exv10w3



 






Exhibit 10.3







***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH
OMITS 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 EXCHANGE
COMMISSION.







BUSINESS AGREEMENT



PREAMBLE



This Business Agreement (“Agreement”), effective October 6, 2003 (“Effective Date”) is made
by and between Maxtor Corporation, a Delaware corporation, having principal places of business at
500 McCarthy Boulevard, Milpitas, California 95035; (“Maxtor”), and Komag, Inc., a Delaware
corporation, 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 Malaysia
unlimited liability company, having its principal place of business at Bayan Lepas Free Industrial
Zone, Phase 3, 11900 Penang Malaysia. (“Komag Malaysia”) (references to Komag shall be deemed to
include references to Komag Malaysia).




RECITALS



WHEREAS, “Maxtor” shall include without limit Maxtor Peripherals (S) Pte Ltd (“MSP”), and Maxtor
Technologies (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 other
subsidiaries 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 media
and substrates (“Product”) for hard disk drives which are competitive in price, quality and
technology 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; timely
delivery of necessary quantities of qualified, high-yield Products and low costs;



WHEREAS, Maxtor appoints Komag as Maxtor’s preferred strategic external media partner and Komag
appoints Maxtor as Komag’s most favored customer with the expectation that this relationship will
provide an excellent opportunity for synergy between the two companies and capitalize on the mutual
benefits of sharing of information and technical resources;



WHEREAS, Maxtor wishes to secure a supply of Product and to purchase quantities of such Product
from Komag meeting Maxtor’s specifications set forth on Exhibit A and for use in Maxtor’s hard disk
drives (“HDD”), and, subject to the terms and conditions hereof, Maxtor shall purchase from Komag a
proportion 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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.






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 test
requirements, to be produced from [****] existing Intevac [****] sputter tools (“Tools” or “Intevac
Tools”) 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, dedicated
exclusively to Maxtor, by approximately [****] disks per quarter. Komag shall own and operate the
Additive 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 the
mix of form factors and test requirements and a baseline assumption that each Tool, running a
single form factor continuously, should produce approximately [****] disks per quarter;



WHEREAS, Komag shall fund the entire cost of this Intevac Tool capacity expansion, including all
costs of facilitization and ancillary equipment;



WHEREAS, [****];



WHEREAS, Komag shall, at Maxtor’s request, install up to [****] incremental Tools (“Incremental
Tools”) 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 the
Parties;



WHEREAS, the Parties agree that such request by Maxtor for installation of Incremental Tools shall
require a lead-time of [****];



WHEREAS, the Parties agree to discuss the potential for a separate Maxtor — Komag agreement that
would increase Komag’s substrate capacity in a manner that would enable Komag to supply MMC
Technology (“MMC”) with up to [****] substrates per quarter for use in MMC’s own thin film media
manufacturing;



WHEREAS, if problems should be encountered with respect to any aspect of this Agreement or if the
parties should encounter any problems not covered by this Agreement, Maxtor and Komag shall discuss
them in a cooperative and sincere spirit and attempt to arrive at a mutually acceptable solution;
and



WHEREAS, 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 is
hereby acknowledged, and in consideration of the above premises and the mutual promises contained
in 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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.





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 purchase
quantities of such Product from Komag meeting Maxtor’s specifications set forth in Exhibit A and
for use in Maxtor’s HDD’s. Komag shall provide to Maxtor, exclusively, all of the capacity and
output from the Intevac Tools, Additive Tools, and Incremental Tools required to support this
Agreement. Komag wishes to supply such Product to Maxtor under the terms and conditions of this
Agreement and at the prices set forth on Exhibit B, as more completely detailed elsewhere in this
Agreement, including, but not limited to Section 1.4.1 Pricing. Therefore, subject to the terms
and conditions of this Agreement, Maxtor will purchase and Komag will supply Product for the term
of 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 to
market, time to volume, Product specifications, performance, quality and functional requirements
(including, without limit, media-chargeable HDD yields), Maxtor customer requirements, and the
other terms and conditions of this Agreement.



     (ii) Komag’s commitment to Maxtor, on a best efforts basis, that the installation of the
Additive Tools shall be at least partially completed by the end of [****] , to a degree
sufficient 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 [****] Maxtor
disk output per quarter, taking into consideration the yields that are likely for the mix of
programs and form factors required from Maxtor. Komag shall meet its substrate commitments, either
by adjusting the allocation of its current internal and external substrate supply, or by adding
qualified capacity in its own or a third party facility.


1.1.2 Specifications. As of the Effective Date, Exhibit A may not be attached. The
parties will from time to time agree in writing upon specifications for the Product or amendments
to agreed-upon specifications and such agreed-upon specifications or amendments shall become parts
of Exhibit A and shall be incorporated into this Agreement when each such written agreement is
made.



1.1.3 Participation in Programs. Maxtor will use reasonable commercial efforts to qualify
and 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 in
Maxtor’s product roadmap.



1.1.4 Freedom of Action. Nothing in this Agreement shall prevent either party from
engaging in similar business with other persons, including, without limit, competitors of the other
party, provided that the confidentiality and terms of this Agreement are not breached.



1.1.5 Second Sources. Komag understands that Maxtor qualifies additional sources for
Products or the same or substantially similar goods or materials from time to time and places its
orders among qualified internal and external suppliers as it sees fit. Nothing in this Agreement
will prevent Maxtor from procuring Products or the same or substantially similar goods or materials
from other sources than Komag or from providing the same itself, provided that the confidentiality
and intellectual property rights terms of this Agreement are not breached.



1.2 Warranty. Each of Komag’s warranties made hereunder is materially relied upon by
Maxtor in entering into this Agreement or any Order.



1.2.1 Authority Warranty. Each party represents and warrants that all corporate action
necessary for the authorization, execution and delivery of this Agreement by such party and the
performance of its obligations under this Agreement has been taken. Further, each party represents
and warrants that neither the execution of this Agreement nor any performance of this Agreement
shall 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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.







