. In the event that Maxtor’s HDDs should developany epidemic failure related to Komag’s Product, the parties will meet in order to work outtechnical methods to diagnose and remedy the problem. In such event, shipment of undeliveredProducts related to the epidemic may be postponed, at Maxtor’s request, until the cause of theepidemic has been corrected. In case upon the expiration of 30 (thirty) days from the date ofMaxtor’s notice regarding the epidemic, Komag has not yet remedied the same, then Maxtor shall beentitled to cancel pending Orders without any liability for such cancellation and without prejudiceto Maxtor’s rights for damages or any other remedy. In the event that a remedy has been found, allProduct units subsequently delivered to Maxtor shall incorporate the modification remedying thedefect, if necessary, and Komag shall be obliged to accept return of all Product units previouslydelivered to Maxtor, affected by such epidemic, provided the epidemic is related to Product orKomag process non-conformance. Maxtor agrees to re-accept delivery of such returned epidemicmaterial if it is mutually agreed that such epidemic failure has been remedied. In the eventMaxtor can show that the epidemic is due to the failure of the Product to meet the ProductSpecification, Komag will refund the cost of the Product and Maxtor and Komag will negotiate ingood faith any direct expense incurred for the rework of Maxtor’s HDD.2.11 **Invoicing****.**Komag will issue the invoices for the Products and will date them with adate equal or subsequent to date of delivery to Maxtor’s dock. Invoices shall reference thisAgreement, purchase order number, item number and description of Products, unit price of Products,and total amounts due.2.12 **Payment****.**2.12.1 Terms. Invoices shall be due and payable:      (i) [****] ;      (ii) [****] ; and      (iii) [****] .2.12.2 Currency. Unless expressly provided to the contrary, all amounts stated in thisAgreement and all sums payable under this Agreement shall be denominated in United States Dollarsand all payments made under this Agreement shall be made by wire transfer, cashier’s check, orother ready funds in United States Dollars to payee’s designated account and bank.2.12.3 Disputes. Maxtor shall have forty five (45) days after the invoice date to contestin good faith the amounts and items charged. If the dispute is resolved prior to fifteen (15) daysbefore the original due date, payment shall be due on the original due date. If the dispute isresolved thereafter, payment is due fifteen (15) days after the resolution of the dispute.2.13 **Order Changes****.**No Order shall be deemed or construed to be modified, amended,rescinded, canceled, or waived in whole or in part, except by a written Change Order signed by arepresentative of each party.2.13.1 Changes. Komag grants to Maxtor, subject to Komag’s plant constraints, the right tomake changes to the Product mix or schedule one or more times without penalty, provided that theoverall volume of the Order is not changed. Komag must respond within two (2) working days. Ifany such change causes an increase or decrease in the cost of, or the time required for performanceof, any part of the work on an Order or affects any other provisions, an equitable adjustment shallbe made in the price or delivery schedule, or both, and in such other provisions as may beaffected. It is understood that market conditions or requirements by Maxtor’s customers mayrequire changes in the Product mix one or more times and it is anticipated that such changes mayoccur frequently. Any claim by Komag for adjustment under this clause must be asserted in writingwithin thirty (30) days of Komag’s receipt of the Change Order. Where the cost of any propertymade obsolete or surplus as a result of a change is included in Komag’s claim for such adjustment,Maxtor shall have the right to prescribe the manner of disposition of such property once the claimpayment has been made. If Maxtor’s Change Order is an acceleration or increase, Komag will use itsreasonable commercial efforts to meet the requested quantities and/or delivery dates.2.13.2 Cancellation. Maxtor may cancel Order(s) by notifying Komag in writing. Komag willcease work on
11

 
