Document:

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                                                               EXHIBIT 10.24.7.1

                                                                          POOL 6

                CROSS-COLLATERALIZATION AND COOPERATION AGREEMENT

      THIS CROSS-COLLATERALIZATION AND COOPERATION AGREEMENT (this "Agreement")
is made as of the 17th day of June, 2005, by and between the Borrowers listed on
the signature page hereof (collectively, the "Pool 6 Borrowers") and MERRILL
LYNCH MORTGAGE LENDING, INC., in its capacity as mortgage lender ("Lender").

                                    RECITALS

      A. The Borrowers, under that certain Promissory Note of even date herewith
given to Lender ("Note 6"), are indebted to Lender in the original principal sum
of $31,995,000 ("Loan 6") as governed by that certain Loan Agreement of even
date herewith between the Borrowers and Lender (together with all extensions,
renewals, modifications, substitutions and amendments thereof, "Loan Agreement
6").

      B. The Borrowers identified on Schedule 1 as the "Pool 1 Borrowers"
(collectively, the "Pool 1 Borrowers"), under that certain Promissory Note of
even date herewith given to Lender ("Note 1"), are indebted to Lender in the
original principal sum of $80,140,000 ("Loan 1") as governed by that certain
Loan Agreement of even date herewith between the Pool 1 Borrowers and Lender
(together with all extensions, renewals, modifications, substitutions and
amendments thereof, "Loan Agreement 1").

      C. The Borrowers identified on Schedule 1 as the "Pool 2 Borrowers"
(collectively, the "Pool 2 Borrowers"), under that certain Promissory Note of
even date herewith given to Lender ("Note 2"), are indebted to Lender in the
original principal sum of $81,560,000 ("Loan 2") as governed by that certain
Loan Agreement of even date herewith between the Pool 2 Borrowers and Lender
(together with all extensions, renewals, modifications, substitutions and
amendments thereof, "Loan Agreement 2").

      D. The Borrowers identified on Schedule 1 as the "Pool 3 Borrowers"
(collectively, the "Pool 3 Borrowers") under that certain Promissory Note of
even date herewith given to Lender ("Note 3"), are indebted to Lender in the
original principal sum of $82,615,000 ("Loan 3") as governed by that certain
Loan Agreement of even date herewith between the Pool 3 Borrowers and Lender
(together with all extensions, renewals, modifications, substitutions and
amendments thereof, "Loan Agreement 3").

      E. The Borrowers identified on Schedule 1 as the "Pool 4 Borrowers"
(collectively, the "Pool 4 Borrowers"), under that certain Promissory Note of
even date herewith given to Lender ("Note 4"), are indebted to Lender in the
original principal sum of $50,200,000 ("Loan 4") as governed by that certain
Loan Agreement of even date herewith between the Pool 4 Borrowers and Lender
(together with all extensions, renewals, modifications, substitutions and
amendments thereof, "Loan Agreement 4").

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      F. The Borrowers identified on Schedule 1 as the "Pool 5 Borrowers"
(collectively, the "Pool 5 Borrowers", and together with Pool 1 Borrowers, Pool
2 Borrowers, Pool 3 Borrowers, Pool 4 Borrowers and Pool 5 Borrowers,
collectively, the "Borrowers"), under that certain Promissory Note of even date
herewith given to Lender ("Note 5", and together with Note 1, Note 2, Note 3,
Note 4 and Note 6, collectively, the "Notes"), are indebted to Lender in the
original principal sum of $50,200,000 ("Loan 5", and together with Loan 1, Loan
2, Loan 3, Loan 4 and Loan 6, collectively, the "Loans") as governed by that
certain Loan Agreement of even date herewith between the Pool 5 Borrowers and
Lender (together with all extensions, renewals, modifications, substitutions and
amendments thereof, "Loan Agreement 5", and together with Loan Agreement 1, Loan
Agreement 2, Loan Agreement 3, Loan Agreement 4 and Loan Agreement 6,
collectively, the "Loan Agreements").

      G. Loan 1, Loan 2, Loan 3, Loan 4, Loan 5 and Loan 6 are secured, in part,
by Mortgages (as defined in the Loan Agreements) on the Properties in the
respective pools of Properties identified on Schedule 2 (each, a "Pool", and
collectively, the "Pools"). Each of such Properties is referred to herein as a
"Property" and, collectively, as the "Properties". The Properties in each Pool
are referred to, respectively, as the "Pool 1 Properties", "Pool 2 Properties",
"Pool 3 Properties", "Pool 4 Properties", "Pool 5 Properties" and "Pools 6
Properties".

      H. Lender has required as a condition to making the Loans that the
Borrowers enter into this Agreement with Lender.

                                    AGREEMENT

      For ten ($10) dollars and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:

      Section 1. Cross Collateralization Within Pool; Contribution.

            (a) Each Pool 6 Borrower acknowledges that Lender is making Loan 1
to the Pool 6 Borrowers upon the security of its collective interest in the Pool
6 Properties and in reliance upon the aggregate of the Pool 6 Properties taken
together being of greater value as collateral security than the sum of each Pool
6 Property taken separately. Each Pool 6 Borrower agrees that each Mortgage of a
Pool 6 Property is and will be cross-collateralized and cross-defaulted with
each other Mortgage of a Pool 6 Property so that (i) an Event of Default which
continues beyond the expiration of any applicable notice and cure periods under
any of such Mortgages shall constitute an Event of Default under each of the
other such Mortgages securing the related Note; (ii) an Event of Default which
continues beyond the expiration of any applicable notice and cure periods under
the related Loan Agreement or this Agreement shall constitute an Event of
Default under each such Mortgage; (iii) each such Mortgage shall constitute
security for the related Note as if a single blanket lien were placed on all of
the Pool 6 Properties as security

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for Note 1; and (iv) such cross-collateralization shall in no event be deemed to
constitute a fraudulent conveyance.

            (b) Without limitation to any other right or remedy provided to
Lender in this Agreement or any of the other Loan Documents, each Pool 6
Borrower covenants and agrees that (i) Lender shall have the right to pursue all
of its rights and remedies in one proceeding, or separately and independently in
separate proceedings which it, as Lender, in its sole and absolute discretion,
shall determine from time to time, (ii) Lender is not required to either
marshall assets, sell any or all of the Collateral in any inverse order or
alienation, or be subjected to any "one action" or "election of remedies" law or
rule, (iii) the exercise by Lender of any remedies against any of the Collateral
will not impede Lender from subsequently or simultaneously exercising remedies
against any other Collateral, (iv) all Liens and other rights, remedies and
privileges provided to Lender in this Agreement and/or any other Loan Documents
otherwise shall remain in full force and effect until Lender has exhausted all
of its remedies against the Collateral and all the Collateral has been
foreclosed, sold and/or otherwise realized upon and (v) each Pool 6 Property and
all Collateral as defined in Loan Agreement 1 shall be security for the
performance of all each Pool 6 Borrower's obligations hereunder and under each
of the other Loan Documents.

            (c) As a result of the transactions contemplated by this Agreement,
each Pool 6 Borrower will benefit, directly and indirectly, from the obligation
of each other Pool 6 Borrower to pay the related Indebtedness and perform its
obligations hereunder and under the other related Loan Documents and in
consideration therefore each Pool 6 Borrower desires to enter into an allocation
and contribution agreement among themselves as set forth in this Section 1(c) to
allocate such benefits among themselves and to provide a fair and equitable
agreement to make contributions among each Pool 6 Borrower in the event any
payment is made by any individual Pool 6 Borrower under the Loan Documents to
Lender (such payment being referred to herein as a "Contribution", and for
purposes of this Section, includes any exercise of recourse by Lender against
any Collateral of a Pool 6 Borrower and application of proceeds of such
Collateral in satisfaction of such Borrower's obligations, to Lender under the
Loan Documents).

                  (i) Each Pool 6 Borrower shall be liable under the related
      Loan Documents with respect to the related Indebtedness only for such
      total maximum amount (if any) that would not render its Indebtedness under
      the related Loan Agreement or under any of the Loan Documents subject to
      avoidance under Section 548 of the Federal Bankruptcy Code or any
      comparable provisions of any state law.

                  (ii) In order to provide for a fair and equitable contribution
      among Pool 6 Borrowers in the event that any Contribution is made by an
      individual Pool 6 Borrower (a "Funding Borrower"), such Funding Borrower
      shall be entitled to a reimbursement Contribution ("Reimbursement
      Contribution") from all other Pool 6 Borrowers for all payments, damages
      and expenses incurred by that Funding Borrower in discharging any of the
      Indebtedness, in the manner and to the extent set forth in this Section.

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                  (iii) For purposes hereof, the "Benefit Amount" of any
      individual Pool 6 Borrower as of any date of determination shall be the
      net value of the benefits to such Borrower from extensions of credit made
      by Lender to (A) such Borrower and (B) to the other Pool 6 Borrowers under
      the related Loan Documents.

                  (iv) Each Pool 6 Borrower shall be liable to a Funding
      Borrower in an amount equal to the (A) ratio of the Benefit Amount of such
      Borrower to the total amount of related Indebtedness, multiplied by (B)
      the amount of such Indebtedness paid by such Funding Borrower.

                  (v) In the event that at any time there exists more than one
      Funding Borrower with respect to any Contribution (in any such case, the
      "Applicable Contribution"), then Reimbursement Contributions from other
      Pool 6 Borrowers pursuant hereto shall be allocated among such Funding
      Borrowers in proportion to the total amount of the Contribution made for
      or on account of the other Pool 6 Borrowers by each such Funding Borrower
      pursuant to the Applicable Contribution. In the event that at any time any
      Pool 6 Borrower pays an amount hereunder in excess of the amount
      calculated pursuant to this Section 1 above, that Borrower shall be deemed
      to be a Funding Borrower to the extent of such excess and shall be
      entitled to a Reimbursement Contribution from the other Pool 6 Borrowers
      in accordance with the provisions of this Section.

                  (vi) Each Pool 6 Borrower acknowledges that the right to
      Reimbursement Contribution hereunder shall constitute an asset in favor of
      such Borrower to which such Reimbursement Contribution is owing.

                  (vii) No Reimbursement Contribution payments payable by a Pool
      6 Borrower pursuant to the terms of this Section 1 shall be paid until all
      amounts then due and payable by all Pool 6 Borrowers to Lender, pursuant
      to the terms of the related Loan Documents, are paid in full in cash.
      Nothing contained in this Section 1 shall limit or affect in any way the
      Indebtedness of any Pool 6 Borrower to Lender under the Note or any other
      Loan Documents.

                  (viii) Each Pool 6 Borrower waives:

                  (A) any right to require Lender to proceed against any other
Borrower or any other person or to proceed against or exhaust any security held
by Lender at any time or to pursue any other remedy in Lender's power before
proceeding against Borrower;

                  (B) any defense based upon any legal disability or other
defense of any other Borrower, any guarantor of any other person or by reason of
the cessation or limitation of the liability of any other Borrower or any
guarantor from any cause other than full payment of all sums payable under the
Notes, this Agreement and any of the other Loan Documents;

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                  (C) any defense based upon any lack of authority of the
officers, directors, partners or agents acting or purporting to act on behalf of
any other Borrower or any principal of any other Borrower or any defect in the
formation of any other Borrower or any principal of any other Borrower;

                  (D) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
any other respects more burdensome than that of a principal;

                  (E) any defense based upon any failure by Lender to obtain
collateral for the Indebtedness or failure by Lender to perfect a lien on any
Collateral;

                  (F) presentment, demand, protest and notice of any kind;

                  (G) any defense based upon any failure of Lender to give
notice of sale or other disposition of any collateral to any other Borrower or
to any other person or entity or any defect in any notice that may be given in
connection with any sale or disposition of any Collateral;

                  (H) any defense based upon any failure of Lender to comply
with applicable laws in connection with the sale or other disposition of any
Collateral, including any failure of Lender to conduct a commercially reasonable
sale or other disposition of any Collateral;

                  (I) any defense based upon any use of cash collateral under
Section 363 of the Federal Bankruptcy Code;

                  (J) any defense based upon any agreement or stipulation
entered into by Lender with respect to the provision of adequate protection in
any bankruptcy proceeding;

                  (K) any defense based upon any borrowing or any grant of a
security interest under Section 364 of the Federal Bankruptcy Code;

                  (L) any defense based upon the avoidance of any security
interest in favor of Lender for any reason;

                  (M) any defense based upon any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, liquidation or dissolution
proceeding, including any discharge of, or bar or stay against collecting, all
or any of the obligations evidenced by the Notes or owing under any of the Loan
Documents;

                  (N) any defense or benefit based upon such Borrower's, or any
other party's, resignation of the portion of any obligation secured by the
Mortgages to be satisfied by any payment from any other Borrower or any such
party;

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                  (O) all rights and defenses arising out of an election of
remedies by Lender even though the election of remedies, such as non-judicial
foreclosure with respect to security for the Loan or any other amounts owing
under the Loan Documents, has destroyed Borrower's rights of subrogation and
reimbursement against any other Borrower;

                  (P) all rights and defenses that such Borrower may have
because any Indebtedness is secured by real property. This means, among other
things: (1) Lender may collect from such Borrower without first foreclosing on
any real or personal property collateral pledged by any other Borrower, (2) if
Lender forecloses on any real property collateral pledged by any other Borrower,
(I) the amount of the Indebtedness may be reduced only by the price for which
that collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price, (II) Lender may collect from such Borrower even if any
other Borrower, by foreclosing on the real property collateral, has destroyed
any right such Borrower may have to collect from any other Borrower. This is an
unconditional and irrevocable waiver of any rights and defenses such Borrower
may have because any of the Indebtedness is secured by real property; and

                  (Q) except as may be expressly and specifically permitted
herein, any claim or other right which such Borrower might now have or hereafter
acquire against any other Borrower or any other person that arises from the
existence or performance of any obligations under the Notes, this Agreement or
the other Loan Documents, including any of the following: (i) any right of
subrogation, reimbursement, exoneration, contribution, or indemnification; or
(ii) any right to participate in any claim or remedy of Lender against any other
Borrower or any collateral security therefore, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law.

      Section 2. Cross-Collateralization Across Pools; Contribution; Release of
Cross-Collateralization.