     (ii) not infringe any patent, trademark, copyright, trade secret, or other intellectual property
right of any third person;



     (iii) be newly manufactured and not used or reworked (except as provided in Maxtor-approved
procedures);



     (iv) be free from defects in workmanship and materials except as defined in and allowed by the
Product Specification;



     (v) conform to applicable specifications, drawings, or other descriptions given, including
those 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 (this
specific warranty shall not apply to any Order which is declared a “Risk Buy” in writing by
Maxtor); and



     (viii) be contained or packaged according to Maxtor’s specifications as agreed and in effect
at 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 the
standards of the Product Warranty shall be a Conforming Product (“Conforming Product”). Replaced
Product shall be subject to the provisions of this warranty to the same extent as the original
Product 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 as
warranties and shall be cumulative.



1.2.5 Warranty Disclaimer. Except for the warranties set forth above, Komag grants no
warranties, either express or implied, for the Product, and disclaims all implied warranties
including without limit any implied warranties of merchantability or fitness for a particular
purpose.



1.3 Remedies.



1.3.1 Product Remedies. In the event that Maxtor determines that a Product is not a
Conforming Product, and Komag has had forty eight (48) hours notice or if Komag must receive parts
from Maxtor, ninety-six (96) hours notice of such determination, during which time Komag may take
such actions as it desires to confirm for itself Maxtor’s determination, then Maxtor may elect to
have 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 Agreement
when 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 direct
manufacturing costs incurred to replace the Media in such actions. No inspection, test or approval
of 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 to
credit Maxtor’s account for such purchase price (if payment has not been made by Maxtor) of any
Product 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 acceptance
unless the former use or rejection is identified by Komag in writing and Maxtor accepts such tender
in 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 all
of 2004 shall be as detailed in Exhibit B “Komag Expansion Pricing Matrix”. This pricing shall be
on a not-to-exceed basis, and it is anticipated that yield improvements and/or decreases in
material costs will provide lower prices from Komag to Maxtor on a Product by Product basis. The
prices in Exhibit B shall be reviewed at least monthly by Komag and Maxtor, with the specific
intent of finding ways to reduce said pricing.



     (B) Komag agrees to diligently pursue and to work cooperatively with Maxtor in pursuing cost
reductions, which shall be reflected in prompt reductions to the prices in Exhibit B when such cost
reductions 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 is
cancelled or rejected because of Komag’s fault, including without limit warranty, inspection,
deliveries, shortages, or epidemic, shall nevertheless be counted as purchased for purposes of
determining 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 assumption
that Komag’s costs shall be comparable to MMC’s costs, and that such MMC costs shall be predicated
on MMC using labor costs equivalent to the lesser of MMC’s actual labor costs or the labor costs
actually incurred by KMS. Maxtor will help facilitate communication between MMC and Komag should
there be wide discrepancies in costs for new technologies.




     (G) Maxtor agrees that the prices detailed in Exhibit B include process improvement plans
Komag has made known to Maxtor at the time of execution of this Agreement, as detailed in Exhibit
C.


1.4.2 Terms of Sale. The terms of sale are as follows:




     (i) For sales to Maxtor’s research, engineering, qualification, development, or NPI
facilities, 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’s
receiving dock. Maxtor selects the common carrier and pays for freight, but Komag is responsible
for all other shipment and pre-delivery costs including without limit insurance and packing
according to the terms of this Agreement. If the sale involves international shipment from Komag
to Maxtor, then the terms of sale are D.D.P. Maxtor’s designated delivery location; and Komag is
responsible 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. Maxtor
pays for all freight from Komag’s origin to the JIT warehouse, but Komag is responsible for all
other shipment and pre-delivery costs including without limit inventory, stocking, all warehouse
expense, insurance, packing, and shipment from warehouse to Maxtor according to the terms of this
Agreement. Maxtor selects the common carrier. Excess transportation costs resulting from Komag’s
failure to comply with the provisions of this Agreement will be paid by Komag. Terms of sale are
D.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 Agreement
shall be subject to the successful qualification of Komag’s Product and its manufacturing process
in Maxtor’s HDD and with Maxtor’s customers, as Maxtor deems necessary. Maxtor and Komag shall
cooperate to set up the necessary processes and procedures to accomplish and facilitate such
qualification. 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 of
any change in Product design or material according to the Specification; production process
documented in the mutually agreed Process Management Plan; or in plant location in order to allow
it 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 and
re-qualification, Komag will be responsible for Maxtor’s damages up to the cost of the affected
Product and any direct expense incurred for the rework of Maxtor’s HDD. Any Product delivered to
Maxtor 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 other
articles 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 to
pay Komag for special tooling or other items either separately or as a stated part of the unit
price of Products, title to same shall be and remain in Maxtor upon payment, and the tooling shall
be treated as property of Maxtor, furnished by Maxtor to Komag.




     (A) Maxtor agrees to pay for the prototype tooling required to establish the development of
new form factors in KUS. This includes tools and cassettes required to transport substrates to
Komag, media within Komag’s process, and finished media to Maxtor. Notwithstanding anything to the
contrary in this paragraph, such prototype tooling shall not exceed $250K for any one form factor
for any one program, and Maxtor agrees to pay fifty percent (50%) of such tooling cost upon
placement of purchase order, and the balance of fifty percent (50%) of such tooling cost upon
shipment of first samples of material to Maxtor. Komag agrees that if, for any reason, it should
not qualify on a program for which Maxtor has authorized and made payments for tooling, Komag shall
reimburse Maxtor for said tooling costs. Maxtor’s payments for said tooling shall be made in
accordance with the payment terms and conditions in effect between the two companies at the time
each payment is due.



6









 





     (B) Komag will pay for all volume tooling, including any special tooling for form factors new to
the 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 production
capacity under the terms of this Agreement.



     (B) Komag understands and agrees that Maxtor’s intention is to fully utilize MMC Capacity as a
first priority, followed by fully utilizing Komag’s Maxtor-dedicated capacity as a 2nd
priority. Should market conditions force a drastic downturn in demand, Maxtor may not be able to
fully consume 100% of Komag’s installed capacity.



