<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HMT TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3695 94-3084354
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
CLASSIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CODE NUMBER)
</TABLE>
---------------------
1055 PAGE AVENUE
FREMONT, CA 94538
(510) 490-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
PETER S. NORRIS
CHIEF FINANCIAL OFFICER
HMT TECHNOLOGY CORPORATION
1055 PAGE AVENUE
FREMONT, CA 94538
(510) 490-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES C. KITCH, ESQ. JOHN A. FORE, ESQ.
JULIA L. DAVIDSON, ESQ. ANDREW J. HIRSCH, ESQ.
COOLEY GODWARD CASTRO WILSON SONSINI GOODRICH & ROSATI
HUDDLESON & TATUM PROFESSIONAL CORPORATION
FIVE PALO ALTO SQUARE 650 PAGE MILL ROAD
3000 EL CAMINO REAL PALO ALTO, CA 94304
PALO ALTO, CA 94306-2155 (415) 493-9300
(415) 843-5000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
OFFERING
PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE PER SHARE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED OR PER NOTE PRICE FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value............. 4,600,000(1) $26.31(2) $121,026,000(2) $41,733.10
- ------------------------------------------------------------------------------------------------------------
% Convertible Subordinated Notes
due 2003................................. $172,500,000(3) 100%(4) $172,500,000(4) $59,482.76
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value............. (5)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 600,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment options.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) based on the average of the
high and low sales prices on the Nasdaq National Market on May 24, 1996
under the Securities Act of 1933, as amended (the "Act").
(3) Includes $22,500,000 principal amount of % Convertible Subordinated
Notes due 2003 (the "Notes") issuable upon exercise of the Underwriters'
over-allotment option.
(4) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(i) under the Act.
(5) Such number of shares of Common Stock as may be issuable upon conversion of
the Notes, including such additional shares as may be issuable as a result
of adjustments to the conversion price. No separate fee is required.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
HMT TECHNOLOGY CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1
REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------------------- --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Summary; Risk Factors; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Consolidated
Financial Statements
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Underwriting
6. Dilution................................... Inapplicable
7. Selling Security Holders................... Outside Front Cover; Principal and Selling
Stockholders; Description of Capital
Stock; Underwriting
8. Plan of Distribution....................... Outside Front and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Description of
Notes; Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant............................... Outside Front and Inside Front Cover Pages;
Summary; The Company; Leveraged
Recapitalization; Risk Factors; Dividend
Policy; Price Range of Common Stock;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships and
Related Transactions; Principal and
Selling Stockholders; Description of
Notes; Description of Capital Stock;
Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Inapplicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1996
LOGO
4,000,000 SHARES COMMON STOCK
$150,000,000
% CONVERTIBLE SUBORDINATED NOTES DUE 2003
HMT Technology Corporation ("HMT" or the "Company") hereby offers 4,000,000
shares of Common Stock (the "Common Stock Offering"), and $150,000,000 of %
Convertible Subordinated Notes due 2003 (the "Note Offering"). The %
Convertible Subordinated Notes due 2003 (the "Notes") are convertible into
shares of Common Stock at any time through maturity, unless previously redeemed
or repurchased, at a conversion price of $ per share, subject to adjustment in
certain events. Prior to the Note Offering, there has been no public trading
market for the Notes. The Notes are expected to be traded on the
over-the-counter market. The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "HMTT." On May 24, 1996, the last reported sale
price for the Common Stock on the Nasdaq National Market was $26.00 per share.