            (a) Until repayment of the Indebtedness under each Loan Agreement
and satisfaction of all obligations under each Loan Agreement, each Pool 6
Borrower acknowledges and agrees (subject to Lender's election(s) at Lender's
sole discretion from time to time or otherwise pursuant to Section 2(g) below):
(i) that each of the Pool 6 Properties shall secure not only Loan 1 but also all
of the other Loans, and that the Liens of the related Loan Documents shall
constitute Liens securing not only Loan 1 but also all of the other Loans; and
(ii) that Lender would not make the Loans to the Pool 6 Borrowers unless the
Pool 6 Borrowers granted liens on the Pool 6 Properties to secure the payment of
each of the Loans.

            (b) Until the date that all of the Loans shall have been paid and
satisfied in full, the Pool 6 Borrowers (i) shall have no right of subrogation
with respect to the Loans and (ii) waive any right to enforce any remedy which
Lender now has or may hereafter have against the Borrowers, any endorser or any
guarantor of all or any part of the Loans or any other individual or entity, and
the Pool 6 Borrowers waive any benefit of, and any right to participate in, any
security or collateral given to Lender to secure the payment or performance of
all or any part of the Loans or any other liability of any of the other
Borrowers to Lender. Should

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any Pool 6 Borrower have the right, notwithstanding the foregoing, to exercise
its subrogation rights, each Pool 6 Borrower hereby expressly and irrevocably
(1) subordinates any and all rights at law or in equity to subrogation,
reimbursement, exoneration, contribution, indemnification or set off that such
Borrower may have to the payment in full in cash of the Loans and (2) waives any
and all defenses available to a surety, guarantor or accommodation co-obligor
until the Loans are paid in full in cash. Each Pool 6 Borrower acknowledges and
agrees that this subordination is intended to benefit Lender and shall not limit
or otherwise affect any Borrower's liability hereunder or the enforceability of
any of the Loan Agreements or the Loan Documents.

            (c) Each Pool 6 Borrower agrees that any and all claims of such
Borrower against any Borrowers in any of the other Pools or any endorser or any
guarantor of all or any part of the Loans (collectively, the "Crossed Obligors")
with respect to any obligations, liabilities or indebtedness now or hereafter
owing by the Crossed Obligors, or any of them, to such Borrower, or otherwise
existing or claimed to be owed or to exist on the part of any of the Crossed
Obligors, or against any of their respective properties (collectively, the
"Crossed Party Obligations") shall be subordinate and subject in right of
payment to the prior payment, in full and in cash, of all of the Loans.
Notwithstanding any right of any Borrower to ask, demand, sue for, take or
receive any payment from any of the Crossed Obligors, all rights, liens and
security interests of each Borrower, whether now or hereafter arising and
howsoever existing, in and to any assets of any of the Crossed Obligors shall be
and are subordinated to the rights of Lender in those assets under the Loan
Documents relating to each Loan or otherwise, and no Borrower shall, until the
date that all of the Loans shall have been paid and satisfied in full, (i)
assert, collect, sue upon, or enforce all or any part of the Crossed Party
Obligations; (ii) commence or join with any other creditors of any of the
Crossed Obligors in commencing any bankruptcy, reorganization, receivership or
insolvency proceeding against any of the Crossed Obligors; (iii) take, accept,
ask for, sue for, receive, set off or demand any payments upon the Crossed Party
Obligations; or (iv) take, accept, ask for, sue for, receive, demand or allow to
be created liens, security interests, mortgages, deeds of trust or pledges of or
with respect to any of the assets of any of the Crossed Obligors in favor of or
for the benefit of such Borrower.

            (d) If all or any part of the assets of any of the Crossed Obligors,
or the proceeds thereof, are subject to any distribution, division or
application to the creditors of such Crossed Obligor, whether partial or
complete, voluntary or involuntary, and whether by reason of liquidation,
bankruptcy, arrangement, receivership, assignment for the benefit of creditors
or any other action or proceeding, or if the business of any such Crossed
Obligor is dissolved or if substantially all of the assets of any such Crossed
Obligor are sold, then, and in any such event (such events being herein referred
to as an "Crossed Obligor Insolvency Event"), any payment or distribution of any
kind or character, either in cash, securities or other property, which shall be
payable or deliverable to any Pool 6 Borrower upon or with respect to any
Crossed Party Obligations shall be paid or delivered directly to the Lender for
application on the Loans, due or to become due, until the Loans shall have been
fully paid and satisfied (in cash). Should any payment, distribution, security
or instrument or proceeds thereof be received by any Pool 6 Borrower upon or
with respect to the Crossed Party Obligations after any Crossed Obligor
Insolvency Event and prior to the payment in full and satisfaction of all of the
Loans, such

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Borrower shall receive and hold the same in trust, as trustee, for the benefit
of Lender and shall forthwith deliver the same to Lender in precisely the form
received (except for the endorsement or assignment of such Borrower where
necessary), for application to any of the Loans, due or not due, and, until so
delivered, the same shall be held in trust by such Borrower as the property of
Lender. If such Borrower fails to make any such endorsement or assignment to
Lender, Lender or any of its officers or employees is irrevocably authorized to
make the same. Each Pool 6 Borrower agrees that until the Loans have been paid
in full (in cash) and satisfied, no Pool 6 Borrower will assign or transfer to
any individual or entity (other than Lender) any claim such Borrower has or may
have against any Crossed Obligor.

            (e) Subject to the provisions of Section 2(g), to the extent that
any collection upon any of the Loans is made by Lender from one of the Borrowers
or the Properties in a Pool other than Pool 6 or other assets of the Borrowers
other than the Pool 6 Borrowers (a "Crossed Loans Collection") which, taking
into account all other Crossed Loans Collections then previously or concurrently
made by such Borrower, exceeds the amount which otherwise would have been
collected from such Borrower if each Borrower had paid the portion of the Loans
satisfied by such Crossed Loans Collection in the same proportion as such
Borrower's Allocable Amount (as defined below) (as determined immediately prior
to such Crossed Loans Collection) bore to the aggregate Allocable Amounts of
each Borrower as determined immediately prior to the making of such Crossed
Loans Collection, then, following payment in full in cash of the Loans, such
Borrower shall be entitled to receive contribution and indemnification payments
from, and be reimbursed by, each other Borrower for the amount of such excess,
pro rata based upon their respective Allocable Amounts in effect immediately
prior to such Crossed Loans Collection. As of any date of determination, the
"Allocable Amount" of any Borrower shall be equal to the maximum amount of the
claim which could then be recovered from such Borrower under the related Loan
Documents without rendering such claim voidable or avoidable under Section 548
of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or
common law. The foregoing provision shall be for the benefit of each of the
Borrowers and Lender, but shall be subject to modification as provided in
Section 2(g) below and to amendment by agreement of the Borrowers and Lender.
This Section 2(e) is intended only to define the relative rights of the
Borrowers, and nothing set forth in this Section 2(e) is intended to or shall
impair the liens and security interests of any of the Loan Agreements or the
related Loan Documents or the obligations of the Borrowers thereunder. Each Pool
6 Borrower acknowledges that the rights of contribution and indemnification
under this Section 2(e) constitute assets of the Borrowers to which such
contribution and indemnification is owing.

            (f) Each Pool 6 Borrower hereby consents and agrees to each of the
following, and agrees that such Borrower's obligations under its Loan Agreement
and the other Loan Documents and the Liens created under its Loan Agreement and
the other Loan Documents securing the Loans shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
common law, equitable, statutory or other rights (including without limitation
rights to notice) that such Borrower might otherwise have as a result of or in
connection with any of the following:

<PAGE>

                  (ix) Any renewal, extension, increase, modification,
      alteration or rearrangement of all or any part of the Loans, the Loan
      Documents, or other document, instrument, contract or understanding
      between the Borrowers and Lender, or any other parties, pertaining to the
      Loans or any failure of Lender to notify such Borrower of any such action.

                  (x) Any adjustment, indulgence, forbearance or compromise that
      might be granted or given by Lender to the Borrowers.

                  (xi) The insolvency, bankruptcy, arrangement, adjustment,
      composition, liquidation, disability, dissolution or lack of power of any
      of the Borrowers or any other party at any time liable for the payment of
      all or part of the Loans; or any dissolution of any of the Borrowers, or
      any sale, lease or transfer of any or all of the assets of any of the
      Borrowers, or any changes in the shareholders, partners or members of any
      of the Borrowers; or any reorganization of any of the Borrowers.

                  (xii) The invalidity, illegality or unenforceability of all or
      any part of the Loans, or any document or agreement executed in connection
      therewith, for any reason whatsoever, including without limitation the
      fact that (A) the Loans, or any part thereof, exceeds the amount permitted
      by law, (B) the act of creating the Loans or any part thereof is ultra
      vires, (C) the officers or representatives executing the Loan Documents or
      otherwise creating the Loans acted in excess of their authority, (D) the
      Loans violate applicable usury laws, (E) the Borrowers have valid
      defenses, claims or offsets (whether at law, in equity or by agreement)
      which render the Loans wholly or partially uncollectible from the
      Borrowers, (F) the creation, performance or repayment of the Loans (or the
      execution, delivery and performance of any document or instrument
      representing part of the Loans or executed in connection with the Crossed
      Loans, or given to secure the repayment of the Loans) is illegal,
      uncollectible or unenforceable, or (G) any of the Loan Documents have been
      forged or otherwise are irregular or not genuine or authentic, it being
      agreed that each Borrower shall remain liable hereon regardless of whether
      any other Borrower or any other person be found not liable on the Loans or
      any part thereof for any reason.

                  (xiii) Any full or partial release of the liability of the
      Borrowers on the Loans, or any part thereof, or of any co-guarantors, or
      any other person or entity now or hereafter liable, whether directly or
      indirectly, jointly, severally, or jointly and severally, to pay, perform,
      guarantee or assure the payment of the Loans, or any part thereof, it
      being recognized, acknowledged and agreed by each Borrower that such
      Borrower has not been induced to enter into its Loan Agreement, this
      Agreement or the other Loan Documents on the basis of a contemplation,
      belief, understanding or agreement that other parties will be liable to
      pay or perform the Loan or such Borrower's obligations under its Loan
      Agreement, this Agreement or the other Loan Documents, or that Lender will
      look to other parties to pay or perform the Loans.

<PAGE>

                  (xiv) The taking or accepting of any other security,
      collateral or guaranty, or other assurance of payment, for all or any part
      of the Loans.

                  (xv) Any release, surrender, exchange, subordination,
      deterioration, waste, loss or impairment (including without limitation
      negligent, willful, unreasonable or unjustifiable impairment) of any
      collateral, property or security, at any time existing in connection with,
      or assuring or securing payment of, all or any part of the Loans.

                  (xvi) The failure of or refusal of Lender or any other party
      acting on behalf of Lender to exercise diligence or reasonable care in the
      preservation, protection, enforcement, sale or other handling or treatment
      of all or any part of such collateral, property or security, including but
      not limited to any neglect, delay, omission, failure or refusal of Lender
      (A) to take or prosecute any action for the collection of any of the
      Loans, (B) to foreclose, or initiate any action to foreclose, or, once
      commenced, prosecute to completion any action to foreclose upon any
      security therefor, or (C) to take or prosecute any action in connection
      with any instrument or agreement evidencing or securing all or any part of
      the Loans.

                  (xvii) The fact that any collateral, security, security
      interest or lien contemplated or intended to be given, created or granted
      as security for the repayment of the Loans, or any part thereof, shall not
      be properly perfected or created, or shall prove to be unenforceable or
      subordinate to any other security interest or lien, it being recognized
      and agreed by each Borrower that it is not entering into this Loan
      Agreement in reliance on, or in contemplation of the benefits of, the
      validity, enforceability, collectibility or value of any of the collateral
      for the Loans.

                  (xviii) Any payment by any of the Borrowers to Lender is held
      to constitute a preference under bankruptcy laws, or for any reason Lender
      is required to refund such payment or pay such amount to any of the
      Borrowers or someone else.

                  (xix) Any other action taken or omitted to be taken with
      respect to any of the Loan Documents, the Loans, or the security and
      collateral therefor.

            (g) Notwithstanding anything to the contrary set forth in this
Agreement or in any of the Loan Agreements, (i) upon Lender's delivery to
Borrowers of written notice, sent at Lender's sole option and in its sole
discretion, from time to time (one or more times) stating that any Loan
Agreement, the related Mortgages and the other related Loan Documents shall no
longer secure one or more (at Lender's sole election) of the other Loans (each a
"Cross Release Notice"), or (ii) upon Lender's sale of one or more Pools in a
Secondary Market Transaction (including a securitization), or (iii) upon a sale
by Borrowers of one or more Pools pursuant to and in accordance with the terms
of the related Loan Agreement(s), (x) the applicable Loan Agreement (as
specified in the Cross Release Notice or, in the case of a Secondary Market
Transaction or a sale of one or more Pools by the applicable Borrowers, relating
to the Pool or Pools being sold) and the other Loan Documents relating thereto
shall, automatically and without

<PAGE>

any further notice or other action by Lender or Borrowers, no longer secure any
of the Loans made pursuant to the other Loan Agreements (any such Loan, an
"Excluded Loan", and, collectively, the "Excluded Loan(s)"; each Borrower which
is the borrower with respect to an Excluded Loan is herein referred to as an
"Excluded Borrower", and the Loan Agreements, Mortgages and other Loan Documents
executed and delivered by the Excluded Borrowers with respect to any Excluded
Loan are herein referred to as the "Excluded Loan Agreements", "Excluded
Mortgages" and "Excluded Loan Documents", respectively, and each Property
encumbered by the Excluded Loan Documents is herein referred to as an "Excluded
Property"), and the Excluded Loan Agreements and the other Loan Documents
relating thereto shall, automatically and without any further notice or other
action by Lender or Borrowers, no longer secure the Loan made pursuant to the
Loan Agreement specified in the Cross Release Notice or, in the case of a
Secondary Market Transaction or a sale of one or more Pools by the applicable
Borrowers, relating to a Pool or Pools being sold, (y) with respect to such Loan
Agreement and the related Borrowers, the provisions of Section 2(e) of this
Agreement shall not apply to any Crossed Loans Collection from any Excluded
Borrower or its Excluded Property and such Borrowers shall have no obligation or
liability on account thereof, and (z) with respect to such Loan Agreement and
the related Borrowers, such Borrowers shall no longer be beneficiaries of the
covenants and agreements set forth in Section 2(e) with respect to any Excluded
Loan Agreement, and such Borrowers shall have no rights or claims on account of
any contribution or indemnification obligations of any Excluded Borrower under
Section 2(e) with respect to Excluded Loan Agreement. In addition to and without
limiting the foregoing, the Pool 6 Borrowers hereby agree to fully cooperate
with Lender, if Lender is considering the termination of the cross
collateralization and cross default of any Loan and Loan Documents with any of
the other Loans, including, but not limited to (I) amending this Agreement, any
Loan Agreement and any other Loan Documents as may be reasonably required by
Lender, and reasonably approved by the applicable Borrowers, to effectuate such
termination of the cross collateralization and cross default provisions thereof,
and (II) updating and/or endorsing the title insurance policies (at Lender's
cost as to additional premium charges, if any) to reflect the continuation of
the first priority lien of any Loan Agreement.