     (C) Komag’s failure to deliver Product for any reason, including but not limited to production
problems, material shortages, quality issues and qualification issues shall relieve Maxtor of any
commitment to purchase Komag Product for so long as such failure continues, plus reasonable times
thereafter for reallocation of commitments, at no penalty to Maxtor. Komag shall have a cure
period 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 or
external suppliers subject to reasonable commitments required by said suppliers that may prevent
Maxtor from meeting its Product purchase commitments to Komag over a period ranging from the
balance of the quarter in which Komag fails to meet its supply commitment plus the two quarters
following that quarter, at no penalty to Maxtor. Maxtor shall make every reasonable effort to
minimize any such impact to Komag.



     (D) Maxtor’s volume forecasts and commitments are not fixed quantities, but may vary with
Maxtor’s level of business, tracking to Maxtor’s increasing or decreasing HDD volumes and business
projections, 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 of
Komag’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 foregoing
volume 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 disk
form factors offered by Maxtor, with disks capable of supporting required drive performance using
one Komag disk matched with all head suppliers, or with one Komag disk matched to individual head
suppliers, 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 providing
disks 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 be
based on VCAP yields, RTP yields, FGA results, SGT testing, HTS testing, the DPPM levels of Maxtor
drives, 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 in
Maxtor’s drives, may, at Maxtor’s sole option, be deducted from Maxtor’s percentage commitment to
Komag without penalty to Maxtor, based on at least one (1) month’s worth of data. Notwithstanding
the above, Komag’s performance will be assessed using at least one (1) month’s work of drive data
involving 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, Komag
fails to qualify on any Head-Disk combinations, then Maxtor has no duty to purchase Product from
Komag for such Head-Disk combinations and Maxtor’s purchase requirements are reduced accordingly
without penalty to Maxtor.




          (iv) Komag agreement to provide disks to Maxtor with no degradation in its ability to meet
Maxtor’s glide and certification test specifications, as defined for programs currently qualified
and in production, or currently being developed and/or tested and/or qualified by Maxtor. Any
plans by Komag to change any test parameters shall be submitted to and approved by Maxtor in
Maxtor’s sole discretion, prior to implementation by Komag. Should Komag be unable to provide
disks up to and including the anticipated volume of [****] disks per quarter as the
result of tester throughput issues and/or test parameters that do not meet Maxtor’s specifications
for quality or performance, Maxtor’s purchase requirements are reduced accordingly without penalty
to Maxtor.




          (v) Komag’s agreement that, in the event Komag fails to qualify with each head for a
particular 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 efforts
to award Komag compensating volumes in other Programs) without penalty to Maxtor; and




                      (b) determine that the foregoing volume commitments shall thereafter be measured without
reference to such reduced program if Maxtor produces HDD for the program with the head that Komag
failed 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 for
any 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 shall
not be a breach of this Agreement.



2.3.2 Forecasts. During the term of this Agreement, Maxtor shall provide Komag, on a
monthly basis, with a four (4) quarter rolling forecast setting forth its estimated Product needs
and shall provide Orders for the first thirteen (13) weeks of the forecast. Orders will be placed
sixty (60) days in advance of the date as of which the Products are to be delivered. Maxtor may
request a shorter lead time and Komag shall use its reasonable commercial efforts to meet such
date. 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 to
allocate any labor or equipment for the manufacture of the Product nor impose on Komag any
obligation to supply additional Product. Maxtor will not be responsible for any of Komag’s cost or
expense for materials, Product, labor, or other commitments or expenses, other than as authorized
in Orders.



2.3.3 Komag’s Capacity. Komag covenants to provide Maxtor with the right of first refusal
to 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 is
solely at Maxtor’s discretion and it is understood that Maxtor shall have no duty under this
Agreement 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 or
external media vendors or customers.




     (i) If Komag fails to meet the requirements for any Maxtor program at any time, the Product
quantities allocated for that Maxtor program within the forecast may be reduced or eliminated by
Maxtor. Maxtor will use reasonable commercial efforts to award to Komag compensating increases in
other Maxtor programs.



     (ii) If Maxtor forecasts increased Product needs for any particular Maxtor program, Maxtor
will use reasonable commercial efforts to provide Komag with the opportunity to supply increased
quantities for such program, provided that Komag is qualified to the configurations and customers
driving 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 resultant
forecasted increased allocation and Komag will promptly notify Maxtor of Komag’s available capacity
and commitment to supply such increase.



     (iii) If Maxtor forecasts decreased Product needs for any particular Maxtor program, Maxtor
will use reasonable commercial efforts to award to Komag compensating increases in other Maxtor
programs, 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 successive
ninety (90) days, then Komag may, with Maxtor’s prior written agreement, utilize said capacity for
a third (3rd) party, subject to the terms and conditions following: (a) Komag may offer
to and utilize the capacity for any third (3rd) party only if such party agrees with
Komag in writing in advance to give up such capacity with thirty (30) days of written notice by
Komag; and (b) Komag can and will start production for Maxtor for an existing qualified Maxtor
product within forty-eight (48) hours of the end of said thirty (30) day notice period, or such
shorter period if the demand requirements from the third (3rd) party should end in less
than 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 of
the Product, Maxtor’s Order(s), subject to normal lead-time requirements, shall be filled according
to an allocation plan at least as favorable as those provided to all other Komag customers with
similar or lesser quantity forecasts and Orders. Komag shall provide Maxtor with as much notice as
possible if it anticipates or has reason to believe that Komag’s output of the Product will not be
sufficient 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 written
purchase orders sent via airmail, E-mail, web-based, facsimile, or courier (“Order”). Such Orders
shall reference this Agreement and state the unit quantities, unit descriptions, price, requested
delivery dates and shipment instructions. The




8









 







acceptance by Komag of an Order shall be indicated by written or E-signature acknowledgment within
three (3) work days. Maxtor will have the right to deem its order as accepted by Komag if Komag’s
acknowledgment does not reach Maxtor within ten (10) days from the date of the Order. By shipping
the Products, or by confirming or accepting an Order, or by performing the work described in an
Order, or by allowing an Order to be deemed accepted, Komag agrees to the Order and to the terms
and conditions of this Agreement. All Orders meeting the terms and conditions of this Agreement
shall be accepted by Komag.