Interest on the Notes is payable on and , commencing
, 1996. The Notes are not redeemable at the option of the Company
prior to , 1998. At any time on or after such date, the Notes will be
redeemable on at least 20 but not more than 60 days' notice, at the option of
the Company, in whole or in part at any time, initially at % and thereafter
at prices declining to 100% of the principal amount of the Notes at maturity,
together with accrued and unpaid interest to the redemption date, provided, that
the Company may not redeem the Notes prior to , 1999 unless the
closing price of the Common Stock on the principal stock exchange or market on
which the Common Stock is then quoted or admitted to trading equals or exceeds
150% of the conversion price for at least 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date the
notice of redemption is first mailed to the holders of the Notes. In the event
of a Designated Event (as defined), each holder may require the Company to
repurchase all or a portion of such holder's Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest. The Notes are unsecured and
are subordinated to all existing and future Senior Indebtedness (as defined) of
the Company. At March 31, 1996, the Company had outstanding approximately $8.5
million that would have constituted Senior Indebtedness. See "Description of the
Notes."
The Common Stock Offering and the Note Offering are referred to collectively
as the "Offerings." Neither the closing of the Common Stock Offering nor the
closing of the Note Offering is conditioned on the closing of the other
offering.
---------------------
THE COMMON STOCK AND THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. UPON THE COMPLETION OF THE OFFERINGS AND BASED ON SHARES OUTSTANDING AT
MARCH 31, 1996, DIRECTORS, OFFICERS AND THEIR AFFILIATES WILL OWN APPROXIMATELY
62% OF THE OUTSTANDING COMMON STOCK AND WILL CONTROL MOST CORPORATE ACTIONS. SEE
"RISK FACTORS" BEGINNING AT PAGE 9.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- -----------------------------------------------------------------------------------------------------------
Per Share............................................ $ $ $
- -----------------------------------------------------------------------------------------------------------
Per Note............................................. % % %
- -----------------------------------------------------------------------------------------------------------
Total Shares......................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
Total Notes.......................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(2)............................................. $ $ $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $500,000.
(2) Certain stockholders (the "Selling Stockholders") have granted the
Underwriters 30-day options to purchase up to 600,000 additional shares of
Common Stock, solely to cover over-allotments, if any. The Company has
granted the Underwriters a 30-day option to purchase up to an additional
$22,500,000 principal amount of Notes solely to cover over-allotments, if
any. See "Underwriting". If such options are exercised in full, total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be , and , respectively, and total proceeds to
the Selling Stockholders will be $ .
---------------------
The Common Stock and Notes are offered by the Underwriters as stated herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of such securities
will be made through the offices of Robertson, Stephens & Company LLC
("Robertson, Stephens & Company"), San Francisco, California, on or about
, 1996.
ROBERTSON, STEPHENS & COMPANY
ALEX. BROWN & SONS
INCORPORATED
SALOMON BROTHERS INC
HAMBRECHT & QUIST
The date of this Prospectus is , 1996
<PAGE> 4
[ARTWORK]
------------------------
NOTICE TO CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE NOTES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH NOTES MAY BE SOLD ONLY TO ANY BANK, SAVINGS AND LOAN
ASSOCIATION, TRUST COMPANY, INSURANCE COMPANY, INVESTMENT COMPANY REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION OR PROFIT-SHARING TRUST (OTHER
THAN A PENSION OR PROFIT-SHARING TRUST OF THE ISSUER, A SELF-EMPLOYED INDIVIDUAL
RETIREMENT PLAN, OR INDIVIDUAL RETIREMENT ACCOUNT); OR ANY ORGANIZATION
DESCRIBED IN SECTION 501(C)(3) OF THE INTERNAL REVENUE CODE OF 1986, WHICH HAS
TOTAL ASSETS OF NOT LESS THAN $5,000,000 ACCORDING TO ITS MOST RECENT AUDITED
FINANCIAL STATEMENT; OR ANY CORPORATION WHICH HAS A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO ITS MOST RECENT AUDITED FINANCIAL STATEMENT OF NOT LESS THAN
$14,000,000; OR ANY WHOLLY-OWNED SUBSIDIARY OF ANY OF THE FOREGOING; OR THE
FEDERAL GOVERNMENT, ANY AGENCY, INSTRUMENTALITY, OR WHOLLY-OWNED CORPORATION OF
THE FEDERAL GOVERNMENT, ANY STATE, CITY, OR COUNTY, OR ANY AGENCY OR
INSTRUMENTALITY OF A STATE, CITY, OR COUNTY, OR ANY STATE UNIVERSITY OR STATE
COLLEGE AND ANY RETIREMENT SYSTEM FOR THE BENEFIT OF EMPLOYEES OF ANY OF THE
FOREGOING; PROVIDED THAT ANY PURCHASER LISTED ABOVE REPRESENTS THAT IT IS
PURCHASING FOR ITS OWN ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE
IN CONNECTION WITH ANY DISTRIBUTION OF THE NOTES AND, PROVIDED FURTHER, THAT THE
FOREGOING IS ALSO SUBJECT TO CERTAIN EXCEPTIONS SET FORTH IN THE CALIFORNIA
CORPORATE SECURITIES LAWS OF 1968 AND THE RULES AND REGULATIONS THEREUNDER. EACH
CALIFORNIA RESIDENT PURCHASING THE NOTES OFFERED HEREBY WILL BE DEEMED TO
REPRESENT BY SUCH PURCHASE THAT IT COMES WITHIN ONE OF THE AFOREMENTIONED
CATEGORIES AND THAT IT WILL NOT SELL OR OTHERWISE TRANSFER SUCH NOTE TO A
CALIFORNIA RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED
CATEGORIES AND THAT IT WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH
TRANSFEREE, BY BECOMING SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME
RESTRICTIONS ON RESALE.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE NOTES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET, INCLUDING ON THE NASDAQ NATIONAL MARKET AND THE
OVER-THE-COUNTER MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
2
<PAGE> 5
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERINGS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................................. 4
Risk Factors............................................................................ 9
The Company............................................................................. 18
Leveraged Recapitalization.............................................................. 18
Use of Proceeds......................................................................... 20
Dividend Policy......................................................................... 20
Price Range of Common Stock............................................................. 20
Capitalization.......................................................................... 21
Selected Consolidated Financial Data.................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations... 23
Business................................................................................ 31
Glossary................................................................................ 44
Management.............................................................................. 45
Certain Relationships and Related Transactions.......................................... 54
Principal and Selling Stockholders...................................................... 56
Description of Notes.................................................................... 58
Description of Capital Stock............................................................ 69
Certain Federal Income Tax Considerations............................................... 71
Shares Eligible for Future Sale......................................................... 74
Underwriting............................................................................ 76
Legal Matters........................................................................... 78
Experts................................................................................. 78
Additional Information.................................................................. 78
Index to Consolidated Financial Statements.............................................. F-1
</TABLE>
---------------------
The HMT Technology logo is a trademark of the Company. This Prospectus also
includes tradenames and trademarks of other companies.
3
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus is
being used by the Company to offer 4,000,000 shares of Common Stock and $150
million principal amount of the Notes. Neither the closing of the Common Stock
Offering nor the closing of the Note Offering is conditioned on the closing of
the other offering. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
THE COMPANY
HMT is an independent supplier of high-performance thin film disks for
high-end, high-capacity hard disk drives, which in turn are used in high-end
personal computers ("PCs"), network servers and workstations. The disks
currently being shipped by the Company are primarily for disk drives with
storage capacities ranging from 1.6 to 9 gigabytes (using three to 12 disks),
and all have coercivity levels of 1900 Oe or higher. Since March 1994, the
Company has focused on addressing the needs of this high-end, high-capacity
segment of the disk drive market. HMT believes that its recent operating results
reflect its success in meeting these needs and that its future growth and
success depend on its ability to continue to develop and market products that
enable its customers to produce high-performance disk drives for high-end data
storage applications. The Company provides a range of magnetic density points
(coercivities), glide heights and disk thicknesses to match the design and
performance requirements of each particular customer. The Company currently
focuses all of its production capacity on 3 1/2-inch disks, although it is
capable of producing disks in other standard form factors. In fiscal 1996, HMT
sold its disks to Maxtor Corporation, Western Digital Corporation, Micropolis
Corporation, Quantum Corporation, Iomega Corporation and Hewlett-Packard
Company. The Company has also recently begun shipping disks to Samsung
Electronics Company Limited.