            (h) In the event any Loan is repaid or defeased in full in
accordance with the provisions of the related Loan Agreement and the other Loan
Documents, then provided no Event of Default then exists under the related Loan
Agreement, and no "Event of Default" exists under any of the other Loan
Agreements (other than Excluded Loan Agreements) or the Loan Documents relating
thereto, the cross-collateralization and cross-default of such repaid or
defeased Loan and the Loan Documents relating thereto with the other Loans, and
vice versa, shall terminate and all of such other Loans shall be deemed Excluded
Loans with respect to the repaid or defeased Loan and the provisions of Section
2(g) above shall become automatically applicable with respect thereto.

      Section 3. Adjustment of Loans; Loan Modification.

<PAGE>

            (a) Lender shall have the right in its sole discretion, at any time
prior to the final Start-Up Day of the last of the Loans to be securitized, to
cause any of the following to occur (each, a "Loan Modification") with respect
to Pool 1, Pool 2 and Pool 3:

                  (i) separately adjust the principal amount and applicable
      interest rates of any of the Loans, provided that (A) the aggregate
      principal amount of the Loans immediately after such adjustment shall
      equal the aggregate outstanding principal balance of the Loans immediately
      prior to such adjustment, (B) the weighted average interest rate of the
      Loans immediately after such adjustment shall equal the weighted average
      interest rate which was applicable to the Loans immediately prior to such
      adjustment, (C) the aggregate debt service payments on the Loans
      immediately after such adjustment shall equal the aggregate debt service
      payments which were due under the Loans immediately prior to such
      adjustment, and (D) the other material terms and provisions of each of the
      Loans shall remain unchanged and none of the foregoing adjustments shall
      increase the obligations or reduce the rights of the Borrowers in any
      material respect; and/or

                  (ii) cause any of the Properties in any one or more of the
      Pools to become Collateral for any other Pool.

            (b) Any Loan Modification shall be subject to the following:

                  (i) If Lender elects to increase the principal amount of any
      of the Loans and decrease the amount of any of the other Loans, the
      applicable Borrowers (whose Loans are to be increased) shall distribute to
      the applicable Borrowers (whose Loans are to be decreased) such additional
      loan proceeds to be applied to repay, dollar for dollar, the applicable
      Notes, and the Lender under the applicable Notes will accept such
      prepayment without penalty, premium or additional costs to the Borrowers
      (except as provided herein).

                  (ii) The Borrowers shall cooperate with all reasonable
      requests of Lender in connection with any Loan Modification including,
      without limitation (x) execution and delivery of such documents as shall
      reasonably be required by Lender and reasonably approved by Borrower in
      connection therewith (including amended and restated notes, amended and
      restated loan agreements, replacement Mortgages, replacement Assignments
      of Leases), and (y) transfers of one or more Properties among the
      Borrowers, to the extent required to comply with the terms of this
      Section.

            (c) At Lender's request, in connection with any Loan Modification
the Borrowers shall deliver to Lender replacement opinion letters in form and
substance similar to the opinion letters delivered on the Closing Date addressed
to any subsequent holders of any of the Loans or any interest therein
(including, without limitation, each trustee holding any of the Loans ) with
respect to any opinion letter delivered in connection with the Loans;

<PAGE>

      Section 4. Capitalized Terms; Notices. Capitalized terms not otherwise
defined herein shall have the respective meanings set forth in the Loan
Agreements. Any notices, requests, demands or other communications required or
permitted hereunder shall be delivered as specified in the Loan Agreements.

      Section 5. Event of Default. It shall be an Event of Default under the
Loans if any of the Borrowers fail to comply with any of the terms, covenants or
conditions of this Agreement within ten (10) Business Days after receipt of
written request from Lender.

      Section 6. Governing Law. This Agreement shall be governed, construed,
applied and enforced in accordance with the laws of the State of New York and
the applicable laws of the United States of America.

      Section 7. No Oral Change. This Agreement, and any provisions hereof, may
not be modified, amended, waived, extended, changed, discharged or terminated
orally or by any act or failure to act on the part of the Borrowers or Lender,
but only by an agreement in writing signed by the party against whom enforcement
of any modification, amendment, waiver, extension, change, discharge or
termination is sought.

      Section 8. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Borrowers and Lender and their respective
successors and assigns forever.

      Section 9. Inapplicable Provisions. If any term, covenant or condition of
this Agreement is held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such provision.

      Section 10. Headings, etc. The headings and captions of various paragraphs
of this Agreement are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.

      Section 11. Duplicate Originals, Counterparts. This Agreement may be
executed in any number of duplicate originals and each duplicate original shall
be deemed to be an original. This Agreement may be executed in several
counterparts, each of which counterparts shall be deemed an original instrument
and all of which together shall constitute a single Agreement. The failure of
any party hereto to execute this Agreement, or any counterpart hereof, shall not
relieve the other signatories from their obligations hereunder.

      Section 12. Costs and Expenses. Notwithstanding anything herein, in any
Loan Agreement or in any other Loan Document to the contrary, in connection with
any "uncrossing" of Loans pursuant to Section 2(g) of this Agreement, any Loan
Modification (as defined herein), and any transaction described in Section 2.13
of the Loan Agreement or any of the other Loan Agreements, Lender shall be
responsible for all reasonable out of pocket costs and expenses incurred by the
Borrowers (in the aggregate under this Agreement, each of the other similar
agreements referenced in Section 13, and each of the other Loan Agreements) in
connection with complying with their obligations set forth in this Agreement and
Section 2.13 of the Loan

<PAGE>

Agreement and the other Loan Agreements (including, costs and expenses for
outside counsel fees, mortgage recording fees and taxes, required endorsements,
if any, to the Title Policies, any costs and expenses of the Title Company, and
any transfer costs in connection with the Properties, but excluding internal
costs and expenses of any Borrower), except that Borrowers shall be responsible
for such costs and expenses in connection with any of the foregoing up to an
amount equal to $25,000 in the aggregate during the term of the Loan and the
other Loans, and Lender shall be responsible and pay and/or reimburse Borrower
for any such costs and expenses in excess of $25,000 in the aggregate during the
term of the Loan and the other Loans.

      Section 13. Similar Agreements by other Borrowers. The Borrowers in each
Pool have entered into Cross-Collateralization and Cooperation Agreements dated
as of even date herewith with Lender, which agreements are identical in form and
substance to this Agreement, and under which the Borrowers in each Pool have
agreed to be bound by terms and provisions identical in substance to the
agreements made by the Pool 6 Borrowers herein.

                 [Balance of page left blank/Signatures follow]

<PAGE>

            IN WITNESS WHEREOF the undersigned have executed this Agreement as
of the date and year first written above.

                                                  LENDER:

                                                  MERRILL LYNCH MORTGAGE
                                                  LENDING, INC.

                                                  By: /s/ Michael Brody

                       [Signatures continue on next page]

<PAGE>

                                        BORROWERS:

                                        /s/ David A. Brooks, Chief Legal Officer

<PAGE>

                                   SCHEDULE 1

                                    BORROWERS

Pool 1 Borrowers

ASHFORD ORLANDO SEA WORLD LIMITED PARTNERSHIP
ASHFORD SALT LAKE LIMITED PARTNERSHIP
ASHFORD RUBY PALM DESERT I LIMITED PARTNERSHIP
ASHFORD CHARLOTTE LIMITED PARTNERSHIP

Pool 2 Borrowers

ASHFORD FALLS CHURCH LIMITED PARTNERSHIP
ASHFORD GAITHERSBURG LIMITED PARTNERSHIP
ASHFORD MIRA MESA SAN DIEGO LIMITED PARTNERSHIP
ASHFORD IRVINE SPECTRUM FOOTHILL RANCH LIMITED PARTNERSHIP
ASHFORD RALEIGH LIMITED PARTNERSHIP

Pool 3 Borrowers

ASHFORD CENTERVILLE LIMITED PARTNERSHIP
ASHFORD CRYSTAL CITY LIMITED PARTNERSHIP
ASHFORD OVERLAND PARK LIMITED PARTNERSHIP
ASHFORD ALPHARETTA LIMITED PARTNERSHIP
ASHFORD FT. LAUDERDALE WESTON I LLC
ASHFORD FT. LAUDERDALE WESTON II LLC
ASHFORD FT. LAUDERDALE WESTON III LLC

Pool 4 Borrowers

RUBY FISHKILL LIMITED PARTNERSHIP
RUBY ORLANDO INTERNATIONAL LIMITED PARTNERSHIP
RUBY FT. WORTH RIVER PLAZA LIMITED PARTNERSHIP
RUBY TYLER HOTEL LIMITED PARTNERSHIP

Pool 5 Borrowers

RUBY SACRAMENTO CAL EXPO LIMITED PARTNERSHIP
RUBY WILMINGTON NEWARK LIMITED PARTNERSHIP
RUBY PROVIDENCE WARWICK LIMITED PARTNERSHIP
RUBY ANN ARBOR LIMITED PARTNERSHIP

<PAGE>

Pool 6 Borrowers

RUBY MIAMI AIRPORT LIMITED PARTNERSHIP
RUBY MIAMI LAKES LIMITED PARTNERSHIP
RUBY MT. LAUREL LIMITED PARTNERSHIP
RUBY FT. WORTH SOUTHWEST LIMITED PARTNERSHIP
RUBY NEWARK LIMITED PARTNERSHIP
RUBY BOSTON TEWKSBURY LIMITED PARTNERSHIP

<PAGE>

                                   SCHEDULE 2

                                   PROPERTIES

Pool 1

   Property Name                            Location
   -------------                            --------
   Courtyard                                Palm Desert, CA
   Residence Inn                            Orlando, FL
   Springhill Suites                        Charlotte, NC
   Residence Inn                            Salt Lake City (Holladay), UT

Pool 2

   Property Name                            Location
   -------------                            --------
   Courtyard                                Lake Forest, CA
   Residence Inn - Sorrento Mesa            San Diego, CA
   Springhill Suites                        Gaithersburg, MD
   Springhill Suites                        Raleigh-Durham, NC
   Residence Inn Fairfax Merrifield         Falls Church, VA

Pool 3

   Property Name                            Location
   -------------                            --------
   Courtyard                                Ft. Lauderdale, FL
   Courtyard                                Alpharetta, GA
   Courtyard                                Overland Park, KS
   Courtyard                                Arlington (Crystal City), VA
   Springhill Suites                        Centerville, VA

<PAGE>

Pool 4

   Property Name                            Location
   -------------                            --------
   Residence Inn - Orlando                  Orlando, FL
   Residence Inn - Sea World                Fishkill, NY
   Townplace Suites - Ft. Worth River       Ft. Worth, TX
   Plaza

   Residence Inn                            Tyler, TX

Pool 5

   Property Name                            Location
   -------------                            --------
   Residence Inn                            Sacramento, CA
   Residence Inn                            Wilmington, DE
   Residence Inn                            Ann Arbor, MI
   Residence Inn                            Warwick, RI

Pool 6

   Property Name                            Location
   -------------                            --------
   Townplace Suites                         Newark, CA
   Townplace Suites                         Doral City, FL
   Townplace Suites                         Miami Lakes, FL
   Townplace Suites                         Scarborough, ME
   Townplace Suites                         Tewksbury, MA
   Townplace Suites                         Mt. Laurel, NJ
   Residence Inn-Ft. Worth Southwest        Ft. Worth, TXexv10w1

 

EXHIBIT 10.1

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

VOLUME PURCHASE AGREEMENT

     This Volume Purchase Agreement (“VPA”), dated as of June 6, 2005 (the “Effective
Date”), is made by and between Komag USA (Malaysia) Sdn., a Malaysia unlimited liability
company (“Komag”), Komag, Incorporated, a Delaware Corporation (“Komag Inc.”), and Western
Digital Technologies, Inc., a Delaware corporation (“WDC”).

BACKGROUND

     A. WDC desires to purchase, and Komag desires to sell to WDC, certain Media Products in
accordance with the terms of this VPA.

     B. WDC and Komag previously executed a Volume Purchase Agreement effective as of April 8, 1999
and amendments thereto (collectively, the “Original VPA”), and the parties now desire to
terminate the Original VPA and enter into a new agreement for the purchase and sale of Media under
the terms and conditions provided in this VPA.

     NOW THEREFORE, for and in consideration of the covenants, conditions, and undertakings
hereinafter set forth, the parties agree as follows:

ARTICLE 1: DEFINITIONS

     For the purposes of this VPA, unless the context otherwise requires, the following terms will
have the respective meanings set out below and grammatical variations of such terms will have
corresponding meanings:

     1.1 “AAA” has the meaning set forth in Section 6.2.1.

     1.2 “AFR” [***].

     1.3 “Affiliate” of a party means any entity that directly or indirectly controls, is
under common control with, or is controlled by, such party. As used in this definition, “control”
means possession, directly or indirectly, of power to direct or cause the direction of management
or policies (whether through beneficial ownership of securities or other ownership interests, by
contract or otherwise).

     1.4 “Change of Control” has the meaning set forth in Section 12.5.

     1.5 “Component” means a component of a WDC product.

     1.6 “Confidential Information” has the meaning set forth in Section 11.1.

     1.7 “Days” means consecutive calendar days.

 

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     1.8 “Defect” has the meaning set forth in Section 5.5.1.

     1.9 “Delivery Date” or "Scheduled Delivery Date” means the date of delivery of
Products as specified in Pull Requests.

     1.10 “Disclosing Party” has the meaning set forth in Section 11.1.