2.4.2 Precedences. Any terms and conditions added or referenced by either party in any
purchase order, confirmation, acceptance or any similar document purporting to modify the terms and
conditions contained in this Agreement, shall be disregarded unless expressly agreed upon in
writing signed by the parties, which expressly amends this Agreement. The preprinted terms and
conditions of purchase orders, acceptances, confirmations and similar business documents shall have
no 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 the
Maxtor HDD program for which the Product is qualified and until one (1) calendar quarter after
Maxtor’s last production build for the program. The last purchase order date and the last shipment
date 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 this
section 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 that
the Products meet Maxtor’s specifications and acceptance criteria, and Komag shall not ship any
Products that do not Conform. Product may be inspected and tested by Maxtor or Maxtor’s agent at
all reasonable times and places after manufacture and before or after shipment. . If any inspection
or test is made on the Komag’s premises, Komag shall, without additional charge, provide reasonable
facilities and assistance for the safety and convenience of inspectors in such manner as not unduly
to delay the work. Inspection of Products at Komag’s facility shall be without prejudice to
Maxtor’s right to inspect and reject such Products upon delivery to Maxtor’s facility. Where
applicable, Maxtor may, at its option, inspect all Products or inspect a statistical sample
selected from each lot, and Product, lots or Orders may be inspected more than once. Product
delivered to and inspected by Maxtor and deemed acceptable by Maxtor will be transferred to
Maxtor’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 accordance
with Maxtor’s specifications and requirements, as may be amended from time to time. Komag will
provide only those Products conforming to Maxtor’s specifications and requirements, unless Komag
has obtained prior written approval from Maxtor for any deviation from such specifications. Komag
further agrees to maintain adequate authenticated inspection test documents that relate to work
performed 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 supply
Maxtor with inspection and test reports, affidavits, certifications or any other documents as may
be reasonably requested. Komag agrees to collect and send to Maxtor, data on failure rates and
causes on a monthly basis in a mutually agreed format.



2.5.3 In Case of Failure of Inspection. If the above inspection or testing detects
Products which do not conform to the specifications or the requirements of this Agreement, Maxtor
and Komag will closely cooperate to identify and find a way to correct the causes of the
problem(s). Maxtor may refuse to accept Product which does not conform. Maxtor may reject entire
lots if lot acceptance criteria established in the specifications are not fulfilled. The rejected
Product 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 the
cause(s) for rejection.



2.5.4 Stop Ship Order. Maxtor may stop future shipments of Product until the cause(s) for
non-conformity, as mutually determined by parties, have been corrected. A stop ship order may be
issued 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 shall
be non-conforming over a period of seven (7) days or more or over ten percent (10%) of an Order or
more, whichever occurs sooner. In the event Maxtor issues a stop ship order, Komag must
immediately cease shipment of the Products, and all Orders which have been or would have been
filled by the nonconforming Product are terminated without liability to Maxtor until such stop ship
order is lifted and Maxtor retains all of its rights and remedies under this Agreement. Maxtor
will use commercially reasonable efforts to work with Komag to determine the cause of the
nonconformance problem and to develop solutions





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2.6 Shipping. The following terms apply to all shipments, whether Just In Time (JIT) or
otherwise.



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 in
writing in advance by Maxtor. Notwithstanding the above, Komag shall in all cases use its best
efforts to ensure zero shortages to any Maxtor production line. If Komag’s performance falls below
one hundred percent (100%) on-time deliveries, then Komag shall implement a corrective action plan
acceptable to Maxtor which brings the deliveries back to one hundred percent (100%) on-time. If
Komag is unable to deliver any Product on schedule, Komag shall promptly notify Maxtor giving a new
delivery 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 not
commercially reasonable for Maxtor.


At Maxtor’s request, Komag will provide Maxtor with daily notification of shipping delays or of the
progress of delayed Products in transit. Such notification will include action plans to for
recovery or expediting of the affected Product.



2.6.3 Shipping Documents. Either invoice or delivery orders may be used when making
deliveries. Each set must contain three (3) copies. Each copy must identify this Agreement, item
number and description of Products, purchase order number, and quantity of Products shipped. A
complete packing list specifying Maxtor’s applicable purchase order number, quantity of Products
shipped, and part number shall be enclosed with all shipments under this Agreement. All documents
accompanying the Products shall reference the purchase order number.



2.6.4 Packing. Unless otherwise specified in writing, all Products are to be packed and
marked in accordance with Maxtor’s specifications.



2.7 Just In Time (JIT) Delivery. Komag shall maintain a buffer stock of Products in a
quantity and location to be agreed upon from time to time in writing in order to provide
Just-In-Time (JIT) delivery to Maxtor. All expenses of maintaining the buffer stock shall be borne
and covered by Komag, including without limit the expense of establishing EDI and/or E-mail links
as required by Maxtor, unless otherwise expressly provided by this Agreement. Maxtor recognizes
that Singapore law requires the payment of a tax on inventory that is held in a JIT Hub more than
thirty (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 be
maintained 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 another
level of buffer stock in writing. Such JIT buffer stock shall be required at both Maxtor’s
Singapore plants and Maxtor’s China plant. All Products in the buffer stock shall have passed
source inspection by Komag, Maxtor, or both, before shipment to the warehouse. Maxtor will, from
time to time, typically daily, request deliveries from the buffer stock in quantities that are even
multiples 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 has
not rejected the Product, it will be deemed to have been accepted by Maxtor. The act of inspection
or 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 all
returns which are caused by Komag’s fault and for reasonable and customary packing in the event of
significant 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 upon
delivery to the common carrier at Maxtor’s dock. Komag shall pay all expenses for shipment of
replacement 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 to
Komag upon delivery to Maxtor’s dock. If Komag requests, Maxtor will apply Komag’s Return
Materials Authorization (RMA) or similar number to the returned Products and/or related
documentation, provided, however, that Komag must supply such RMA number to Maxtor on a timely
basis.