Market demand for disks and disk drives is growing rapidly, stimulated by
demand for new computers, upgrades to existing computers and the growing use of
sophisticated network servers. The combined demand from the PC and server
markets has resulted in strong growth in unit shipments of disk drives, which in
turn has stimulated the growth of the thin film disk market. According to Trend
Focus, the number of thin film disks produced in 1993 was 134 million, was 256
million in 1995 and is projected to reach 416 million in 1997. The worldwide
market for thin film disks is estimated to have been $3.3 billion in 1995.
The most significant technological challenges facing disk manufacturers
today are associated with market demand for increased storage capacity and
durability. An effective implementation of thin film technology to meet these
challenges must address various performance-related characteristics, including
magnetics, glide height, durability and static friction ("stiction"). HMT
focuses on providing value added technological solutions that meet the demands
of the high-end, high-capacity disk drive market. The Company develops,
manufactures and sells technologically advanced products designed to provide
improved performance, principally through achieving higher coercivities and
lower glide heights. The Company seeks to be a supplier to disk drive
manufacturers with a proven record for technological leadership because these
customers have the greatest ability to fully exploit the value of
technologically superior disks.
HMT believes that its internally developed proprietary manufacturing
processes and state-of-the-art equipment, to which it has made proprietary
modifications, combined with its extensive expertise, currently provide HMT with
a technological advantage over competing independent thin film disk
manufacturers. Particularly important to the Company's success are its unique
tribology approach, its commitment to developing disks for drives utilizing new
head technology and its ability to produce high-coercivity disks using
non-precious metal alloys.
4
<PAGE> 7
The key elements of HMT's strategy are as follows: establish and maintain
leadership in high-end product technology; develop collaborative relationships
with leading head manufacturers and disk drive manufacturers; develop advanced
manufacturing processes to support volume production; maintain strict quality
control of manufacturing process; and expand manufacturing capacity.
The Company has recently announced plans to construct a new production
facility at its Fremont, California site, in which it plans to install up to 16
additional production scale sputtering lines. The Company has also recently
acquired an aluminum substrate manufacturing facility and related equipment
located in Eugene, Oregon, and has announced plans to enlarge that facility in
order to increase substrate production and to add nickel plating and polishing
capability.
5
<PAGE> 8
THE COMMON STOCK OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 4,000,000 shares
Common Stock Outstanding after the
Offerings.................................. 43,979,178 shares(1)
Nasdaq National Market symbol................ HMTT
</TABLE>
- ---------------
(1) Excludes 4,338,517 shares of Common Stock issuable upon the exercise of
outstanding options and warrants as of March 31, 1996. Also excludes shares
issuable upon conversion of the Notes. See "Capitalization," "Management --
Option Grants in Last Fiscal Year", "Option Exercises Last Fiscal Year" and
"-- Employee Benefit Plans," "Certain Relationships and Related Transactions
-- Leveraged Recapitalization" and "Description of Capital Stock."
THE NOTE OFFERING
Securities Offered................... $150,000,000 principal amount of %
Convertible Subordinated Notes due
2003 ($172,500,000 principal amount
of the Notes if the over-allotment
option is exercised in full).
Interest Payment Dates............... and 1996,
commencing , 1996.
Maturity............................. , 2003.
Conversion........................... Convertible into Common Stock, $0.001
par value, of the Company at any time
through maturity, unless previously
redeemed or repurchased, at a
conversion price of $ per
share, subject to adjustment under
certain conditions. See "Description
of Notes -- Conversion."