     1.11 “Disentanglement” has the meaning set forth in Section 9.4.1.

     1.12 “Effective Date” has the meaning set forth in the opening paragraph of this VPA.

     1.13 “Epidemic Failure” has the meaning set forth in Section 8.4.

     1.14 “Exchange Act” has the meaning set forth in Section 12.5.

     1.15 “Exhibit” means an attachment to this VPA that is referenced in Section
2.4. Exhibits are incorporated herein by reference thereto.

     1.16 “FGI” has the meaning set forth in Section 5.1.

     1.17 “First Executive Conference” has the meaning set forth in Section 12.4.

     1.18 “Fiscal Quarter” means the fiscal quarters of WDC set forth on Exhibit A.

     1.19 “Force Majeure Event” means an act of nature, civil disruption, power outage,
public enemy, government action, or freight embargo beyond the control of a party.

     1.20 “HDDs” means hard disk drives.

     1.21 “Initial Term” has the meaning set forth in Section 9.1.

     1.22 “JIT Hubs” has the meaning set forth in Section 5.3.

     1.23 “Komag Group” means Komag Inc. and all of its subsidiaries.

     1.24 “Komag Shortfall” has the meaning set forth in Section 4.3.2.

     1.25 “Komag Shortfall Remedy Trigger” has the meaning set forth in Section
4.3.3.

     1.26 “Lead Time” means, for purposes of this VPA, the minimum length of time prior to
a specific Delivery Date that Komag must receive a Pull Request to ensure delivery by such date,
not to exceed 8 hours.

     1.27 “Manufacturing Lot” means Product manufactured during a continuous time period of
not less than [***].

2

 

     1.28 “Material Default” shall mean the occurrence of any of the following,
provided that in the event any of the following conditions are cured within the time
periods set forth therein, then no Material Default shall have occurred:

            1.28.1 Failure of Komag to deliver (subject to the conditions and requirements of
Sections 4.3.2 and 6.7) in a given Fiscal Quarter the Purchase Requirements during
the applicable Fiscal Quarter, or the failure of Komag to accept a valid and compliant Purchase
Order in accordance with Section 5.2.2 (but subject to Section 5.5), and the
failure by Komag to remedy such condition within ten (10) business days after Komag has received
notice thereof (which notice must explicitly assert the existence and the nature of such condition
under this Section 1.28.1);

            1.28.2 Failure of WDC (subject to the conditions and requirements of Sections 4.3 and
5.5.1) to timely issue valid and compliant Purchase Orders pursuant to Section
5.2.1(a) or WDC’s cancellation of such Purchase Orders, and the failure by WDC to cure such
breach within ten (10) business days after WDC has received notice of such default (which notice
must explicitly assert the existence and the nature of such condition under this Section
1.28.2);

            1.28.3 Other than (i) a failure of Komag under Section 1.28.1 above, (ii) a failure of
WDC under Section 1.28.2 above and (iii) a breach of a payment obligation of WDC under
Section 6.6, a material breach by either party of any obligation, covenant, or condition
under this Agreement that is susceptible of cure, and the failure by the breaching party to cure
such breach within thirty (30) Days after the breaching party has received notice of such default
(which notice must explicitly assert the existence and the nature of such condition under this
Section 1.28.3), provided that if the cure requires more than thirty (30) Days, a
Material Default will be deemed to exist if the breaching party fails to (i) promptly take action
to cure such breach as quickly as reasonably possible; or (ii) cure such breach within sixty (60)
Days after the breaching party has received notice of such default;

            1.28.4 A failure of WDC to meet its payment obligations under Section 6.6, subject to
the late payment procedures set forth in Section 6.7; or

            1.28.5 An assignment or attempted assignment in violation of Section 12.5.

     1.29 “Media” means recording disks, manufactured by any entity, as used in data
storage devices.

     1.30 “Mediator” has the meaning set forth in Section 12.4.2.

     1.31 “New Capacity” means the increase in media capacity by Komag in connection with
this Agreement.

     1.32 “Next Fiscal Quarter” has the meaning set forth in Section 6.1.3.

     1.33 “Offset” has the meaning set forth in Section 6.5.4.

3

 

     1.34 “Overdue” has the meaning set forth in Section 6.6.

     1.35 “Price” or “Prices” means the amount(s) charged for Products, as
specified in Section 6.1.

     1.36 “Product” means the Media manufactured by Komag.

     1.37 “Program” means a WDC product classification, currently including, for example,
“Hawk” and “Buccaneer” disk drives. A Program may include various capacities, numbers of disks per
drive, drive performance specifications, or drive interfaces (such as SATA or PATA).

     1.38 “Prohibited Assignee” has the meaning set forth in Section 12.5.

     1.39 “Pull Request” means a request made by WDC to Komag for delivery of Product(s) to
WDC from a JIT Hub.

     1.40 “Purchase Order” means a purchase order placed by WDC or any subsidiary of WDC to
Komag for Products as contemplated by this VPA.

     1.41 “Purchase Requirements" has the meaning set forth in Section 4.1.1.

     1.42 “Receiving Party” has the meaning set forth in Section 11.1.

     1.43 “Second Term” has the meaning set forth in Section 9.1.

     1.44 “Section” means a numbered section of this VPA.

     1.45 “Specifications” means designs, drawings, prints and written descriptions,
specification reviews and requirements for Products that have been developed by WDC and Komag as of
the date of this VPA, or which may be developed by WDC and Komag during the term of this VPA.

     1.46 “Stop Ship Order” means a stop ship order under WDC’s established stop ship
procedure as set forth in Exhibit C.

     1.47 “Tolling Period” has the meaning set forth in Section 12.2.

     1.48 “Unit” means a single Product.

     1.49 “Unit Shortfall” has the meaning set forth in Section 5.5.1.

     1.50 “VPA” means this Volume Purchase Agreement, including the Exhibits.

     1.51 “WDC Shortfall Remedy Trigger” has the meaning set forth in Section 5.5.1.2.

4

 

ARTICLE 2: AGREEMENT STRUCTURE

     2.1 Background. Each party agrees to diligently cooperate with the other party to accomplish
the objectives of this VPA.

     2.2 Agreement Components. This VPA consists of this VPA (including its Exhibits), Purchase
Orders and Pull Requests. If there is a conflict among the terms and conditions of the various
documents or an ambiguity created by differences therebetween, the order of precedence will be (i)
this VPA (excluding its Exhibits), (ii) the Exhibits, and (iii) the Purchase Orders and Pull
Requests.

     2.3 Purchase Order. Purchase Orders will be used to convey the Price and number of Units, and
accordingly Purchase Orders must contain the following: Komag-designated part number, Price, Units
ordered, customer name, ship to address (destination), bill to address, and Purchase Order number.
The parties acknowledge that such Purchase Orders, as well as confirming documents,
acknowledgments, forms, invoices and the like used in the ordinary course of business may contain
other terms and conditions. The parties agree that this VPA will take precedence over any such
document or other communication, representation or understanding whether oral or written and that
any term or condition relating to the subject matter of this VPA that is inconsistent with this VPA
(whether in contradiction to, in addition to, or that would result in any ambiguity with respect to
any term or condition in this VPA) will be deemed deleted and be of no force, including, but not
limited to, any term or condition purporting to supersede this VPA in whole or in part or
purporting to make any offer, acceptance, term, condition or other action conditional upon
acceptance of, or indicating agreement to, any inconsistent term or condition. The foregoing may
not be modified or waived except by written agreement of the parties, specifically referencing this
VPA, and signed by officers of both parties. The parties agree that, without limiting Section
12.1, the foregoing shall not be superseded, altered, or overridden by any provision in the
Uniform Commercial Code as it may have been adopted by any competent jurisdiction.

     2.4 Exhibits. The following Exhibits are incorporated into this VPA by reference and deemed to
be a part hereof:

     Exhibit A: WDC Fiscal Quarters

     Exhibit B: Current Prices and Sample Prices

     Exhibit C: Stop Ship Order Procedure

     Exhibit D: Progress Milestones

     Exhibit E: Warranty Verification and Disposition Flow Chart

     Exhibit F: Volume/Purchase Requirements

5

 

ARTICLE 3: PRODUCT QUALIFICATION AND DEVELOPMENT

     3.1 Qualification Process. Each of the parties shall use commercially reasonable efforts to
qualify and to keep qualified Komag’s Products on at least one Program at all times. Such efforts
will require qualification of Products in combination with other Components (such as multiple
combinations of Media and recording heads), as well as the subsequent qualification of WDC’s disk
drives incorporating such combinations at each WDC customer. Subject to Section 4.3, WDC
agrees that Product qualifications must include sufficient WDC Programs, Component combinations and
customers to allow WDC to meet its Purchase Requirements for Products under this VPA, taking into
account that a Product may fail to qualify in a Program or Components combination, or for a WDC
customer, from time-to-time.

     3.2 Qualification Locations. Following the Effective Date, Komag intends to manufacture
Products under this Agreement at factory locations in Penang, Malaysia.

ARTICLE 4: PRODUCT PURCHASE AND SALE COMMITMENTS

     4.1 Volume.

            4.1.1 Subject to Section 4.3, Komag agrees that it shall supply to WDC, and WDC agrees
that it shall purchase from Komag, at the volumes of Product set forth in Exhibit F (the
“Purchase Requirements”).

            4.1.2 In an effort to bring the New Capacity up to its operational capacity as soon as is
practicable to both (a) satisfy the Purchase Requirements and (b) maximize the availability of
Product for WDC beyond the Purchase Requirements for each Fiscal Quarter, Komag shall use
commercially reasonable efforts and assign all commercially reasonable resources to (1) expedite
the completion of the New Capacity and the qualification of Products for WDC and (2) maximize the
utilization of New Capacity and existing capacity to improve yields. WDC shall cooperate in good
faith with Komag and provide all commercially reasonable assistance necessary to help achieve such
goals. The parties shall meet regularly to review, develop and update plans and review progress
toward goals. Komag and WDC agree that it is their mutual intent that, if Komag produces any
Products, other than sample Products, from the New Capacity in excess of Purchase Requirements,
such excess shall be offered to WDC for purchase.

     4.2 [intentionally omitted]

     4.3 Exceptions and Qualifications to Purchase Requirements.

	 	4.3.1	 	Provided that Komag remains qualified on a Program pursuant
to which WDC may be able to use quantities of Products, the purchase of which
would be sufficient to satisfy the Purchase Requirements of Section
4.1, then WDC must (to the extent commercially and economically
reasonable) first satisfy its Purchase Requirements with purchases of Products
for such Programs.

6

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

	4.3.2	 	If Komag (a) does not deliver the Purchase Requirements due to failure of a
Product or Products to qualify for a particular Program or Programs; (b) fails
to deliver the Purchase Requirements due to a Stop Ship Order where WDC
reasonably and in good faith concludes after consultation with Komag that the
Products do not meet the Specifications; or (c) refuses or is unable to
deliver Products to satisfy duly accepted Purchase Orders in quantities equal
to (i) a minimum of [***] percent [***]%) of the Purchase Requirements for
each of the first two months of the then applicable Fiscal Quarter and (ii)
[***] percent [***]%) of the Purchase Requirements by the end of the eleventh
(11th) week of the applicable Fiscal Quarter and (iii) [***]
percent [***]%) of the Purchase Requirements by the end of the last week of
the applicable Fiscal Quarter; then WDC shall notify Komag of such condition
and give Komag five (5) business days to remedy the condition before electing
a remedy in accordance with Section 4.3.3; provided,
however , in the case of clause (a), (b) and (c) of this Section
4.3.2, if the difference between actual Komag Product deliveries and the
Purchase Requirements for a Fiscal Quarter (the
“Komag Shortfall”) is
not more than [***] percent [***]%) of the Purchase Requirements for such
Fiscal Quarter, Komag may increase the Purchase Requirement for the subsequent
Fiscal Quarter by a number of Units equal to the Komag Shortfall, and no
breach of Section 4.1.1 shall have occurred (it being understood that
if Komag fails to make up the full Komag Shortfall in the subsequent Fiscal
Quarter, WDC may freely elect its remedies pursuant to Section 4.3.3
and this VPA).
	 
	4.3.3	 	In the event that (A) Komag does not make up the Komag
Shortfall in the immediately following Fiscal Quarter, or (B) the Komag
Shortfall is more than [***] percent [***]%) of the Purchase Requirements for
any Fiscal Quarter (each a “Komag Shortfall Remedy Trigger”), then WDC
and Komag shall meet to discuss an amicable resolution and allocation of the
Purchase Requirements, which shall be set forth in writing and reference this
VPA, and in the event that such resolution has not been reached within five
(5) business days of WDC’s notice to Komag of the Komag Shortfall Remedy
Trigger, then WDC shall then be entitled at its sole discretion to elect the
following remedies:

	 	4.3.3.1	 	continue under the terms of this VPA and reduce the Purchase
Requirements for the relevant Fiscal Quarter and make allocations to
and purchase Units from other suppliers (it being understood that
WDC’s election to reduce the Purchase Requirements shall not result
in a permanent reduction to such Purchase Requirements for

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AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

	 	 	 	future Fiscal Quarters unless otherwise mutually agreed in
writing); or
	 
	 	4.3.3.2	 	continue under the terms of this VPA and allow Komag to increase the
Purchase Requirements for the subsequent Fiscal Quarter (and for that
Fiscal Quarter only) by a number of Units equal to the Komag
Shortfall (it being understood that if Komag fails to make up the
full Komag Shortfall in the subsequent Fiscal Quarter, WDC may freely
elect its remedies pursuant to this Section 4.3.3 and this
VPA); or
	 
	 	4.3.3.3	 	terminate this VPA in accordance with Section 9.2; and/or
	 
	 	4.3.3.4	 	take the Offset under Section 6.5.4 below.

     4.4 Additional Demand. WDC may, but will not be obligated to, request that Komag provide
Units in excess of the Purchase Requirements. Purchase Orders for such additional Units may be
issued, pursuant to Section 5.2.1(b), at any time by WDC, but will be subject to acceptance
by Komag in its sole discretion. Pricing and other terms for such excess Units shall be subject to
good faith negotiations between the parties.

