Komag to use stock, convertibles proceeds to redeem senior secured notes

New York, Nov. 3 - Komag, Inc. said that it filed a registration statement and offering prospectus with the Securities and Exchange Commission to offer common shares and new convertible debt for sale. The company said that it plans to use the proceeds of the offerings to fund the redemption in full of Komag's outstanding senior secured notes due 2007. The company estimates the amount of notes to be funded at around $114 million.

Komag said it filed to offer for sale $70 million of new convertible subordinated notes due 2023, plus an additional $10.5 million greenshoe, and to separately offer six million shares of common, plus a 900,000-share greenshoe. Komag itself is selling three million of those shares, with the remainder for sale by selling stockholders.

Besides funding the redemption of the senior secured notes, additional net proceeds, if any, will be used for general corporate purposes

Bear, Stearns & Co. Inc. is acting as sole bookrunning manager for the sales of stock and convertible debt, with U.S. Bancorp Piper Jaffray Inc. as joint lead manager, and Needham & Co., Inc. and Thomas Weisel Partners, LLC as co-managers.

As previously announced, Komag, a San Diego-based maker of digital data storage disks, said on Oct. 9 that it had called for a partial redemption of the senior secured notes, saying it would redeem $12.1 million of what it estimated to be the approximately $130.8 million aggregate principal amount of outstanding notes on Oct. 21.

Komag had issued $128.82 million of the notes as part of its recapitalization upon its emergence from Chapter 11 in June 2002 - $85.3 million of them cash-pay carrying a coupon paying annual interest of the greater of either 8% or a 3% premium over the prime rate, and $43.5 million of them 12% payment-in-kind (PIK) notes. The total outstanding amount of the notes has increased since the original issuance due to the issuance of further PIK notes to pay accrued interest.

The company said the two series of notes subject to the partial redemption carry the identifying CUSIP numbers 500453AA3 and 540453AC9.

It said that holders of notes carrying CUSIP number 500453AA3 selected by the company for redemption would receive $10.1861 per note (consisting of $10.1725 in principal amount at maturity plus $0.0136 of accrued and unpaid interest from Oct. 15 to Oct. 20). Holders of notes carrying CUSIP number 500453AC9 selected for redemption would receive $14.1988 per note (consisting of $14.1799 in principal amount at maturity plus $0.0189 of accrued and unpaid interest from Oct. 15 to Oct. 20).

Komag, in its announcement of third-quarter earnings released on Oct. 22, noted the $12.1 million partial redemption of the notes, and another $5 million in mandatory quarterly principal repayments on Oct. 15. The Bank of New York was the paying agent for the redemption transactions (contact Michael Pitfick at 212 815-3036).

Komag said on Oct. 30 that on Oct. 28, it had entered into a supplemental indenture with The Bank of New York, the senior secured notes' notes' trustee, amending the notes' indenture to reflect that Komag had obtained the consent of at least a majority in principal amount of its senior notes, voting as a single class, to the redemption of the notes, as well as to an increase of $10 million in its permitted capital expenditures for fiscal 2003

Komag concurrently said on Oct. 30 that it had called for the full redemption on Dec. 2 of all of its $8,167,416.60 principal amount of outstanding junior secured notes due 2007. It said that upon redemption, holders will receive $118.512 per $100 original principal amount of notes, which would consist of $117.8442 in principal amount (consisting of the original principal amount plus PIK interest payments to up to Nov. 15), plus $0.6678 of accrued and unpaid interest on the notes from Nov. 15 to Dec. 2.

Komag said a notice of redemption was being mailed to all registered holders of the Notes. Bank One Trust Co., NA in Columbus, Ohio is the paying agent on the junior notes' redemption (call Eamon Fahey at 406-273-3126).

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