the affected Order in accordance with such notice. Maxtor will     (i) purchase and pay for any units of Product that have been completed as of the effectivedate of the cancellation;     (ii) will pay Komag the actual overhead, labor and materials costs incurred by Komag inconnection with the Production of any Products that are partially completed as of the effectivedate of cancellation up to the total purchase price under the canceled order(s);     (iii) pay the costs of components and other materials procured by Komag specifically onaccount of the canceled order(s), and receive title to such items;     (iv) pay the costs of components and other materials, including without limit tools, dies,jigs, fixtures, plans, drawings, information and manufacturing materials specifically produced oracquired for performance of this Agreement and receive title to such items; and     (v) pay any cancellation or restocking charges imposed by vendors on account of any canceledorders pursuant to clauses (iii) and (iv) above. Provided, however, that the aggregate of suchpayments shall not exceed the amounts originally due under the Order. Komag will use itsreasonable commercial efforts to return components and other materials to its vendors and/or usethem in other activities at Komag. Komag will in any event use its reasonable commercial effortsto mitigate the cancellation charges under this Agreement. All Products which are purchased orpaid for under the above terms shall count as purchased for the purpose of determining totalvolumes of Product purchased by Maxtor.2.14 **Engineering Changes****.**Komag shall not make any changes to the Product or any processby which they are produced except as set forth in this section.2.14.1 Definition. Engineering change(s) are those changes in Product design or materialaccording to the Specification or production process documented in the mutually agreed ProcessManagement Plan. Any Product which is subject to an engineering change must be re-qualified unlessotherwise provided by Maxtor in writing.2.14.2 Komag Change(s). Komag will notify Maxtor of any engineering change proposed to bemade by Komag to the Products or any process by which they are produced, and will supply a writtendescription of the expected effect of the engineering change on the Products, including its effecton the form, fit, function, schedule, price, performance, and reliability of the Products. Maxtormay elect to evaluate the prototype, parts and/or designs specified as part of the proposed changeand Komag shall provide the prototype, parts and/or design to Maxtor at applicable volume pricingfor such evaluation. Maxtor agrees to make every effort to approve or disapprove Komag’s proposedchanges within five (5) working days after receipt of Komag request for non-critical changes, andwithin twenty-four (24) hours for critical changes. Komag will not change or modify the Productsor any process by which they are produced by implementation of such engineering change withoutMaxtor’s prior written approval.2.14.3 Maxtor Change(s). Maxtor may request, in writing and in a manner similar to Komag’srequest, that Komag incorporate any non-critical engineering change into the Products, and Komagwill provide to Maxtor its written response within five (5) working days after receipt of Maxtor’srequest Maxtor will give Komag as much notice as possible of any expected request. For criticalengineering changes, as determined by Maxtor, Komag will respond within twenty-four (24) hours ofMaxtor’s written request. Komag’s response will state the cost savings or increase, if any,expected to be created by the engineering change, and the effect on the schedule and price of theProducts. If Maxtor requests Komag to incorporate an engineering change into the Products, theapplicable Specifications will be amended as required. Komag will not unreasonably refuse toincorporate Maxtor’s engineering changes into the Products. In the event any Maxtor requiredengineering change directly causes a negative financial impact to Komag due to incorporation ofsuch change into a Product, the parties agree to promptly meet to discuss fair compensation forsuch financial impact. Komag agrees to use its best efforts to notify Maxtor of such financialimpact prior to incorporation of such engineering change, and in any event, notify Maxtor as soonas Komag becomes aware of such impact. Maxtor will determine whether the Product must bere-qualified in whole or in part as a result of any engineering change.2.15 **Working Relationship****.**     (A) Designated Maxtor and Komag teams or team members will meet monthly or as the parties mayagree to review current and future plans and activities. Agendas will include product andtechnology road-mapping, development and qualification schedules, capacity planning, yieldperformance, cost targets, volumes, plans, quality and delivery performance, and other topicsrelated to Maxtor and the Products.     (B) Komag agrees to work collaboratively with Maxtor Advanced Development teams on issuesrelated to Komag’s new Product development and Maxtor’s hard disk drive development.     (C) The lead engineers of each party shall agree upon time tables, contents, and proceduresfor Product and technology disclosures, at least quarterly.