ARTICLE 5: PURCHASE OF PRODUCTS BY WDC

     5.1 Forecasts and Planning Schedules. WDC shall provide to Komag a current written forecast of
demand for Products WDC expects to purchase during the first twelve (12) months of the term of this
VPA, which forecast shall include the Purchase Requirements for each Fiscal Quarter and may include
forecasts for additional Product needs. Thereafter during the term of this VPA, on a monthly
basis, WDC shall provide an updated forecast for any quantities of such Product WDC expects to
purchase in the following twelve (12) months, which forecast shall include the Purchase
Requirements for each Fiscal Quarter and may include forecasts for additional product needs. The
most recently issued forecast will supersede all previous forecasts. No more than five (5)
business days from receipt of each of the monthly WDC forecasts, Komag shall confirm supply for a
rolling three-month period (current month plus two), provided, however, that if
such monthly forecast fails to include quantities for delivery in each month equal to a minimum of
[***] percent [***]%) of the Purchase Requirements for each of the first two months of the then
applicable Fiscal Quarter and (ii) [***] percent [***]%) of the Purchase Requirements by the end of
the eleventh (11th) week of the applicable Fiscal Quarter and (iii) [***] percent
[***]%) of the Purchase Requirements by the end of the last week of the applicable Fiscal Quarter,
then Komag may reject such forecast upon written notice to WDC and allow WDC five (5) business days
to modify and re-issue such forecast. During the term of this VPA on a monthly basis, Komag shall
provide to WDC a current written summary of the Product finished goods inventory (“FGI”)
intended for WDC. This summary shall list by Komag manufacturing site and JIT Hub location the
amounts and types of FGI being held by Komag for each of WDC’s Programs.

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EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

     5.2 Issuing Purchase Orders and Pull Requests.

	 	5.2.1	 	At least [***] Days before the beginning of each Fiscal
Quarter, WDC (a) shall submit to Komag a Purchase Order for such Fiscal
Quarter for all Units WDC must purchase pursuant to the Purchase Requirements
of Section 4.1 and (b) may submit to Komag a Purchase Order for
additional demand, pursuant to Section 4.4, for all Units WDC has
forecasted it may require in excess of its Purchase Requirements during such
Fiscal Quarter.
	 
	 	5.2.2	 	With respect to Purchase Orders issued in full compliance
with Section 2.3, no more than two (2) business days after receipt of
each such Purchase Order, Komag shall issue an acceptance of the Purchase
Order in writing confirming the quantity and other terms thereof;
provided, however, that if such Purchase Orders include
quantities that are inconsistent with the Purchase Requirements or do not meet
the requirements of Section 2.3, Komag shall follow the procedures and
remedies set forth in Section 5.5.
	 
	 	5.2.3	 	With respect to Purchase Orders issued pursuant to clause
(b) of Section 5.2.1, no more than two (2) business days after receipt
of each such Purchase Order, Komag shall confirm or reject the Purchase Order
in writing to WDC. Failure of Komag to accept or reject the Purchase Order in
writing within such two business day period shall be deemed acceptance of such
Purchase Order by Komag.
	 
	 	5.2.4	 	WDC shall transmit a Pull Request by facsimile or other
agreed upon means to communicate to Komag, at the applicable JIT Hub, the part
number, quantity, delivery location and Delivery Date and time of each Product
required. WDC’s transmission of a Pull Request is authorization for Komag to
deliver Product to WDC against the Purchase Order for the part numbers and
quantities set forth in the Pull Request. Komag shall deliver Product from the
applicable JIT Hub upon receipt of a Pull Request in accordance with
applicable Lead Times. WDC and Komag shall, prior to the commencement of each
Fiscal Quarter, establish mutually acceptable Lead Times for Pull Requests,
which Lead Times shall in no event exceed eight hours.

     5.3 Komag Production and Inventory. During the term of this VPA, WDC will be issuing
forecasts and Purchase Orders and Komag will be producing FGI to meet the Purchase Requirements.
WDC’s forecast for a certain Fiscal Quarter is not, and should not be deemed to be, a commitment by
WDC to buy a specific amount of Product in a specific period of time. Komag will use just-in-time
delivery hubs located at or near WDC’s manufacturing or distribution facilities in Malaysia and
Thailand (“JIT Hubs”) with respect to its obligations to provide the Purchase Requirements.
Komag will: (i)

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bear all costs associated with warehousing Products in the JIT Hub(s); (ii) ensure that WDC
may withdraw Products from the JIT Hub(s) in accordance with the terms of this VPA; (iii) retain
title to Products until they are physically delivered to WDC or its carrier upon withdrawal from
the JIT Hub(s); (iv) fully insure or require the JIT Hub operator to fully insure all Products in
transit to or stored at a JIT Hub against all risk of loss or damage until such time as WDC takes
title to them; and (v) require that the JIT Hub operator take all steps necessary to protect all
Products in a JIT Hub consistent with good commercial warehousing practice. Provided that Komag
has confirmed its acceptance of a Purchase Order, Komag shall, promptly after the Effective Date
and at all times during the term of this VPA, establish and maintain sufficient inventory for each
Program at each JIT Hub in order to be able to deliver the Purchase Requirements in accordance with
the terms of this VPA.

     5.4 End of Life. WDC shall use commercially reasonable efforts to notify Komag as soon as
possible before the termination of each Program.

     5.5 Liability on Cancellation or Deficient Issuance of a Purchase Order.

5.5.1 Section 5.2.1(a) Purchase Orders.

	 	5.5.1.1	 	WDC must issue a Purchase Order for Units of Product equal to the
Purchase Requirements in each Fiscal Quarter pursuant to Section
5.2.1(a). In the event that WDC fails to (i) timely issue such
Purchase Order, (ii) cancels such Purchase Order in writing or (iii)
deficiently issues such Purchase Order (such that the aggregate
number of Units requested in a given Fiscal Quarter is less than the
Purchase Requirements (such shortfall in the number of Units, the
“Unit Shortfall”), and each of (i), (ii) or (iii), a
“Defect”), Komag may elect a remedy in accordance with
Section 5.5.1.2, provided, however, that
prior to taking any of the foregoing actions, Komag must (a) give WDC
written notice of the Defect and give WDC a single five (5) business
day period to correct such Defect and issue or re-issue such Purchase
Order, and the time requirement for issuing such Purchase Order set
forth in Section 5.2.1 shall be extended accordingly, and (b) if
WDC’s Unit Shortfall in a given Fiscal Quarter is not greater than
[***] percent [***]%) of its Purchase Requirements for that Fiscal
Quarter, then WDC may increase the Purchase Requirement for the
subsequent Fiscal Quarter by a number of Units equal to the Unit
Shortfall, and no breach of Section 4.1.1 shall have occurred
(it being understood that if WDC fails to make up the full Unit
Shortfall in the subsequent Fiscal Quarter, Komag may freely elect
its remedies pursuant to Section 5.5.1.2 and this VPA).

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AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

	 	5.5.1.2	 	In the event that (A) WDC fails to make up the full Unit Shortfall
for a Fiscal Quarter in the following Fiscal Quarter, or (B) the Unit
Shortfall in any given Fiscal Quarter is more than [***] percent
[***]%) of the Purchase Requirements for such Fiscal Quarter (each a
“WDC Shortfall Remedy Trigger”), then WDC and Komag shall
meet to discuss an amicable resolution and allocation of the Purchase
Requirements, which shall be set forth in writing and reference this
VPA, and in the event that such resolution has not been reached
within five (5) business days of Komag’s notice to WDC of the WDC
Shortfall Remedy Trigger, then Komag shall then be entitled at its
sole discretion to elect the following remedies:

	 	5.5.1.2.1	 	terminate this VPA in accordance with Section
9.2; or
	 
	 	5.5.1.2.2	 	waive the breach and continue under the terms of this
VPA and reduce the Purchase Requirements on a going-forward
basis by the amount of the Unit Shortfall, which capacity
Komag may use for any other purpose it elects, including
manufacturing Products to sell to third party purchasers (it
being understood that Komag’s election to reduce the Purchase
Requirements shall result in a permanent reduction to such
Purchase Requirements for future Fiscal Quarters unless
otherwise mutually agreed in writing); or
	 
	 	5.5.1.2.3	 	waive the breach and continue under the terms of this
VPA and allow WDC to increase the Purchase Requirement for
the subsequent Fiscal Quarter by a number of Units equal to
the Unit Shortfall (it being understood that if WDC fails to
make up the full Unit Shortfall in the subsequent Fiscal
Quarter, Komag may freely elect its remedies pursuant to this
Section 5.5.1.2 and this VPA).

	5.5.2	 	WDC shall not be responsible for any liabilities associated
with the cancellation of any 5.2.1(a) or 5.2.1(b) Purchase Order, except for
the cost of materials unique to WDC Specifications purchased by Komag that
Komag cannot cancel, return to its supplier for credit, sell or divert to
another use.

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FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

ARTICLE 6: PRICE AND PAYMENT TERMS FOR PRODUCTS

6.1 Product Pricing. All Prices shall be in U.S. Dollars.

	 	6.1.1	 	Current Prices. The current Unit Prices that WDC will pay
for Products purchased during the first Fiscal Quarter pursuant to this VPA
are in U.S. Dollars and set forth in Exhibit B
(the “Prices”).
The Prices for such Products are subject to adjustment following the First
Quarter in accordance with Section 6.1.3.
	 
	 	6.1.2	 	[***]. In the event that WDC elects to challenge the
pricing of the Products under this Section 6.1.2, the parties shall
follow the procedures set forth in Section 6.2.2 below.
	 
	 	6.1.3	 	New Products. The parties agree to negotiate in good faith
to set the Prices for any new Products or any development Products under any
Program. Such negotiations must commence on a date beginning no later than
fifty (50) Days before the beginning of the Fiscal Quarter following the then
current fiscal quarter (the “Next Fiscal Quarter”) and the parties
must conclude such negotiations no later than twenty (20) Days before the
beginning of the Next Fiscal Quarter. Komag shall, no later than nineteen
(19) Days before the beginning of the next Fiscal Quarter, notify WDC of the
mutually agreed-upon Prices applicable to the Next Fiscal Quarter by means of
a pricing letter. Notwithstanding the foregoing, the parties agree that the
review of such Prices shall not require the parties to modify any of the
non-price terms of this VPA. In the event the parties fail to conclude their
negotiations by the twentieth (20th) Day preceding the Next Fiscal
Quarter, each party agrees to enter into the binding dispute resolution
procedures set forth in Section 6.2 and to conclude such binding
dispute resolution at least five (5) Days prior to the beginning of the Next
Fiscal Quarter.

6.2 Pricing Disputes.

	 	6.2.1	 	In the event the parties cannot agree upon pricing as
described in Section 6.1.2 or Section 6.1.3, either party may,
upon written notice to the other, submit such dispute to the Chief Executive
Officer of Komag and the Chief Operating Officer of WDC, or their respective
designees, who shall meet to attempt to resolve the dispute by good faith
negotiations. In the event the parties are unable to come to agreement upon
Prices within five (5) Days after such notice is given, either party may
proceed with arbitration as follows. The parties will submit the matter of
pricing to binding arbitration in San Francisco, California, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(“AAA”). Each party shall appoint one arbitrator, and

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	 	 	 	the two arbitrators thus appointed will appoint a third arbitrator. The
parties shall instruct the arbitrators to make a determination of pricing
using the standards set forth in Section 6.1, but in no event
outside of the range of the “bid” and “asked” prices established by the
respective positions of the parties in the last good faith negotiations
prior to referral to arbitration. The parties shall also instruct them to
come to a decision within fifteen (15) Days after submission of the
dispute to arbitration. During the pendency of such arbitration, the
Prices in the Purchase Order for the Fiscal Quarter before the arbitration
shall remain in effect, and WDC shall issue, and Komag shall accept, the
Purchase Order for the applicable Fiscal Quarter with such price (it being
understood that such prices will be adjusted retroactively if required in
accordance with the resolution of the pricing dispute). If a price change
is awarded, the party, if any, which owes a balance shall pay such
balance; and in the event such party fails to pay such balance within ten
(10) Days after the date of the award, interest will accrue beginning ten
(10) Days after the date of the award, at the maximum rate permitted by
law in California. Each party shall bear its own arbitration costs and
expenses; provided, however, that the arbitrators may
modify the allocation of fees, costs and expenses in the award in those
cases where fairness dictates other than each party bearing its own fees,
costs and expenses. The award shall be final and binding on the parties,
and judgment on the award may be entered in and enforced by any court of
competent jurisdiction.
	 
	 	6.2.2	 	Audit Rights. With respect to [***] Section 6.1.2, WDC may
appoint an independent auditor (reasonably acceptable to Komag) to validate
Komag’s records [***] and such auditor’s report may be admissible in the
arbitration proceeding.

     6.3 Taxes and Duties. Unless otherwise specifically provided herein, the amount of any present
or future sales, revenue, excise or other tax applicable to the Products, will be added to the
Price and will be paid by WDC, or in lieu thereof WDC shall provide Komag with a tax exemption
certificate acceptable to the taxing authorities. In the event Komag is required to pay any such
tax, fee, or charge, at the time of sale or thereafter, WDC shall reimburse Komag therefor.
Notwithstanding the foregoing, WDC will not be responsible for any taxes on Komag’s income.

     6.4 Tax Minimization. The parties acknowledge that Komag’s Malaysian manufacturing operations,
including the tax holiday status of such operations, provide a path to the industry’s lowest cost
structure. To ensure that both parties derive benefit from this advantageous manufacturing
location, the parties shall adopt business practices (e.g. sales terms, title passage, importer of
record, and warehousing practices) that

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maximize the benefits of Komag’s tax holiday position in Malaysia to the extent not
inconsistent with WDC’s reasonable business objectives.

     6.5 Invoices. For shipments through Komag’s designated JIT Hub, Komag shall invoice WDC upon
delivery of Product to the delivery location indicated on the Pull Request. For shipments direct
to WDC, Komag will invoice upon shipment. Terms for payment of all invoices will be net [***] Days
from date of invoice; after such date the amount becoming “Overdue”. In the event payment
is not received by Komag within such period, Komag shall notify WDC and WDC shall make prompt
payment of the amount then Overdue pursuant to Section 6.6 below. WDC will be liable for
interest on any Overdue payment under any such invoice, up to the maximum legal rate in the State
of California. Notwithstanding the foregoing, payment terms shall be payment in advance in the
event of the bankruptcy or insolvency of WDC or in the event any proceeding is brought (a)
voluntarily by WDC under the bankruptcy or insolvency laws; or (b) involuntarily against WDC under
the bankruptcy or insolvency laws, and not dismissed within ninety (90) Days.