Optional Redemption.................. The Notes are not redeemable at the
option of the Company prior to
, 1998. At any time on or
after such date, the Notes will be
redeemable on at least 20 but not
more than 60 days' notice, at the
option of the Company, in whole or in
part at any time, initially at %
and thereafter at prices declining to
100% of the principal amount of the
Notes at maturity, together with
accrued and unpaid interest to the
redemption date, provided, that the
Company may not redeem the Notes
prior to , 1999 unless the
closing price of the Common Stock on
the principal stock exchange or
market on which the Common Stock is
then quoted or admitted to trading
equals or exceeds 150% of the
conversion price for at least 20
trading days within a period of 30
consecutive trading days ending on
the fifth trading day prior to the
date the notice of redemption is
first mailed to the holders of the
Notes. See "Description of
Notes -- Optional Redemption by the
Company."
Repurchase at Option of Holders Upon
a
Designated Event................... In the event of a Designated Event
(as defined), each holder may require
the Company to repurchase all or a
portion of such holder's Notes at
100% of the principal amount thereof
plus accrued and unpaid interest. See
"Description of Notes -- Repurchase
at Option of Holders Upon a
Designated Event."
Subordination........................ Subordinate to all existing and
future Senior Indebtedness (as
defined) of the Company. As of
6
<PAGE> 9
March 31, 1996, the Company had
outstanding approximately $8.5
million that would have constituted
Senior Indebtedness. The Indenture
contains no limitations on the
incurrence of additional Senior
Indebtedness or other indebtedness by
the Company. See "Description of
Notes -- Subordination."
Trading.............................. The Notes are expected to trade in
the over-the-counter market.
USE OF PROCEEDS
Prepayment of $47.0 million of Subordinated Notes (as defined), redemption
of $59.0 million of Series A Preferred Stock, capital expenditures, working
capital and other general corporate purposes.
7
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data and ratios)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 44,076 $ 70,987 $ 64,242 $72,893 $194,401
Gross profit (loss).................................... (8,787) (5,250) (3,406) 5,354 74,598
Operating income (loss) ............................... (16,024) (12,474) (11,302) (2,006) 58,674
Net income (loss) available for common stockholders.... $(21,085) $(17,056) $(17,325) $(8,941) $ 45,222
Net income (loss) available for common stockholders per
share................................................ $ (0.61) $ (0.49) $ (0.50) $ (0.26) $ 1.28
Shares used in computing per share amounts(1).......... 34,822 34,822 34,822 34,822 35,224
Ratio of earnings to fixed charges(2).................. -- -- -- -- 5.6x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................. $ 45,899 $196,084
Total assets................................................................ 165,786 320,346
Subordinated promissory notes payable to stockholders....................... 47,000 --
% Convertible Subordinated Notes due 2003................................. -- 150,000
Mandatorily Redeemable Series A Preferred Stock............................. 60,157 --
Total stockholders' equity.................................................. 19,524 131,241
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the basis
used to calculate net income per share.
(2) The ratio of earnings to fixed charges is computed by dividing (x) the sum
of income before provision for income taxes, extraordinary items and fixed
charges, less capitalized interest, by (y) fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of debt expense and
discount or premium relating to indebtedness, including a one time charge
related to debt extinguishment of $1.1 million. Earnings were inadequate to
cover fixed charges for all periods prior to fiscal 1996. The deficiencies
of earnings were approximately $22.0 million, $17.6 million, $17.4 million
and $8.9 million for fiscal 1992, 1993, 1994 and 1995, respectively.
(3) Adjusted to reflect (i) the sale by the Company of the 4,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $26.00
per share, less underwriting discounts and commissions and estimated
offering expenses payable by the Company, (ii) the sale of $150.0 million of
the Notes, less underwriting discounts and commissions and estimated
offering expenses payable by the Company, (iii) the application of the net
proceeds from the Offerings and (iv) the sale of 1,260,000 shares of Common
Stock at $10.00 per share on April 12, 1996 pursuant to the over-allotment
option of the underwriters for the Company's initial public offering,
resulting in net proceeds of approximately $11.7 million (as if the sale
occurred on March 31, 1996). See "Use of Proceeds."