12

 
     (D) Komag shall sample all new Product or other examples of development, including without limitall new technologies, techniques, or processes, to Maxtor on a most favored basis.**ARTICLE III — INTELLECTUAL PROPERTY**3.1 **Confidentiality**.3.1.1 Confidential Information. The parties have previously executed that certain “MutualNondisclosure Agreement” dated October 1, 1997, which agreement is hereby integrated herein andmade a part hereof. Current Maxtor proprietary technologies that are protected by this agreementinclude without limit Flying Height Adjust.3.1.2 Items Declared Confidential. This Agreement, its terms and conditions, Maxtor’sspecifications, and all Orders are Confidential Information as the term is defined under the“Mutual Nondisclosure Agreement” dated October 1, 1997.3.2 **Publicity****.**Neither party shall publicly announce or disclose the existence of thisAgreement or its terms and conditions, or advertise or release any publicity or press releaseregarding this Agreement, without the prior written consent of the other party. Nothing in thisAgreement shall limit a party from making such disclosures as are required by law or court order,provided notice of such disclosures is given to the other party.3.3 **Licenses****.**3.3.1 Intellectual Property License. Komag and Maxtor will in good faith discuss enteringinto negotiations for an intellectual property license agreement within ninety (90) days of theexecution of this Agreement.3.3.2 No Other Licenses. Except as expressly set forth in this Agreement, nothingcontained in this Agreement shall be deemed to grant, either directly or by implication, estoppelor otherwise, any license on the patents, patent applications, copyrights or proprietaryinformation arising out of any other inventions of either party.3.4 **Assignment of Rights****.**3.4.1 Inventions. As used in this Agreement, “Invention” shall mean any idea, design,concept, technique, discovery, enhancement, modification, or improvement, whether or notpatentable, conceived, or reduced to practice during the term of this Agreement by one or moreemployees of Komag or Maxtor independently of the other (“Inventing Party”), or jointly by one ormore employees of Maxtor and Komag, or their subcontractors, (“Joint Invention”) in conjunctionwith or as a result of work done under this Agreement.3.4.2 Ownership. In the event that a patentable invention is conceived or reduced topractice as a result of either company’s direct efforts to fulfill its obligations under thisSupply Agreement, Komag and Maxtor shall disclose the invention to each other. The party whoseemployees are inventors of patentable technology shall have the right to file or cause to be havefiled a patent application covering such invention. In the event Komag or Maxtor chooses not tofile a patent application made by its employees in any country or countries, it will notify theother party of the fact in sufficient time to enable the other party to file an application in suchcountry or countries and the other party will be given the opportunity to pursue patent protectionon that invention at its own expense. In this case, rights necessary to enable that party to applyfor the patent will be assigned to the party that pursues the patent, the inventing party shallfully cooperate and provide any assistance reasonably requested by the applying party in thepreparation and prosecution of such patent application(s), and the inventing party shall be granteda royalty-free, non-exclusive license to practice the patented invention. Each party shall bearthe expenses incurred in the filing, prosecution, or maintenance of patent applications or patentswhich are owned by or assigned to them, in accordance with the foregoing.3.4.3 Joint Invention. In the event that during the term of the Supply Agreement, apatentable invention is made jointly by one or more employees of Komag and one or more employees ofMaxtor, as determined by the U.S. laws of inventorship, title to any patent application coveringsuch invention and any patent or patents maturing therefrom shall be jointly owned by Komag andMaxtor.**ARTICLEIV — LIABILITIES**4.1 **General Indemnity****.**Each party shall, in the performance of this Agreement, fullycomply with all applicable national, state, and local laws, rules, regulations, and ordinances andshall indemnify and hold harmless the other party from and against any loss, claim, damage,liability, expense, or cost (including without
13

 