     6.6 Late Payments. If (a) WDC’s account with Komag becomes Overdue with respect to any
specific invoice in any amount by more than seven (7) Days; (b) WDC fails to timely make any
payment as required under Exhibit B; or (c) if WDC’s account with Komag becomes Overdue in
excess of the greater of (i) [***] and (ii) [***]% of WDC’s total accounts receivable balance under
this VPA by more than [***] Days; then Komag may immediately discontinue shipping Products upon
[***] Days’ advance written notice to WDC and opportunity for WDC to cure within such [***] Day
Period. Units that Komag does not ship in accordance with this Section 6.6 shall not count
towards the Units purchased by WDC to fulfill its Purchase Requirements, until such Units are
shipped by Komag. The parties agree that a senior officer designated by each party will meet to
resolve any issues relating to Overdue amounts. Notwithstanding the foregoing, in the event that
WDC in good faith gives Komag written notice disputing the validity or amount of an invoice, then
WDC may pay the amount in dispute to Komag under protest and such amount shall not be considered
Overdue or subject to Komag’s rights and remedies in this Section 6.6, and the dispute
shall be subject to the dispute resolution procedures in Section 12.4.

     6.7 Right of Offset. WDC may immediately set off and recoup any amounts WDC
(including its subsidiaries or Affiliates) owes Komag (including its subsidiaries and Affiliates),
regardless of when payment is due, against any debt, credit or other obligation or liability
payable by Komag to WDC, including the [***] Balance (regardless of whether such debt, credit,
obligation or liability arose out of or relates to this VPA) (the “Offset”), and such
Offset will be effective even if a receiver, custodian, trustee, examiner, liquidator or similar
official has been appointed for Komag or any substantial portion of its assets, upon the occurrence
of the following events:

	 	6.7.1.1	 	ten (10) business days after Komag’s receipt of written notice
from WDC of Komag’s Material Default, unless such failure or
performance is corrected within such ten-

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AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

	 	 	 	day period; or
	 
	 	6.7.1.2	 	the occurrence of any insolvency event describe in Section 9.3; or
	 
	 	6.7.1.3	 	assignment or attempted assignment in violation of Section
12.4 ; or
	 
	 	6.7.1.4	 	any termination of this VPA by Komag under Section 9.2, in
which case the Offset shall occur fifteen (15) Days after such
termination.

     After the Offset, in the event the [***] remains positive, Komag shall make a cash payment of
the remaining [***] to WDC in a reasonable period of time not to exceed [***] Days. The rights
described in this Section 6.7 are in addition to any other rights and remedies available
under this VPA or applicable law.

ARTICLE 7: SHIPMENT AND DELIVERY OF PRODUCTS

     7.1 Shipment of Product. Delivery from JIT Hubs will be made DDU (i.e., the ICC standard
shipping term for delivery duty unpaid), and liability for loss or damage to Products will pass to
WDC upon Komag’s delivery of the Products to WDC. Delivery from Komag factory will be made
EXW-Komag factory (i.e., the ICC standard shipping term for Ex Works), unless the delivery is late
in which case the delivery will be made DDU. As between the parties, Komag will bear the cost for
insurance relating to delivery of the Products. For deliveries within Malaysia or Thailand,
Western Digital Malaysia SDN. BHD, or Western Digital (Thailand), respectively, will be the
“importer of record” for GST purposes. Komag may deliver the Products in installments subject to
Section 5.2. Unless otherwise agreed, all Products will be packaged and packed in
accordance with Komag’s normal practices. All Product packages shall be labeled in accordance with
applicable customs regulations. Komag may ship, determine freight forwarder, and provide delivery
support by the method it deems most advantageous. WDC shall ensure that the freight forwarder
selected by Komag may use WDC’s “Manufacturer’s Export Status” for shipments on behalf of WDC to
Thailand, so long as the parties mutually agree. Transportation charges are included in the Unit
Price. Komag shall deliver, upon request from WDC, appropriate import certificates for duties paid
on Media purchased from Komag, imported by Komag into the United States and delivered to WDC in the
United States.

     7.2 Late Delivery. Komag shall notify WDC immediately if for any reason Komag fails to comply
or anticipates that it may fail to comply with the timing terms of a Pull Request (i.e., failure to
meet a Delivery Date). In the event of a late delivery, without limiting the rights and remedies
available to WDC under this VPA, the parties will cooperate in good faith to minimize the
disruption caused to WDC by such late delivery.

     7.3 Export Regulations. WDC and Komag shall comply with all export control laws and
regulations applicable to the export or re-export of Products or any related technology. The party
undertaking such export or re-export shall be responsible

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EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

for obtaining any required documents, authorizations and approvals prior to any such export or
re-export.

ARTICLE 8: WARRANTIES AND INTELLECTUAL PROPERTY INFRINGEMENT

     8.1 WDC General Warranties. WDC has the corporate power and authority to own its properties
and to carry on its business as now being conducted and as contemplated to be conducted. WDC is
duly qualified to do business and in good standing as a foreign corporation under the laws of each
jurisdiction in which the failure to be so qualified would have a material adverse effect on WDC.

     8.2 KOMAG Warranties. For a period of one year from the date of Komag’s invoice for each Unit
of Product (the “Warranty Period”), Komag represents and warrants that each Unit of Product is (i)
free from defects in materials or workmanship and (ii) conforms to the Specifications. Komag will,
at its option, replace, or furnish credit for any Product purchased by WDC from Komag which, as
determined by the parties, fails to meet the foregoing warranties. THIS WARRANTY IS IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE
WARRANTY OF FITNESS OR OF SUITABILITY FOR A PARTICULAR PURPOSE, AND OF ALL OTHER OBLIGATIONS OR
LIABILITIES ON KOMAG’S PART, AND IT NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR
KOMAG ANY OTHER LIABILITIES IN CONNECTION WITH THE SALE OF THE PRODUCTS. This provision states
WDC’s exclusive and sole remedy for breach of warranty and the entire extent of Komag’s liability
for defective Products, except as may otherwise be determined by the parties in accordance with
Section 8.4. This provision does not extend the original warranty period of any Product which as
been repaired or replaced by Komag.

     8.3 Warranty Procedure. The parties agree to use the return material authorization process
described in the Warranty Verification and Disposition flow chart set forth in Exhibit E to
manage and dispose of the Products returned to WDC under warranty.

     8.4 Epidemic Failure. If during the Warranty Period, (i) (x) the failure rate of a WDC HDD
product rises to a level that triggers an “Excessive Defect,” “Epidemic Defect,” or “Excessive
Failure” clause, or a similar clause, in a contract, agreement or Purchase Order between WDC and a
WDC customer (collectively, “Epidemic Failure”) and and (y) the defect causing the HDD
failures is attributable to a breach of Komag’s warranties in Section 8.2; or (ii) the AFR
of the Product exceeds [***] percent [***]%); or (iii) a breach of Komag’s warranties in
Section 8.2 result in a Stop Ship Order; then Komag and WDC shall meet to develop and agree
upon a mutually acceptable corrective action plan, which may include, upon mutual agreement of the
parties, reasonable compensation to WDC for out-of-pocket expenses actually incurred in good faith
to diagnose the defect, develop tests and remedies, promptly respond to customer inquiries and
complaints, promptly return and replace such defective Product at WDC’s facilities,

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at JIT Hubs, or otherwise positioned for use or consumption by WDC, replace the HDD in which
the defective Product is located, and transport to a repair or returns center the HDD in which the
defective Product is located. Komag agrees to promptly notify WDC if it has reason to believe that
Products are likely to present a safety risk to WDC personnel or WDC’s customers or if the AFR of
the Products is expected to exceed [***] percent [***]%).

     8.5 Disclaimer. THE WARRANTIES AND OBLIGATIONS OF THIS SECTION 8 WILL BE EXCLUSIVE
AND IN LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT
LIMITED TO THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGMENT,
ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED.

     8.6 Infringement Indemnity

           8.6.1 Indemnification by Komag. Subject to Section 8.6.2, Komag shall, at its own
expense, indemnify and hold WDC (including WDC’s Affiliates and personnel) harmless from and
against any expense, loss or liability resulting from any actual or alleged infringement of any
patent, trademark, trade secret, copyright, mask work or other intellectual property right related
to the Products, and Komag shall defend at its own expense, including attorney’s fees, any suit
brought or claim against WDC alleging any such infringement, provided that WDC gives Komag prompt
notice of any such suit or claim and permits Komag, through counsel of Komag’s choice, to answer
the charge of infringement and defend such suit (but WDC may be represented by counsel and
participate in the defense at its own expense), and WDC gives Komag all needed information,
assistance and authority, at Komag’s expense, reasonably necessary for Komag to defend such suit.
In the event that an infringement suit results in a judgment against WDC, Komag’s liability to WDC
shall include without limitation all damages and costs awarded against WDC arising out of such
claim, suit or proceeding.

           8.6.2 Exclusions. Komag will have no obligation to indemnify and hold WDC (including WDC’s
Affiliates and personnel) harmless against an intellectual property infringement claim under
Section 8.6.1 to the extent that: (a) such infringement is required for compliance with WDC
Specifications, (b) the Product has been modified by a party other than Komag without Komag’s
approval and such claim would have been avoided but for such modification, or (c) such claim arises
from WDC’s combination of the Product with other products or devices, unless the Product is a
component that would support liability for contributory infringement under 35 USC §271(c).

           8.6.3 Limited Remedies. If the use of a Product is enjoined, or earlier at WDC’s option if
WDC reasonably believes such Product is likely to be found to infringe, Komag shall, in its sole
discretion and at its own expense, either (a) procure for WDC the right to continue using, selling
and/or distributing such Product; (b) replace same with a non-infringing product that meets WDC’s
Specifications; (c) modify the Product so that it becomes non-infringing and meets WDC’s
Specifications; or (d) if Komag is unable to reasonably do any of the above, refund the Price for
such Product.

17

 

           8.6.4 License. Sale of any Product or any part thereof by Komag does not confer upon WDC any
license under any patent rights or copyrights, other than as necessary to allow WDC to use, have
used, disseminate, sell or distribute the Product as a Component of a WDC HDD.

           8.6.5 SOLE LIABILITY. THIS SECTION 8.4 IS IN LIEU OF ALL OTHER EXPRESS, IMPLIED OR
STATUTORY WARRANTIES AGAINST INFRINGEMENT AND WILL BE THE SOLE AND EXCLUSIVE REMEDY FOR
INTELLECTUAL PROPERTY INFRINGEMENT OF ANY KIND.

ARTICLE 9: TERM AND TERMINATION

     9.1 Term. The term of this VPA shall be for eighteen (18) months from the date the New
Capacity is producing Product at full capacity (the “Initial Term”). The term of the VPA
shall automatically be extended for an additional twelve (12) months beyond the Initial Term (the
“Second Term”) unless either party gives written notice to the other party no later than
six (6) months prior to the end of the Initial Term that it does not want to extend the term of the
VPA for the Second Term. In the event one party gives such notice of its desire not to extend,
then unless the parties mutually agree otherwise, the VPA shall automatically be extended for an
additional six (6) months beyond the Initial Term and then terminate automatically at the end of
the additional six- (6)-month period.

     9.2 Termination for Cause. Either party may terminate this VPA in the event of a Material
Default (including the occurrence of a Force Majeure Event that causes a delay exceeding the
Tolling Period) of this VPA by the other party, upon notice to such other party, which notice must
describe the reason for such termination and must specify the termination date, which termination
date must be no earlier than five (5) Days after the date of such notice. The parties acknowledge
that neither party will have the right to terminate this Agreement due to any breach of this
Agreement other than a Material Default or insolvency event under Section 9.3 or a Force
Majeure Event beyond the tolling period in Section 12.2; and in the case of such other breach,
subject to Sections 10.2, 11.6 and 6.5.4, the non-breaching party’s only
remedy under this Agreement will be an action for damages.

     9.3 Termination for Insolvency. This VPA may be terminated by either party by notice to the
other party upon (i) the commencement by the other party of a voluntary or involuntary proceeding
under any federal, state, provincial or foreign bankruptcy law or similar law which is not
dismissed within ninety (90) Days; (ii) the appointment for the other party of a receiver, trustee
or similar official or a general assignment for the benefit of such party’s creditors; (iii) the
winding up or liquidation of the other party; or (iv) a party becomes unable to pay its debts
either because it is subject to a Suspension of Payments order, bankruptcy, or other insolvency
proceeding. In the case of (i) to (iv) above, termination may also be effected by serving notice on
the liquidator, administrator, or receiver, as the case may be.

18

 

     9.4 Rights Upon Termination.

           9.4.1 Disentanglement. Upon termination by either party for any reason under this
Agreement, Komag shall complete delivery and WDC shall accept delivery on all open Purchase Orders
and WDC shall pay for all Products properly delivered and invoiced in accordance with Article
6, and Komag and WDC shall cooperate to ensure an orderly separation (collectively, a
“Disentanglement”).

           9.4.2 Termination by Komag or WDC. In the event that either Komag or WDC terminates
this VPA pursuant to either Section 9.2 or Section 9.3, such termination is without
prejudice to the terminating party’s rights to recover for damages with respect to the breach that
gave rise to the right to terminate.

     9.5 Survival. The following provisions will survive the termination or expiration of this VPA:
Articles 1, 2, 6, 8, 9.4, 10, 11, and 12, as well as any obligations arising before the effective
date of termination or expiration.

ARTICLE 10: LIMITATION OF LIABILITY

     10.1 Limitation of Liability. EXCEPT FOR ARTICLE 11 (CONFIDENTIALITY), NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR ARTICLE 11 (CONFIDENTIALITY) AND SECTION
8.6 (INDEMNITY) AND A PARTY’S OBLIGATION TO MAKE PAYMENTS TO THE OTHER HEREUNDER, IN NO EVENT WILL
EITHER PARTY’S LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNTS ACTUALLY PAID OR PAYABLE (OR
RECEIVED OR RECEIVABLE) UNDER THIS AGREEMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, INCLUDING ARTICLE 8 AND SECTIONS 10.2, IN NO EVENT SHALL EITHER PARTY BE OBLIGATED OR
REQUIRED TO PROVIDE ANY REMEDY OR ENGAGE IN ANY CONDUCT WHERE THE COSTS AND EXPENSES THAT WOULD BE
INCURRED BY SUCH PARTY WOULD EXCEED THE FOREGOING LIMITATION ON DAMAGES.