2.10 Epidemics. Epidemic or sweeping failures of Product may be detected directly or by
virtue of failures of Maxtor’s HDD’s, and the procedures and remedies for epidemics are in addition
to all other of Maxtor’s rights and remedies available under this Agreement. An epidemic failure
shall 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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.






customers shall fail within six (6) months of delivery for reasons Maxtor determines to be related
to Product and which the parties have discussed. In the event that Maxtor’s HDDs should develop
any epidemic failure related to Komag’s Product, the parties will meet in order to work out
technical methods to diagnose and remedy the problem. In such event, shipment of undelivered
Products related to the epidemic may be postponed, at Maxtor’s request, until the cause of the
epidemic has been corrected. In case upon the expiration of 30 (thirty) days from the date of
Maxtor’s notice regarding the epidemic, Komag has not yet remedied the same, then Maxtor shall be
entitled to cancel pending Orders without any liability for such cancellation and without prejudice
to Maxtor’s rights for damages or any other remedy. In the event that a remedy has been found, all
Product units subsequently delivered to Maxtor shall incorporate the modification remedying the
defect, if necessary, and Komag shall be obliged to accept return of all Product units previously
delivered to Maxtor, affected by such epidemic, provided the epidemic is related to Product or
Komag process non-conformance. Maxtor agrees to re-accept delivery of such returned epidemic
material if it is mutually agreed that such epidemic failure has been remedied. In the event
Maxtor can show that the epidemic is due to the failure of the Product to meet the Product
Specification, Komag will refund the cost of the Product and Maxtor and Komag will negotiate in
good 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 a
date equal or subsequent to date of delivery to Maxtor’s dock. Invoices shall reference this
Agreement, 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 this
Agreement and all sums payable under this Agreement shall be denominated in United States Dollars
and all payments made under this Agreement shall be made by wire transfer, cashier’s check, or
other 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 contest
in good faith the amounts and items charged. If the dispute is resolved prior to fifteen (15) days
before the original due date, payment shall be due on the original due date. If the dispute is
resolved 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 a
representative of each party.



2.13.1 Changes. Komag grants to Maxtor, subject to Komag’s plant constraints, the right to
make changes to the Product mix or schedule one or more times without penalty, provided that the
overall volume of the Order is not changed. Komag must respond within two (2) working days. If
any such change causes an increase or decrease in the cost of, or the time required for performance
of, any part of the work on an Order or affects any other provisions, an equitable adjustment shall
be made in the price or delivery schedule, or both, and in such other provisions as may be
affected. It is understood that market conditions or requirements by Maxtor’s customers may
require changes in the Product mix one or more times and it is anticipated that such changes may
occur frequently. Any claim by Komag for adjustment under this clause must be asserted in writing
within thirty (30) days of Komag’s receipt of the Change Order. Where the cost of any property
made 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 claim
payment has been made. If Maxtor’s Change Order is an acceleration or increase, Komag will use its
reasonable 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 will
cease 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 effective
date of the cancellation;



     (ii) will pay Komag the actual overhead, labor and materials costs incurred by Komag in
connection with the Production of any Products that are partially completed as of the effective
date 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 on
account 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 or
acquired 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 canceled
orders pursuant to clauses (iii) and (iv) above. Provided, however, that the aggregate of such
payments shall not exceed the amounts originally due under the Order. Komag will use its
reasonable commercial efforts to return components and other materials to its vendors and/or use
them in other activities at Komag. Komag will in any event use its reasonable commercial efforts
to mitigate the cancellation charges under this Agreement. All Products which are purchased or
paid for under the above terms shall count as purchased for the purpose of determining total
volumes of Product purchased by Maxtor.


2.14 Engineering Changes. Komag shall not make any changes to the Product or any process
by 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 material
according to the Specification or production process documented in the mutually agreed Process
Management Plan. Any Product which is subject to an engineering change must be re-qualified unless
otherwise provided by Maxtor in writing.



2.14.2 Komag Change(s). Komag will notify Maxtor of any engineering change proposed to be
made by Komag to the Products or any process by which they are produced, and will supply a written
description of the expected effect of the engineering change on the Products, including its effect
on the form, fit, function, schedule, price, performance, and reliability of the Products. Maxtor
may elect to evaluate the prototype, parts and/or designs specified as part of the proposed change
and Komag shall provide the prototype, parts and/or design to Maxtor at applicable volume pricing
for such evaluation. Maxtor agrees to make every effort to approve or disapprove Komag’s proposed
changes within five (5) working days after receipt of Komag request for non-critical changes, and
within twenty-four (24) hours for critical changes. Komag will not change or modify the Products
or any process by which they are produced by implementation of such engineering change without
Maxtor’s prior written approval.



2.14.3 Maxtor Change(s). Maxtor may request, in writing and in a manner similar to Komag’s
request, that Komag incorporate any non-critical engineering change into the Products, and Komag
will provide to Maxtor its written response within five (5) working days after receipt of Maxtor’s
request Maxtor will give Komag as much notice as possible of any expected request. For critical
engineering changes, as determined by Maxtor, Komag will respond within twenty-four (24) hours of
Maxtor’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 the
Products. If Maxtor requests Komag to incorporate an engineering change into the Products, the
applicable Specifications will be amended as required. Komag will not unreasonably refuse to
incorporate Maxtor’s engineering changes into the Products. In the event any Maxtor required
engineering change directly causes a negative financial impact to Komag due to incorporation of
such change into a Product, the parties agree to promptly meet to discuss fair compensation for
such financial impact. Komag agrees to use its best efforts to notify Maxtor of such financial
impact prior to incorporation of such engineering change, and in any event, notify Maxtor as soon
as Komag becomes aware of such impact. Maxtor will determine whether the Product must be
re-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 may
agree to review current and future plans and activities. Agendas will include product and
technology road-mapping, development and qualification schedules, capacity planning, yield
performance, cost targets, volumes, plans, quality and delivery performance, and other topics
related to Maxtor and the Products.



     (B) Komag agrees to work collaboratively with Maxtor Advanced Development teams on issues
related 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 procedures
for Product and technology disclosures, at least quarterly.