limitation attorney’s fees and court costs) resulting from failure of such compliance, or out ofany other negligence.4.2 **Infringement Indemnity****.**Komag will indemnify Maxtor for any claim, action orproceeding brought by any third party alleging infringement by Komag’s Product of patent,trademark, copyright or other proprietary rights. With respect to any other claim, action orproceeding brought by any third party which may be instituted against Komag or Maxtor or both ofthem, each party will (1) maintain its own defense, and (2) assume all costs and attorneys feesassociated with its defense.4.3 **Strict Liability****.**Each party will indemnify the other against and hold it harmlessfrom any loss, cost, liability or expense (including court costs and reasonable fees of attorneysand other professionals) to the extent it arises out of or in connection with, in whole or in part,any negligence or willful act or omission of it or its employees or agents including but notlimited to any such act or omission that contributes to:     (i) any bodily injury, sickness, disease or death; or     (ii) any injury or destruction to tangible or intangible property of the other or any relatedloss of use.4.4 **Limitation Of Liability****.**In no event shall either party be liable for any special,consequential, punitive, indirect, or incidental damages, however caused, on any theory ofliability and whether or not such party has been advised of the possibility of such damages,arising in any way out of this Agreement or any agreement, undertaking, or performance that may bepromised, performed, or executed to implement this Agreement, provided, however, that thislimitation shall not apply to either the indemnity obligations of this Article or to a breach ofthe confidentiality obligations of this Agreement.**ARTICLEV — DISPUTE RESOLUTION**5.1 **Escalation****.**The parties agree that any material dispute between the parties relatingto this Agreement will be submitted to a panel of two senior executives of each of Maxtor andKomag. Either party may initiate this proceeding by notifying the other party pursuant to thenotice provisions of this Agreement. Within five (5) days from the date of receipt of the notice,the parties’ executives shall confer (via telephone or in person) in an effort to resolve suchdispute. The decision of the executives will be final and binding on the parties. In the eventthe executives are unable to resolve such dispute within twenty (20) days after submission to them,such dispute shall be settled by means of arbitration as provided below. Each party’s executivesshall be identified by notice to the other party, and may be changed at any time by notice.5.2 **Arbitration****.**5.2.1 Binding Arbitration. Any controversy, claim, or action, whether in law or at equity,whether in tort, contract, warranty, or otherwise, arising out of, relating to, or involving thisAgreement and any agreement, undertaking, or performance that may be promised, performed, orexecuted to implement this Agreement will be settled by arbitration. Any arbitration proceedingshall be conducted under the laws of the state of California and the Federal Arbitration Act, andpursuant to the Commercial Arbitration Rules of the American Arbitration Association insofar assuch Commercial Arbitration Rules do not conflict with the provisions of this Section. The sitefor any arbitration proceeding shall be San Jose, California.5.2.2 Injunctive Relief. Notwithstanding the above, the parties may apply to any court ofcompetent jurisdiction for injunctive relief without breach of this arbitration provision.5.2.3 Governing Language. The arbitration proceedings and all pleadings and writtenevidence shall be in the English language. Any written evidence originally in a language otherthan English shall be submitted in English translation accompanied by the original or a true copy.5.3 **Choice of Law****.**5.3.1 Choice of Law. This Agreement and any agreement, undertaking, or performance thatmay be promised, performed, or executed to implement this Agreement shall be governed by andconstrued under the laws of the State of California, as they apply to agreements made betweenresidents of California for performance solely within California. The parties expressly agree thatthis Agreement and any agreement, undertaking, or performance that may be promised, performed, orexecuted to implement this Agreement shall not be subject to and shall not be interpreted by theUnited Nations Convention on Contracts for the International Sale of Goods.5.3.2 Foreign Corrupt Practices Act. Maxtor and Komag each acknowledge that they aresubject to the laws
14

 