     10.2 Performance. Notwithstanding the foregoing, in light of the fact each of the parties
entered into this VPA in reliance on the full and faithful performance by the other party of its
obligations (including but not limited to purchase and sale obligations) hereunder, the parties
agree that damages would be an inadequate compensation for the breach by the parties of such
obligations and accordingly, upon any such breach, in addition to monetary damages, a party shall
be entitled to obtain an order for specific performance of such obligations at any court having
jurisdiction over the other party.

     10.3 EACH WDC SUBSIDIARY THAT ISSUES PURCHASE ORDERS TO KOMAG UNDER THIS AGREEMENT IS A THIRD
PARTY BENEFICIARY OF THE RIGHTS AND REMEDIES AFFORDED WDC AS CONTAINED IN THIS AGREEMENT.

19

 

ARTICLE 11: CONFIDENTIALITY

     11.1 “Confidential Information” means any information disclosed by one party (the
"Disclosing Party”) to the other (the "Receiving Party”) in relation to this VPA,
which, if in written, graphic, machine-readable or other tangible form is marked as
"Confidential” or "Proprietary,” or which under the circumstances surrounding
disclosure or by the nature of the information, ought to be treated as confidential by the
Receiving Party. Confidential Information includes, but is not limited to, product/service
specifications or drawings, prototypes, product pricing, product roadmaps, volume projections,
marketing plans, and financial data.

     11.2 Exclusions. Notwithstanding Section 11.1, Confidential Information will exclude
information that the Receiving Party can demonstrate:

            11.2.1 was independently developed by the Receiving Party without any use of the Disclosing
Party’s Confidential Information or by the Receiving Party’s employees or other agents (or
independent contractors hired by the Receiving Party) who have not been exposed to the Disclosing
Party’s Confidential Information;

            11.2.2 becomes known to the Receiving Party, without restriction, from a source other than the
Disclosing Party without breach of this VPA and that had a right to disclose it;

            11.2.3 was in the public domain at the time it was disclosed or becomes in the public domain
through no act or omission of the Receiving Party; or

            11.2.4 was rightfully known to the Receiving Party, without restriction, at the time of
disclosure.

     11.3 Compelled Disclosure. If a Receiving Party believes that it will be compelled by a court
or other authority to disclose Confidential Information of the Disclosing Party, it shall give the
Disclosing Party prompt written notice so that the Disclosing Party may take steps to oppose such
disclosure, and the Receiving Party shall assist in opposing such disclosure at the Disclosing
Party’s expense. The parties agree that they shall work together to seek confidential treatment
for certain confidential portions of this Agreement if required to be filed with the Securities and
Exchange Commission.

     11.4 Confidentiality Obligation. During the term of this VPA and for a period of five years
thereafter, the Receiving Party shall keep such Confidential Information in strict confidence and
shall not disclose such Confidential Information to any third party without prior written consent
of the Disclosing Party.

     11.5 Confidentiality of Agreement. Each party agrees that the terms and conditions, but not
the existence, of this VPA will be treated as the other’s Confidential Information and that no
reference to the terms and conditions of this VPA or to activities pertaining thereto can be made
in any form of public or commercial advertising without the prior written consent of the other
party; provided, however, that each party may

20

 

disclose the terms and conditions of this VPA: (i) subject to the provisions of Section
11.3 as required by any court or other governmental body; (ii) as otherwise required by law
(including, without limitation, any rule, regulation or policy statement of any national securities
exchange, market or automated quotation system on which any of the Receiving Party’s securities are
listed or quoted); (iii) to legal counsel of the parties; (iv) in connection with the requirements
of a public offering, secondary offering, debt offering, or securities filing of the parties, or
otherwise as obligated by law; (v) in confidence, to accountants, banks, and financing sources and
their advisors; or (vi) in confidence, in connection with the enforcement of this VPA or rights
under this VPA.

     11.6 Remedies. Unauthorized use by a party of the other party’s Confidential Information will
diminish the value of such information. Therefore, if a party breaches any of its obligations with
respect to confidentiality or use of Confidential Information hereunder, the other party will be
entitled to seek equitable relief to protect its interest therein, including injunctive relief, as
well as money damages.

     11.7 Non-disclosure Agreements. Each party shall obtain the execution of proprietary
nondisclosure agreements with its Affiliates, including but not limited to the party’s and/or
Affiliates’ respective agents and consultants having access to Confidential Information of the
other party, shall diligently enforce such agreements with respect to the Confidential Information,
and shall exercise due care to control the actions of such Affiliates, employees, agents and
consultants in this respect so long as they have a working relationship with the party obligated
hereunder to obtain such nondisclosure agreements.

ARTICLE 12: GENERAL

     12.1 Governing Law and Jurisdiction. This VPA will be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the laws of the State of
California applicable to agreements executed, delivered and performed within such State, without
regard to the principles of conflicts of laws thereof. Each of the parties hereby consents to the
jurisdiction of any state or federal court located within the county of Santa Clara in the State of
California (except for resolution of pricing disputes as described in Section 6.2), and
each of the parties hereby: (i) waives any objection to venue of any action instituted under this
VPA, and (ii) consents to the granting of such legal or equitable relief as is deemed appropriate
by any aforementioned court.

     12.2 Force Majeure. Neither party shall be liable for its failure to perform any of its
obligations hereunder due to a Force Majeure Event (it being understood that a failure to make any
payments hereunder are not subject to this exception), provided that the party suffering
such delay immediately notifies the other party of the delay and provided further
that the period of delay shall not exceed ninety (90) days (the
“Tolling Period”). In the
event that the delay exceeds the Tolling Period, the non-breaching party may terminate this VPA
pursuant to Section 9.2.

     12.3 Trademarks. Nothing in this VPA gives either party a right to use the other party’s
name, trademark(s), or trade name(s), directly or indirectly, without the

21

 

other party’s prior written consent, except as may be required by applicable law or court
order. In such a case, the party required to disclose such information shall provide prompt notice
of such requirement in order that the other party may seek appropriate protective orders.

     12.4 Dispute Resolution. The parties agree that any material dispute between the parties
relating to this VPA (other than pricing disputes governed by Section 6.2) shall be handled
as follows:

	 	12.4.1	 	First, the parties will submit the dispute to a panel of two senior
executives (Vice-President or more senior) of each party. Either party may
initiate this proceeding by notifying the other party in writing pursuant to
the notice provisions of Section 12.11. 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 “First
Executive Conference”). The decision of the executives shall be final and
binding on the parties. In the event that the executives are unable to
resolve such dispute within twenty (20) Days after the First Executive
Conference, then the parties shall follow the procedures set forth in
Sections 12.4.2 and 12.4.3 below. Each party’s executives
shall be identified by notice to the other party and may be changed at any
time thereafter also by notice to the other party.
	 
	 	12.4.2	 	In the event that the First Executive Conference does not resolve the
dispute, the parties shall submit the dispute to JAMS, or any other mutually
selected mediator (the “Mediator”) for non-binding mediation. The
parties will cooperate with the Mediator and with one another in selecting the
Mediator (in the case of JAMS, in selecting an individual to mediate from
JAM’s panel of neutrals), and in promptly scheduling the mediation
proceedings. The parties covenant that they will participate in the mediation
in good faith, and that they will share equally in its costs. All offers,
promises, conduct and statements, whether oral or written, made in the course
of the mediation by any of the parties, their agents, employees, experts and
attorneys, and by the Mediator, are confidential, privileged and inadmissible
for any purpose, including impeachment, in any arbitration or other proceeding
involving the parties, provided that evidence that is otherwise
admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation. If the dispute is
not resolved within thirty (30) Days from the date of the submission of the
dispute to mediation (or such later date as the parties may mutually agree in
writing), the dispute shall be submitted to arbitration in accordance with
Section 12.4.3 below. The mediation may continue, if the parties so
agree, after the

22

 

	 	 	 	appointment of the arbitrators. Unless otherwise agreed by the parties,
the Mediator shall be disqualified from serving as arbitrator in the case.
The pendency of a mediation shall not preclude a party from seeking
provisional remedies in aid of the arbitration from a court of appropriate
jurisdiction, and the parties agree not to defend against any application
for provisional relief on the ground that a mediation is pending.
	 
	 	12.4.3	 	In the event the parties do not settle the dispute through mediation, the
parties will submit the matter(s) to binding arbitration in San Francisco,
California, in accordance with the Commercial Arbitration Rules of the AAA.
Each party shall appoint one arbitrator, and the two arbitrators thus
appointed will appoint a third arbitrator. The parties shall instruct the
arbitrators to make a determination within thirty (30) Days after submission
of the dispute to arbitration. Each party shall bear its own arbitration
costs and expenses; provided, however, that the arbitrators
may modify the allocation of fees, costs and expenses in the award in those
cases where fairness dictates other than each party bearing its own fees,
costs and expenses. The award shall be final and binding on the parties, and
judgment on the award may be entered in and enforced by any court of competent
jurisdiction.

     12.5 Assignment. Except as set forth in this Section 12.5, neither this Agreement,
nor any of the rights or obligations hereunder, may be assigned, transferred, subcontracted or
delegated by a party hereto to any third party (other than a parent or subsidiary under common
control with the assigning party), including without limitation, by operation of law or pursuant to
a Change of Control (as defined below). Notwithstanding the foregoing, (a) Komag may assign this
Agreement, and the rights and obligations hereunder, without the prior consent of WDC, in
connection with a Change of Control and (b) WDC may assign this Agreement, and the rights and
obligations hereunder, without the prior consent of Komag, to a third party in connection with a
Change of Control; so long as WDC assigns all obligations under this Agreement to any party that
succeeds to all or substantially all of WDC’s disk drive production business. For purposes of this
Section 12.5, “Change of Control” shall mean (i) any sale, lease, exchange or other
transfer (in one transaction or series of transactions) of all, or substantially all, of the assets
of such party, (ii) any consolidation or merger or other combination of a party in which such party
is not the continuing or surviving corporation or pursuant to which shares of such party’s common
stock would be converted into cash, securities or other property (other than a merger of such party
in which the holders of such party’s common stock immediately prior to the merger hold at least a
majority of the outstanding securities of the combined entity), or (iii) any transaction (or series
of related transactions) pursuant to which any person (as defined in Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 35% or more of such
party’s outstanding common stock. Any purported assignment of this VPA or the

23

 

rights or obligations of a party under this VPA in violation of this Section 12.5
shall be null, void and of no further force or effect and shall constitute a Material Default.
Notwithstanding the foregoing, in the event of a Change of Control of Komag with respect to a
Prohibited Assignee, WDC shall have the right to terminate this Agreement upon notice to Komag,
which notice shall be effective, at WDC’s option, either immediately upon closing of the
transaction that results in such Change of Control, or such other later date as set forth in the
notice. In the event WDC decides to continue under the terms of this Agreement for any period of
time following the effective date of a Change of Control, Komag agrees that it shall (i) allow
representatives of WDC reasonable access to Komag’s manufacturing facility as WDC reasonably
believes necessary in order for WDC to monitor and protect its interests under this Agreement and
(ii) provide WDC with adequate assurances that WDC’s intellectual property, product roadmaps,
Specifications and other Confidential Information is screened from and will not be disclosed to
employees that were employees of the Prohibited Assignee prior to the Change of Control.
Notwithstanding the foregoing, in the event WDC reasonably believes that at any point following the
Change in Control to a Prohibited Assignee that the Prohibited Assignee fails to demonstrate the
commitment and capacity to continue Komag’s management, technology, operations, and financing, and
meet Komag’s commitments to WDC under the Agreement, then WDC may terminate this VPA effective
immediately and neither such termination nor such failure to demonstrate such commitment or
capacity will constitute a Material Default by either party. In addition, Komag represents that it
is not currently contemplating or in negotiations with any party regarding a Change of Control.
“Prohibited Assignee” shall mean any third party who (x) engages as a substantial part of
its business in the manufacture of HDDs; or (y) engages as a substantial part of its business in
the manufacture of computer or software systems and who manufactures HDDs.

     12.6 Severability. If any of the provisions of this VPA are held by a court or other tribunal
of competent jurisdiction to be unenforceable, the remaining portions of this VPA will remain in
full force and effect.

     12.7 Failure to Enforce. The failure of either party to enforce at any time or for any period
of time the provisions of this VPA will not be construed to be a waiver of such provisions or of
the right of such party to enforce each and every provision of this VPA in the future.

     12.8 Agency. This VPA does not create a principal to agent, employer to employee, partnership,
joint venture, or any other relationship except that of independent contractors between Komag and
WDC.

     12.9 Request in Writing. All requests such as Pull Requests, acceptances/rejections, notices,
must be made or confirmed in writing. Such writings must take the form of electronic mail (receipt
confirmed), facsimile (receipt-confirmed) and/or posted letter (return-receipt).

     12.10 Counterparts. This VPA may be executed in one or more counterparts, each of which will
be deemed to be an original, but all of which will be considered one

24

 

and the same instrument. A photocopy of a signature or a facsimile of a signature shall be as
valid as an original.

     12.11 Notices. Except as otherwise provided herein, all notices hereunder will be deemed given
if (a) in writing and delivered personally; or (b) sent by facsimile transmission that is confirmed
by return facsimile or e-mail; to the parties at the following addresses (or at such other
addresses as will be specified by like notice):

	 	 	 	 	 
	 

	 	(i)
	 	if to WDC, to:
	 
	 	 	 	 
	 

	 	 	 	Western Digital Technologies, Inc.
	 

	 	 	 	20511 Lake Forest Drive, Lake Forest, CA 92630
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	Fax No.: (949) 672-5444
	 
	 	 	 	 
	 

	 	(ii)
	 	if to Komag to:
	 
	 	 	 	 
	 

	 	 	 	Komag USA (Malaysia) Sdn.Bayan Lepas Free Trade Zone
	 

	 	 	 	Phase III
	 

	 	 	 	11900 Penang
	 

	 	 	 	Malaysia
	 

	 	 	 	FX: 011-604-643-9881Attention: Kheng Huat Oung, Vice President, GM, Media
	 

	 	 	 	Operations
	 
	 	 	 	 
	 

	 	 	 	With a copy to:
	 
	 	 	 	 
	 

	 	 	 	Komag, Incorporated
	 

	 	 	 	1710 Automation Parkway
	 

	 	 	 	San Jose, California 95131
	 

	 	 	 	Attention: Chief Financial Officer
	 

	 	 	 	Fax No.: (408) 944-9234
	 
	 	 	 	 
	 

	 	 	 	and
	 
	 	 	 	 
	 

	 	 	 	Wilson Sonsini Goodrich & Rosati, P.C.
	 