12









 





     (D) Komag shall sample all new Product or other examples of development, including without limit
all 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 “Mutual
Nondisclosure Agreement” dated October 1, 1997, which agreement is hereby integrated herein and
made a part hereof. Current Maxtor proprietary technologies that are protected by this agreement
include without limit Flying Height Adjust.



3.1.2 Items Declared Confidential. This Agreement, its terms and conditions, Maxtor’s
specifications, 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 this
Agreement or its terms and conditions, or advertise or release any publicity or press release
regarding this Agreement, without the prior written consent of the other party. Nothing in this
Agreement 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 entering
into negotiations for an intellectual property license agreement within ninety (90) days of the
execution of this Agreement.



3.3.2 No Other Licenses. Except as expressly set forth in this Agreement, nothing
contained in this Agreement shall be deemed to grant, either directly or by implication, estoppel
or otherwise, any license on the patents, patent applications, copyrights or proprietary
information 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 not
patentable, conceived, or reduced to practice during the term of this Agreement by one or more
employees of Komag or Maxtor independently of the other (“Inventing Party”), or jointly by one or
more employees of Maxtor and Komag, or their subcontractors, (“Joint Invention”) in conjunction
with 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 to
practice as a result of either company’s direct efforts to fulfill its obligations under this
Supply Agreement, Komag and Maxtor shall disclose the invention to each other. The party whose
employees are inventors of patentable technology shall have the right to file or cause to be have
filed a patent application covering such invention. In the event Komag or Maxtor chooses not to
file a patent application made by its employees in any country or countries, it will notify the
other party of the fact in sufficient time to enable the other party to file an application in such
country or countries and the other party will be given the opportunity to pursue patent protection
on that invention at its own expense. In this case, rights necessary to enable that party to apply
for the patent will be assigned to the party that pursues the patent, the inventing party shall
fully cooperate and provide any assistance reasonably requested by the applying party in the
preparation and prosecution of such patent application(s), and the inventing party shall be granted
a royalty-free, non-exclusive license to practice the patented invention. Each party shall bear
the expenses incurred in the filing, prosecution, or maintenance of patent applications or patents
which 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, a
patentable invention is made jointly by one or more employees of Komag and one or more employees of
Maxtor, as determined by the U.S. laws of inventorship, title to any patent application covering
such invention and any patent or patents maturing therefrom shall be jointly owned by Komag and
Maxtor.




ARTICLE
IV — LIABILITIES



4.1 General Indemnity. Each party shall, in the performance of this Agreement, fully
comply with all applicable national, state, and local laws, rules, regulations, and ordinances and
shall 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 of
any other negligence.



4.2 Infringement Indemnity. Komag will indemnify Maxtor for any claim, action or
proceeding 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 or
proceeding brought by any third party which may be instituted against Komag or Maxtor or both of
them, each party will (1) maintain its own defense, and (2) assume all costs and attorneys fees
associated with its defense.



4.3 Strict Liability. Each party will indemnify the other against and hold it harmless
from any loss, cost, liability or expense (including court costs and reasonable fees of attorneys
and 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 not
limited 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 related
loss 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 of
liability 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 be
promised, performed, or executed to implement this Agreement, provided, however, that this
limitation shall not apply to either the indemnity obligations of this Article or to a breach of
the confidentiality obligations of this Agreement.




ARTICLE
V — DISPUTE RESOLUTION



5.1 Escalation. The parties agree that any material dispute between the parties relating
to this Agreement will be submitted to a panel of two senior executives of each of Maxtor and
Komag. Either party may initiate this proceeding by notifying the other party pursuant to the
notice 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 such
dispute. The decision of the executives will be final and binding on the parties. In the event
the 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 executives
shall 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 this
Agreement and any agreement, undertaking, or performance that may be promised, performed, or
executed to implement this Agreement will be settled by arbitration. Any arbitration proceeding
shall be conducted under the laws of the state of California and the Federal Arbitration Act, and
pursuant to the Commercial Arbitration Rules of the American Arbitration Association insofar as
such Commercial Arbitration Rules do not conflict with the provisions of this Section. The site
for any arbitration proceeding shall be San Jose, California.



5.2.2 Injunctive Relief. Notwithstanding the above, the parties may apply to any court of
competent jurisdiction for injunctive relief without breach of this arbitration provision.



5.2.3 Governing Language. The arbitration proceedings and all pleadings and written
evidence shall be in the English language. Any written evidence originally in a language other
than 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 that
may be promised, performed, or executed to implement this Agreement shall be governed by and
construed under the laws of the State of California, as they apply to agreements made between
residents of California for performance solely within California. The parties expressly agree that
this Agreement and any agreement, undertaking, or performance that may be promised, performed, or
executed to implement this Agreement shall not be subject to and shall not be interpreted by the
United Nations Convention on Contracts for the International Sale of Goods.



5.3.2 Foreign Corrupt Practices Act. Maxtor and Komag each acknowledge that they are
subject 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 any
destination to which such export or re-export is restricted or prohibited by U.S. law, without
obtaining prior authorization from the U.S. Department of Commerce.



5.4 Limit Of Time To Bring Action. No actions or arbitrations, regardless of form, arising
out of this Agreement, may be brought by either party more than one (1) year after such actions or
arbitrations arose, or in the case of nonpayment, more than one (1) year from the date the last
payment 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 remain
in force until the Termination Date, and on and effective the Termination Date this Agreement shall
terminate.



6.1.2 Termination by Maxtor. On or at any time after the second anniversary of the
Effective 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 this
Agreement 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 default
is not cured within thirty (30) calendar days, the Agreement will be terminated at the end of that
period and such termination shall not prejudice or limit either party’s remedies; or



     (ii) If either party violates any intellectual property, confidentiality, or license provision
of this Agreement, then the non-defaulting party may give written notice to the defaulting party of
such violation and of immediate termination and the Agreement will be terminated when such notice
is 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 bankruptcy
proceedings 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 been
terminated by the party not so affected and such termination shall not prejudice or limit either
party’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 according
to 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 shall
remain the respective property of Maxtor and Komag, and both parties shall prepare all such items
in 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 on
account of expenditures, investments, leases or commitments in connection with the business or good
will 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 to
the terms of this Agreement.