and regulations of the United States including the Foreign Corrupt Practices Act (“FCPA”).5.3.3 Export Controls. Each party agrees that it will not knowingly export or re-export,directly or indirectly, any technical data or product derived from the other party to anydestination to which such export or re-export is restricted or prohibited by U.S. law, withoutobtaining prior authorization from the U.S. Department of Commerce.5.4 **Limit Of Time To Bring Action****.**No actions or arbitrations, regardless of form, arisingout of this Agreement, may be brought by either party more than one (1) year after such actions orarbitrations arose, or in the case of nonpayment, more than one (1) year from the date the lastpayment was due.**ARTICLE VI — GENERAL**6.1**Term And Termination**.6.1.1 Term. This Agreement shall become effective on the Effective Date and shall remainin force until the Termination Date, and on and effective the Termination Date this Agreement shallterminate.6.1.2 Termination by Maxtor. On or at any time after the second anniversary of theEffective Date, Maxtor may terminate this Agreement upon six (6) months written notice to Komag.On or at any time after the third anniversary of the Effective Date, Komag may terminate thisAgreement upon twelve (12) months written notice to Maxtor.6.1.3 Termination for Cause. This Agreement shall be terminated for cause:     (i) If either party materially defaults in the performance of any provision of this Agreement,then the non-defaulting party may give written notice to the defaulting party that if the defaultis not cured within thirty (30) calendar days, the Agreement will be terminated at the end of thatperiod and such termination shall not prejudice or limit either party’s remedies; or     (ii) If either party violates any intellectual property, confidentiality, or license provisionof this Agreement, then the non-defaulting party may give written notice to the defaulting party ofsuch violation and of immediate termination and the Agreement will be terminated when such noticeis given and such termination shall not prejudice or limit either party’s remedies; or     (iii) Upon:          (a) the institution by or against either party of insolvency, receivership or bankruptcyproceedings or any other proceedings for the settlement of its debts; or          (b) either party’s making an assignment for the benefit of creditors; or          (c) either party’s dissolution,this Agreement shall terminate immediately without notice and shall be deemed to have beenterminated by the party not so affected and such termination shall not prejudice or limit eitherparty’s remedies.6.1.4 Duties Upon Termination. Upon any termination or expiration of this Agreement:     (i) all licenses made to Komag and Maxtor under this Agreement shall be terminated accordingto their terms effective the date of the termination or expiration;     (ii) all trademarks, patents, designs, drawings, formulas or other data, photographs, samples,literature, and sales aids of every kind received from or belonging to Maxtor and Komag shallremain the respective property of Maxtor and Komag, and both parties shall prepare all such itemsin its possession with reasonable promptness for shipment to the other at the others expense;     (iii) neither party shall be liable to the other because of such termination for compensation,reimbursement or damages on account of the loss of prospective profits or anticipated sales or onaccount of expenditures, investments, leases or commitments in connection with the business or goodwill of Maxtor or Komag, or for any other reason growing out of such termination; and     (iv) any Orders placed before such expiration or termination shall be completed according tothe terms of this Agreement.6.1.5 Survival. The terms of this Agreement which by their nature may survive thetermination or expiration of this Agreement shall survive the termination or expiration of thisAgreement.6.2 **General****.**6.2.1 Assignment. Komag shall not transfer or assign this Agreement or any of its rightsor obligations under this Agreement directly or indirectly including without limit in the cases ofmerger, acquisition of greater then fifty percent (50%) ownership or control interest in Komag byany party, or sale of Komag’s assets, without the prior written consent of Maxtor, which consentshall be granted, so long as Maxtor is satisfied that any such assignment, merger, acquisition, orchange of ownership or control shall result in a commitment and capacity to
15

 