	 	 	 	650 Page Mill Road
	 

	 	 	 	Palo Alto, California 94304
	 

	 	 	 	Attention:   Page Mailliard, Esq.
	 

	 	 	 	                     Selwyn Goldberg, Esq.
	 

	 	 	 	Fax No.: (650) 493-6811

Any notice given by mail will be effective when received. Any notice given by electronic mail or
facsimile transmission will be effective when the appropriate electronic mail or facsimile
transmission acknowledgment is received.

25

 

     12.12 Amendments. This VPA may only be amended in writing signed by authorized
representatives of each of the parties. To be effective, such amendments must specifically
reference this VPA.

     12.13 Complete Agreement. This VPA, Exhibits, and specific Purchase Orders and Pull Requests
set forth the complete agreement between the parties regarding their subject matter and replace all
prior or contemporaneous communications, understandings or agreements, written or oral, about this
subject.

     12.14 Performance During Pendency of Disputes. If a dispute arises between the parties,
regardless of whether such dispute requires the use of the procedures described in Section 6.2
or Section 12.4, subject to the terms and conditions of this Agreement, (a) in no event nor for
any reason shall Komag interrupt the provision of Products to WDC, delay manufacture or delivery of
Products or perform any other action that prevents, slows down, or reduces in any way the provision
of Products or WDC’s ability to conduct its business; and (b) each party shall continue to perform
its obligations under this Agreement, unless: (x) authority to do so has been granted by the other
party or conferred by a court of competent jurisdiction; or (y) this Agreement has been terminated
pursuant to Section 9.2 or Section 9.3 and a Disentanglement has occurred.

     12.15 Termination of Original VPA. Pursuant to Section 9.1 of the Original VPA, by
consent of the parties, the Original VPA is hereby terminated and replaced in its entirety by the
terms and conditions of this Agreement.

26

 

     IN WITNESS WHEREOF, the parties have caused this Volume Purchase Agreement to be signed and
accepted by their duly authorized representatives, effective as of the Effective Date.

	 	 	 	 	 
	 

	 	Western Digital Technologies, Inc.,
	 	Komag USA (Malaysia) Sdn.
	 

	 	a Delaware corporation.
	 	a Malaysian corporation

	 	 	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Marty Finkbeiner
	 	By:
	 	/s/ Kheng Huat Oung
	 

	 	 	 	 
	 	 	 	 
	 

	 	Name:
	 	Marty Finkbeiner
	 	Name:
	 	Kheng Huat Oung
	 

	 	Title:
	 	Senior Vice President, Materials
	 	Title:
	 	Managing Director

	 	 	 
	 

	 	Komag Incorporated
	 

	 	a Delaware corporation

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ray L. Martin
	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Ray L. Martin	 	 
	 

	 	Title:
	 	Executive Vice President, Customer Sales & Service	 	 

S-1

 

EXHIBIT A

WDC Fiscal Quarters

	 	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 1 2006
	 	 	 	 	 	 	 	 
	Month

	 	Start Date
	 	End Date
	 	Weeks

	 
	July 2005

	 	07/02/2005
	 	07/29/05
	 	 	4	 
	August 2005

	 	07/30/05
	 	08/26/05
	 	 	4	 
	September 2005

	 	08/27/05
	 	09/30/05
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 2 2006
	 	 	 	 	 	 	 	 
	October 2005

	 	10/01/05
	 	10/28/05
	 	 	4	 
	November 2005

	 	10/29/05
	 	11/25/05
	 	 	4	 
	December 2005

	 	11/26/05
	 	12/30/05
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 3 2006
	 	 	 	 	 	 	 	 
	January 2006

	 	12/31/05
	 	01/27/06
	 	 	4	 
	February 2006

	 	01/28/06
	 	02/24/06
	 	 	4	 
	March 2006

	 	02/25/06
	 	03/31/06
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 4 2006
	 	 	 	 	 	 	 	 
	April 2006

	 	04/01/06
	 	04/28/06
	 	 	4	 
	May 2006

	 	04/29/06
	 	05/26/06
	 	 	4	 
	June 2006

	 	05/27/06
	 	06/30/06
	 	 	5	 

A-1

 

	 	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 1 2007
	 	 	 	 	 	 	 	 
	July 2006

	 	7/1/06
	 	7/28/06
	 	 	4	 
	August 2006

	 	7/29/06
	 	8/25/06
	 	 	4	 
	September 2006

	 	8/26/06
	 	9/29/06
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 2 2007
	 	 	 	 	 	 	 	 
	October 2006

	 	9/30/06
	 	10/27/06
	 	 	4	 
	November 2006

	 	10/28/06
	 	11/24/06
	 	 	4	 
	December 2006

	 	11/25/06
	 	12/29/06
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 3 2007
	 	 	 	 	 	 	 	 
	January 2007

	 	12/30/06
	 	01/26/07
	 	 	4	 
	February 2007

	 	01/27/07
	 	02/26/07
	 	 	4	 
	March 2007

	 	02/24/07
	 	03/30/07
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	FISCAL
	 	 	 	 	 	 	 	 
	QUARTER 4 2007
	 	 	 	 	 	 	 	 
	April 2008

	 	3/31/2007
	 	4/27/2007
	 	 	4	 
	May 2008

	 	4/28/2007
	 	5/25/2007
	 	 	4	 
	June 2008

	 	5/26/2007
	 	6/29/2007
	 	 	5	 

A-2

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT B

PRICES

[***]

B-1

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

ADDITIONAL PAYMENT TERMS

     WDC shall make [***]payments to Komag Inc. of[***] to be applied against [***] purchases of
Product in accordance with this Exhibit as set forth below. [***]Payment [***] shall be
made by WDC on [***] and [***] in accordance with [***] Exhibit D. [***]. The parties
acknowledge that the [***] has already been paid and received. [***]Payment [***] shall be repaid
by Komag, Inc. to WDC solely in accordance with [***] Section 6.7 and 4.3.3 of the VPA.

     The parties agree that it is their mutual intent that [***]Payment [***] be used by the Komag
Group solely for manufacturing and operations in connection with the [***], and not for the Komag
Group’s general working capital purposes.

     Starting no earlier than the first date that first production comes off the [***], and no
later than [***], Komag Inc. shall make payments monthly to WDC equal to [***] for each Unit
invoiced during the fiscal month, within 7 days after the fiscal month-end (regardless of whether
such Unit was a result of [***] or previously existing
capacity) (the “Per Unit Offset”)
[***], then the remainder of the [***] shall become due and payable to WDC at the end of the
Initial Term, and Komag Inc. shall make such payment in a reasonable period of time not to exceed
15 Days.

B-2

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT C

Stop Ship Order Procedures

[***]

C-1

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT D

Progress Milestones

[***]

D-1

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT E

Warranty Verification and Disposition Flow Chart

[***]

E-1

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT F

Volumes

	 	 	 
	 Quarter	 	Volume Requirement
	[***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***]Units
	 
	 	 
	WDC [***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***]Units
	 
	 	 
	Each WDC Fiscal Quarter following the [***] Fiscal
Quarter [***] (i.e., each quarter after the quarter
ending [***]) for the term of this VPA.

	 	[***]Units

 

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

AMENDMENT NO. 1 TO VOLUME PURCHASE AGREEMENT

     This Amendment No. 1 to the Volume Purchase Agreement (this “Amendment”) is dated as of July
22, 2005 (the “Effective Date”), and is made by and between Komag USA (Malaysia) Sdn., a Malaysia
unlimited liability company (“Komag”), Komag, Incorporated, a Delaware Corporation
(“Komag Inc.”), and Western Digital Technologies, Inc., a Delaware corporation
(“WDC”).

RECITALS

     A. WDC, Komag and Komag Inc. previously executed a Volume Purchase Agreement (the “VPA”)
effective as of June 6, 2005.

     B. WDC, Komag and Komag Inc. now desire to amend the Agreement in the manner and upon the
terms and conditions hereinafter provided in this Amendment.

     NOW, THEREFORE, for and in consideration of the mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties executing this Amendment hereby agree as follows:

AGREEMENT

     1. Defined Terms. Capitalized terms not defined herein shall have the meanings set
forth in the VPA.

     2. Term. Section 9.1 of the VPA is hereby deleted in its entirety and replaced with
the following:

     9.1 Term. The term of this VPA shall be for eighteen (18) months from the date the New
Capacity is producing Product at full capacity, including capacity and volumes added
pursuant to Amendment No.1 to the VPA (the “Initial Term”). The Initial Term is currently
expected to begin [***]. The term of the VPA shall automatically be extended for an
additional twelve (12) months beyond the Initial Term (the “Second Term”) unless either
party gives written notice to the other party no later than six (6) months prior to the end
of the Initial Term that it does not want to extend the term of the VPA for the Second Term.
In the event one party gives such notice of its desire not to extend, then unless the
parties mutually agree otherwise, the VPA shall automatically be extended for an additional
six (6) months beyond the Initial Term and then terminate automatically at the end of the
additional six- (6)-month period.

     3. Exhibit B. The second page of Exhibit B of the VPA is hereby deleted in
its entirety and replaced with Exhibit B attached hereto.

 

 

     4. Exhibit D. Exhibit D of the VPA is hereby deleted in its entirety and
replaced with Exhibit D attached hereto.

     5. Exhibit F. Exhibit F of the VPA is hereby deleted in its entirety and
replaced with Exhibit F attached hereto.

     6. Miscellaneous.

	 	a.	 	The references to “Section 6.5.4” in Section 4.3.3.4 of the VPA and Section 9.2
of the VPA are hereby deleted and replaced with “Section 6.7”.
	 
	 	b.	 	The reference to “Komag” in the last paragraph of Section 6.7 of the VPA is
hereby deleted and replaced with “Komag Inc.”
	 
	 	c.	 	The reference to “Section 8.4” in Section 8.6.5 of the VPA is hereby deleted
and replaced with “Section 8.6”.

     7. Ratification of VPA. In the event of an inconsistency between the terms of this
Amendment and the terms of the VPA, the terms of this Amendment shall control. Except as amended
hereby, the VPA is ratified, approved and confirmed and shall remain in full force and effect in
accordance with its terms without modification.

     8. Confidentiality. Each party agrees that the terms and conditions, but not the
existence, of this Amendment will be treated as the other’s Confidential Information subject to
Section 11 of the VPA.

     9. Entire Agreement. The VPA, Exhibits, and specific Purchase Orders and Pull
Requests and this Amendment No. 1 set forth the complete agreement between the parties regarding
their subject matter and replace all prior or contemporaneous communications, understandings or
agreements, written or oral, about this subject.

     10. Counterparts. This Amendment may be executed in one or more counterparts, each of
which will be deemed to be an original, but all of which will be considered one and the same
instrument. A photocopy of a signature or a facsimile of a signature shall be as valid as an
original.

 

 

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to Volume Purchase Agreement
to be signed and accepted by their duly authorized representatives, effective as of the Effective
Date.

	 	 	 	 	 	 	 	 	 
	 	 	Western Digital Technologies, Inc.,	 	Komag USA (Malaysia) Sdn.
	 	 	a Delaware corporation.	 	a Malaysian corporation
	 
	 	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Marty Finkbeiner
	 	By:
	 	/s/ Kheng Huat Oung
	 

	 	 	 	 
	 	 	 	 
	 

	 	Name:
	 	Marty Finkbeiner
	 	Name:
	 	Kheng Huat Oung
	 

	 	Title:
	 	 Senior Vice President, Materials
	 	Title:
	 	Managing Director

	 	 	 
	 

	 	Komag Incorporated
	 

	 	a Delaware corporation

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ray L. Martin
	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Ray L. Martin	 	 
	 

	 	Title:
	 	 Executive Vice President, Customer Sales & Service	 	 

 

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT B

PRICES

ADDITIONAL PAYMENT TERMS

     WDC shall make [***]payments to Komag Inc. in accordance with the schedule set forth below
[***] to be applied against [***] purchases of Product in accordance with this Exhibit as set forth
below:

     [***]

     [***]Payment [***] shall be made subject to [***] Exhibit D. [***]. The parties
acknowledge that the [***] has already been paid and received. [***]Payment [***] shall be repaid
by Komag, Inc. to WDC solely in accordance with [***] Section 6.7 and 4.3.3 of the VPA.

     The parties agree that it is their mutual intent that [***]Payment [***] be used by the Komag
Group solely for manufacturing and operations in connection with the [***], and not for the Komag
Group’s general working capital purposes.

     Starting no earlier than the first date that first production comes off the [***], and no
later than [***], Komag Inc. shall make payments monthly to WDC equal to [***] for each Unit
invoiced during the fiscal month, within 7 days after the fiscal month-end (regardless of whether
such Unit was a result of [***] or previously existing
capacity) (the “Per Unit Offset”)
[***], then the remainder of the [***] shall become due and payable to WDC at the end of the
Initial Term, and Komag Inc. shall make such payment in a reasonable period of time not to exceed
15 Days.

     Notwithstanding the foregoing, in the event WDC makes payment to Komag in accordance with
Section 6.5 of the VPA for Units invoiced during [***], then the monthly payment by Komag Inc. to
WDC referenced in the previous paragraph shall increase [***].

 

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT D

Progress Milestones

[***]

 

 

	 	 	 
	 

	 	PORTIONS DENOTED WITH [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

EXHIBIT F

Volumes

	 	 	 
	 Quarter	 	Volume Requirement
	[***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***] Units
	 
	 	 
	[***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***]Units
	 
	 	 
	[***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***]Units
	 
	 	 
	[***]Fiscal Quarter [***] (i.e., the quarter ending
[***])

	 	[***]Units
	 
	 	 
	Each WDC Fiscal Quarter following the [***] Fiscal
Quarter [***] (i.e., each quarter after the quarter
ending [***]) for the term of this VPA.

	 	[***]Units

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