6.1.5 Survival. The terms of this Agreement which by their nature may survive the
termination or expiration of this Agreement shall survive the termination or expiration of this
Agreement.



6.2 General.



6.2.1 Assignment. Komag shall not transfer or assign this Agreement or any of its rights
or obligations under this Agreement directly or indirectly including without limit in the cases of
merger, acquisition of greater then fifty percent (50%) ownership or control interest in Komag by
any party, or sale of Komag’s assets, without the prior written consent of Maxtor, which consent
shall be granted, so long as Maxtor is satisfied that any such assignment, merger, acquisition, or
change 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 to
Maxtor.




     Further, in the event Komag or its assets are acquired by or become controlled by an HDD
supplier, Maxtor has the right to terminate this Agreement without penalty or payment of any sort
or to seek such assurances or contractual terms and conditions as it may deem necessary to protect
its interests. However, notwithstanding the foregoing, any Order shall not be cancelled or reduced
by 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 any
forecasts, orders, or commitments to either party. However, notwithstanding the foregoing, any
Order shall not be cancelled or reduced by Komag.



     Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties, their successors and assigns. Any purported assignment of this Agreement by Komag without
the prior written consent of Maxtor shall be void.



     Komag shall give Maxtor at least ninety (90) days prior written notice of any known or planned
change in ownership or majority control of Komag, or any of Komag’s subsidiaries, including but not
limited to changes in shareholder ownership of sufficient magnitude to require SEC filings of any
type, except in cases of Form 4 sales involving less than five percent (5%) of the seller’s
holdings in Komag.


6.2.2 Audit. Maxtor shall have the right, by itself or by a mutually acceptable third
person auditor, to examine and audit Komag’s records related to its performances hereunder at any
time during normal business hours upon three (3) days notice to Komag to ensure compliance with
this 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 to
be filed by Komag each quarter. If Komag becomes a private company, and/or is de-listed from its
stock 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 unreasonably
withheld or delayed.



6.2.4 Counterparts. This Agreement shall be prepared in two identical and original
counterparts and both of which together shall be one and the same instrument and either of which
may be used for purposes of proof.



6.2.5 Cumulation of Remedies. All remedies available to either party under this Agreement
are cumulative and may be exercised concurrently or separately, and the exercise of any one remedy
shall 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 or
related to this Agreement shall be solely the employees or agent of such party and shall be under
the sole and exclusive direction and control of the furnishing party. They shall not be considered
employees of the other party for any purpose. Each party shall also be solely responsible for
payment of taxes, including federal, state and municipal taxes, chargeable or assessed with respect
to its employees, such as social security, unemployment, worker’s compensation, liability insurance
and 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’ fees
assessed against one party that may be sustained by reasons of the other party’s failure to comply
with the provisions of this Section.




     Neither Party, nor its employees, officers, directors, or agents, shall hold itself out as the
agent, employee, partner, or joint venture of the other party, and shall make no commitment or
engagement on the account of or on behalf of the other party. Each party shall remain an
independent contractor and shall be responsible for compliance with all laws, rules and regulations
involving, but not limited to, employment of labor, hours of labor, health and safety, working
conditions and payment of wages.


6.2.7 Force Majeure. Nonperformance of either party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, governmental acts, orders or
restrictions, or any other reason where failure to perform is beyond the control and not caused by
the 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 condition
for a period equal to the time lost by reason of such delay, provided, however, that the delayed
party promptly commences and reasonably and diligently pursues actions to cure or circumvent such
cause.




     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 than
thirty (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 and
shall be without penalty.



6.2.8 Governing Language. English shall be the language of this Agreement and the English
language shall govern all disputes, performance and interpretations.



6.2.9 Headings. The descriptive headings of the several Articles and Sections of this
Agreement are inserted for convenience only and do not constitute a part of this Agreement and
shall not affect the interpretation of this Agreement.



6.2.10 Joint Work Product. The parties further acknowledge that they have thoroughly
reviewed this Agreement and bargained over its terms and that for convenience, Maxtor has written
down the terms of this Agreement. Accordingly, this Agreement shall be construed without regard to
the party or parties responsible for its preparation and shall be deemed to have been prepared
jointly by the parties.



6.2.11 Notices. Any notice required or permitted to be given under this Agreement shall be
in writing and shall be deemed to be sufficiently given if delivered by hand or if sent by courier
with a receipt requested or by registered air mail, postage prepaid, addressed to Maxtor or to
Komag, as the case may be, at the addresses first set forth above or to such other address as may
be furnished for such purpose by notice duly given under this Agreement. Such notice shall be
deemed to have been given when delivered by hand or when delivered by the courier or by mail. Any
party may change its address for such communications by giving such notice to the other party in
conformance with this section.



6.2.12 Severance. If any provision of this Agreement is held to be invalid by a court of
competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and
effect. The parties agree to renegotiate any term held invalid and to be bound by the mutually
agreed 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 to
the contrary. References to quarter shall refer to Maxtor’s fiscal quarter unless expressly stated
otherwise.



6.2.14 Waiver. The failure of any party to this Agreement at any time or times to require
performance of any provision of this Agreement shall in no manner affect such party’s available
remedies or right at a later time to enforce the same. No waiver by any party of any condition, or
of 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 construed
as a further or continuing waiver of any such condition or breach or of any remedy or as a waiver
of any other condition or as a breach of any other term, covenant, representation or warranty of
this Agreement.



6.3 Entire Agreement. The terms and conditions of this Agreement are the entire agreement
between the parties and supersede all previous agreements, proposals, and understandings, whether
oral or written, between the parties with respect to the subject matter of this Agreement and no
agreement or understanding varying or extending the same shall be binding upon either party unless
in a written document signed by both parties. This Agreement shall supersede all inconsistent or
additional terms contained in any purchase orders, sale acknowledgments, invoices, or other similar
documents 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 and
	Worldwide Materials
	 	Chief Technical Officer
	 
	 	 
	& Chief Procurement Officer
	 	(title)
	 

	 	 
	 	 	 	 
	 

	 	(title)	 	 	 	 





The terms and conditions of this Agreement and its Exhibits which apply to Komag Malaysia are
acknowledged and agreed to by




KOMAG 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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.