continue Komag’s management, technology, operations, and financing, and meet Komag’s commitments toMaxtor.     Further, in the event Komag or its assets are acquired by or become controlled by an HDDsupplier, Maxtor has the right to terminate this Agreement without penalty or payment of any sortor to seek such assurances or contractual terms and conditions as it may deem necessary to protectits interests. However, notwithstanding the foregoing, any Order shall not be cancelled or reducedby Komag.     Further, in the event Komag or its assets are acquired by another Maxtor media supplier,Maxtor has the right to limit its total purchases from the combined entity, notwithstanding anyforecasts, orders, or commitments to either party. However, notwithstanding the foregoing, anyOrder shall not be cancelled or reduced by Komag.     Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of theparties, their successors and assigns. Any purported assignment of this Agreement by Komag withoutthe prior written consent of Maxtor shall be void.     Komag shall give Maxtor at least ninety (90) days prior written notice of any known or plannedchange in ownership or majority control of Komag, or any of Komag’s subsidiaries, including but notlimited to changes in shareholder ownership of sufficient magnitude to require SEC filings of anytype, except in cases of Form 4 sales involving less than five percent (5%) of the seller’sholdings in Komag.6.2.2 Audit. Maxtor shall have the right, by itself or by a mutually acceptable thirdperson auditor, to examine and audit Komag’s records related to its performances hereunder at anytime during normal business hours upon three (3) days notice to Komag to ensure compliance withthis Agreement. Komag shall maintain its records relating to this Agreement for seven (7) years.     Komag shall provide Maxtor financial information in the form of all SEC documents required tobe filed by Komag each quarter. If Komag becomes a private company, and/or is de-listed from itsstock exchange for any reason, Komag shall provide to Maxtor equivalent documentation.6.2.3 Consents. No consent required to be given under this Agreement shall be unreasonablywithheld or delayed.6.2.4 Counterparts. This Agreement shall be prepared in two identical and originalcounterparts and both of which together shall be one and the same instrument and either of whichmay be used for purposes of proof.6.2.5 Cumulation of Remedies. All remedies available to either party under this Agreementare cumulative and may be exercised concurrently or separately, and the exercise of any one remedyshall not be deemed an election of such remedy to the exclusion of other remedies.6.2.6 Independent Parties. Persons furnished by each party for performances under orrelated to this Agreement shall be solely the employees or agent of such party and shall be underthe sole and exclusive direction and control of the furnishing party. They shall not be consideredemployees of the other party for any purpose. Each party shall also be solely responsible forpayment of taxes, including federal, state and municipal taxes, chargeable or assessed with respectto its employees, such as social security, unemployment, worker’s compensation, liability insuranceand federal and state withholding. Each party shall indemnify the other for any loss, damage,liability, claim, demand or penalty including costs, expenses, and reasonable attorneys’ feesassessed against one party that may be sustained by reasons of the other party’s failure to complywith the provisions of this Section.     Neither Party, nor its employees, officers, directors, or agents, shall hold itself out as theagent, employee, partner, or joint venture of the other party, and shall make no commitment orengagement on the account of or on behalf of the other party. Each party shall remain anindependent contractor and shall be responsible for compliance with all laws, rules and regulationsinvolving, but not limited to, employment of labor, hours of labor, health and safety, workingconditions and payment of wages.6.2.7 Force Majeure. Nonperformance of either party shall be excused to the extent thatperformance is rendered impossible by strike, fire, flood, governmental acts, orders orrestrictions, or any other reason where failure to perform is beyond the control and not caused bythe negligence of the nonperforming party. In the event of any delay caused by such contingency,the delayed party may defer any performance or delivery prevented by the force majeure conditionfor a period equal to the time lost by reason of such delay, provided, however, that the delayedparty promptly commences and reasonably and diligently pursues actions to cure or circumvent suchcause.     Whenever any cause delays or threatens to delay the timely performance of this Agreement,Komag shall immediately notify Maxtor of all relevant information with respect to such cause.     If either Party is delayed in any performance under the terms of this Agreement by more thanthirty (30) days, the other Party may terminate the delayed
16

 
performance or this Agreement and such termination shall not be a breach of this Agreement andshall be without penalty.6.2.8 Governing Language. English shall be the language of this Agreement and the Englishlanguage shall govern all disputes, performance and interpretations.6.2.9 Headings. The descriptive headings of the several Articles and Sections of thisAgreement are inserted for convenience only and do not constitute a part of this Agreement andshall not affect the interpretation of this Agreement.6.2.10 Joint Work Product. The parties further acknowledge that they have thoroughlyreviewed this Agreement and bargained over its terms and that for convenience, Maxtor has writtendown the terms of this Agreement. Accordingly, this Agreement shall be construed without regard tothe party or parties responsible for its preparation and shall be deemed to have been preparedjointly by the parties.6.2.11 Notices. Any notice required or permitted to be given under this Agreement shall bein writing and shall be deemed to be sufficiently given if delivered by hand or if sent by courierwith a receipt requested or by registered air mail, postage prepaid, addressed to Maxtor or toKomag, as the case may be, at the addresses first set forth above or to such other address as maybe furnished for such purpose by notice duly given under this Agreement. Such notice shall bedeemed to have been given when delivered by hand or when delivered by the courier or by mail. Anyparty may change its address for such communications by giving such notice to the other party inconformance with this section.6.2.12 Severance. If any provision of this Agreement is held to be invalid by a court ofcompetent jurisdiction, then the remaining provisions shall nevertheless remain in full force andeffect. The parties agree to renegotiate any term held invalid and to be bound by the mutuallyagreed substitute provisions.6.2.13 Time. Time is of the essence in all performances hereunder. The words day, month,year, and the like shall mean calendar day, month, year and the like unless expressly provided tothe contrary. References to quarter shall refer to Maxtor’s fiscal quarter unless expressly statedotherwise.6.2.14 Waiver. The failure of any party to this Agreement at any time or times to requireperformance of any provision of this Agreement shall in no manner affect such party’s availableremedies or right at a later time to enforce the same. No waiver by any party of any condition, orof the breach of any term, covenant, representation or warranty contained in this Agreement,whether by conduct or otherwise (in any one or more instances) shall be deemed to be or construedas a further or continuing waiver of any such condition or breach or of any remedy or as a waiverof any other condition or as a breach of any other term, covenant, representation or warranty ofthis Agreement.6.3 **Entire Agreement****.**The terms and conditions of this Agreement are the entire agreementbetween the parties and supersede all previous agreements, proposals, and understandings, whetheroral or written, between the parties with respect to the subject matter of this Agreement and noagreement or understanding varying or extending the same shall be binding upon either party unlessin a written document signed by both parties. This Agreement shall supersede all inconsistent oradditional terms contained in any purchase orders, sale acknowledgments, invoices, or other similardocuments delivered by the parties.This Agreement requires that disputes be settled by binding arbitration.
17

 
In witness whereof, the Parties have executed this Agreement as of the Effective Date:       MAXTOR CORPORATION KOMAG, INC.       By: /s/ David Beaver By: /s/ Mike Russak                  (signature)            (signature)       David Beaver Mike Russak   (print name) (print name)       Senior Vice President President andWorldwide Materials Chief Technical Officer   & Chief Procurement Officer (title)         (title)    The terms and conditions of this Agreement and its Exhibits which apply to Komag Malaysia areacknowledged and agreed to byKOMAG USA (MALAYSIA), Sdn     By: /s/ Ali Dabier     (signature)       Ali Dabier   (print name)       Vice President  & Managing Director  Malysian Operations   (title)  
18

 
**Exhibit A**Maxtor Specifications
19

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.**Exhibit B**Komag Expansion Pricing Matrix[****]
20

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.**Exhibit C**Komag Process Improvement Plans Reflected in Exhibit B Prices[****]
21

 

***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITHOMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [****].A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGECOMMISSION.Addendum to Business Agreement Between Maxtor, Inc and Komag, Inc.