Exhibit B 



Komag Expansion Pricing Matrix




[****]






20









 










***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH
OMITS 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 EXCHANGE
COMMISSION.






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 HEREWITH
OMITS 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 EXCHANGE
COMMISSION.







Addendum to Business Agreement Between Maxtor, Inc and Komag, Inc.

Dated October 6, 2003




        This Addendum (the “Addendum”) to the Business Agreement, effective October 6, 2003, by and
between Maxtor Corporation, a Delaware corporation (“Maxtor”), Komag Inc., a Delaware corporation
(“Komag USA”) and Komag USA (Malaysia) Sdn., a Malaysian unlimited liability company (“Komag
Malaysia” and together with Komag USA, “Komag”) (the “Business Agreement”) is made pursuant to
Section 6.3 of the Business Agreement. All terms not otherwise defined in this Addendum shall have
the meanings ascribed to them in the Business Agreement.




	1.	 	Komag will provide incremental media volume to Maxtor of 4 million units per quarter
(the “Quarterly Incremental Capacity”). The Quarterly Incremental Capacity, currently
anticipated to be [****] product, is intended to be over and above that provided under the
terms of the Business Agreement.
	 
	2.	 	The tooling installed by Komag to provide the volume of product in Paragraph 1 shall be
defined as “Incremental Tools” as specified in the Business Agreement. Komag will not
necessarily use sputter tooling provided by Intevac, Inc.
	 
	3.	 	The detailed plan of acquisition, installation, testing, and qualification (the
“Install Plan”) will be attached hereto. Upon completion of the Install Plan, Komag will
begin to provide the full Quarterly Incremental Capacity to Maxtor, which obligation shall
cease on the earlier of October 6, 2008, which is the termination date of the Business
Agreement, or such earlier date that the Business Agreement may terminate in accordance
with its terms.
	 
	4.	 	Maxtor will prepay media purchases in the amount of US$50 million (the “Pre-payment
Amount”), which amount shall be paid back by a per disk payment credit equal to [****] for
each disk invoiced (the “Per Disk Credit”) from the date determined in paragraph 6 below
until such time as the Pre-payment Amount is repaid in full by Komag. Komag will issue
credit memos at the end of each calendar month from the date determined in paragraph 6
below. Komag will use it’s best efforts to insure that the credit memos for all product
shipped in a given Maxtor fiscal quarter are issued before the end of said quarter. In no
case, however, shall Maxtor be required to pay invoices for disks for which the
corresponding credit memo for the Per Disk Credit has not been issued.
	 
	5.	 	The Pre-payment Amount will be paid by Maxtor to Komag in four installments of US$12.5
million due on the date set forth in the next sentence, [****]. However, the first payment
due as listed in the prior sentence shall be made within seven (7) business days after the
Effective Date of this Addendum.
	 
	6.	 	The Per Disk Credit will apply to all Maxtor purchases of disks under the Business
Agreement and be effective for all invoices for deliveries made on or after the date of the
first production media delivery from the Quarterly Incremental Capacity agreed to in the
Install Plan. Baseline prices will be those already committed or negotiated in the future
as provided in the Business Agreement. Komag agrees that the prices it shall charge Maxtor
for the purchase of Product under the Business Agreement [****]. Maxtor may appoint an
auditor to validate Komag’s records to confirm that Maxtor is receiving such pricing.
Pricing




22









 









***CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH
OMITS 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 EXCHANGE
COMMISSION.





	 	 	for 2006 shall be negotiated [****], and shall not exceed the pricing set forth in [****],
for the same or similar products.
	 
	7.	 	Komag will use its commercially reasonable efforts to achieve Maxtor’s volume goal 14.5
million units per quarter prior to [****], according to a ramp to be agreed upon in the
Install Plan and negotiated improvements thereafter.
	 
	8.	 	In addition to the agreement on assignment of this Addendum covered in Section 6.2 of
the Business Agreement, Komag, Inc. agrees that in the case that any of the conditions
listed in Section 6.2.1 of the Business Agreement occur, and there is a positive
pre-payment balance in favor of Maxtor, then that positive pre payment balance will be
returned to Maxtor [****] prior to the effective date of any such assignment or any such
condition described.
	 
	9.	 	In addition to the agreement on termination for cause of this Addendum covered in
Section 6.1.3 of the Business Agreement, Komag, Inc. agrees that in the case that any of
the conditions listed in Section 6.1.3 of the Business Agreement occur such that Maxtor
gives notice of such condition of a termination because of such condition to Komag, and
there is a positive pre-payment balance in favor of Maxtor, then that positive Pre Payment
balance will be returned to Maxtor [****].
	 
	10.	 	If Komag is not capable of achieving Maxtor’s volume goal of 14.5 million units per
quarter prior to [****], then the remaining positive pre-payment balance shall be repaid in
full to Maxtor [****].
	 
	11.	 	This Addendum is Confidential Information under the Mutual Nondisclosure Agreement
dated October 1, 1997 and amends the Business Agreement. All other terms of the Business
Agreement remain in full force and effect.
	 
	12.	 	This Addendum will not become effective until the last date of execution by the duly
authorized signatories of each party (“Effective Date”).





	 	 	 
	Agreed to by Maxtor Corporation

	 	Agreed to by Komag, Inc.
	 
	 	 
	/s/ David Beaver

	 	/s/ Michael A. Russak
	 

	 	 
	David Beaver

	 	Michael A. Russak
	Senior Vice President Worldwide
Materials and Chief Procurement
Officer

	 	President and Chief Technical Officer
	 
	 	 
	Agreed to by Komag USA (Malaysia) SDN
	 	 
	 
	 	 
	/s/ K.H. Oung
	 	 
	 
K.H. Oung
	 	 
	Vice President and Managing Director
	 	 
	Malaysian Operations
	 	 
	 
	 	 
	Dated: July 8, 2005
	 	 







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