Unless otherwise indicated, all information contained in this Prospectus assumes
(i) no exercise of the Underwriters' over-allotment options and (ii) the
completion of the Offerings. See "Underwriting." The definition of certain terms
may be found in the Glossary on page 44.
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below.
HISTORY OF OPERATING LOSSES
The Company experienced operating losses for its fiscal years ending March
31, 1994 and 1995 of $11.3 and $2.0 million, respectively. Although the Company
has improved its operating results since its new management team was assembled
and has achieved an operating profit in five of the past six quarters, there can
be no assurance that the Company will be able to maintain profitability in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results historically have been, and may continue to
be, subject to significant quarterly and annual fluctuations. For example,
during the eight quarters ended March 31, 1996, the Company's net sales, gross
profit (loss) and net income (loss) ranged from $14.8 million, $(2.6) million
and $(6.7) million, respectively, for the three months ended March 31, 1995 to
$65.0 million, $27.2 million and $11.6 million for the three months ended March
31, 1996. As a result, the Company's operating results in any quarter may not be
indicative of its future performance. Factors affecting operating results
include: market acceptance of new products; timing of significant orders;
changes in pricing by the Company or its competitors; timing of product
announcements by the Company, its customers or its competitors; order
cancellations, modifications and quantity adjustments and shipment
reschedulings; changes in product mix; manufacturing yields; the level of
utilization of the Company's production capacity; increases in production and
engineering costs associated with initial manufacture of new products; and
changes in the cost of or limitations on the availability of materials. The
impact of these and other factors on the Company's revenues and operating
results in any future period cannot be forecasted with certainty. The Company's
expense levels are based, in part, on its expectations as to future revenues.
Because the Company's sales are generally made pursuant to purchase orders that
are subject to cancellation, modification, quantity reduction or rescheduling on
short notice and without significant penalties, the Company's backlog as of any
particular date may not be indicative of sales for any future period, and such
changes could cause the Company's net sales to fall below expected levels. If
revenue levels are below expectations, operating results are likely to be
materially adversely affected. Net income, if any, and gross margins may be
disproportionately affected by a reduction in net sales because a
proportionately smaller amount of the Company's expenses varies with its
revenues. See "-- Dependence on Suppliers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company derives substantially all of its net sales from the sale of
thin film disks to a small number of customers. The Company typically supplies
disks in volume for a limited number of disk drive products at any one time, and
these products have an extremely short life cycle. Due to the rapid
technological change and frequent development of new disk drive products, it is
common in the industry for the relative mix of customers and products to change
rapidly, even from quarter to quarter. Generally, new products have higher
average selling prices than more mature products. Therefore, the Company's
ability to introduce new products in a timely fashion is an important factor in
its continued success. Moreover, manufacturing yields and production capacity
utilization impact the Company's operating results. New products often have
lower manufacturing yields and are produced in lower quantities than more mature
products. Manufacturing yields generally improve as the product matures and
production volumes increase. Manufacturing yields also vary depending on the
complexity and uniqueness of product specifications. The ability to adjust
manufacturing proce-
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dures to reduce costs and improve manufacturing yields and productivity during a
product's life is limited, and many adjustments can only be implemented in
connection with new product introductions or upgrades. Small variations in
manufacturing yields and productivity can have a significant impact on operating
results. Furthermore, because the thin film disk industry is capital intensive
and requires a high level of fixed costs, operating results are also extremely
sensitive to changes in volume. Substantial advance planning and commitment of
financial and other resources is necessary for expansion of manufacturing
capacity, while the Company's sales are generally made pursuant to purchase
orders that are subject to cancellation, modification, quantity reductions or
rescheduling without significant penalties. The impact of any of the foregoing
factors could have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; LENGTHY SALES CYCLE
During fiscal 1995 and 1996, the Company shipped most of its thin film
disks to four customers: Maxtor Corporation ("Maxtor"), Western Digital
Corporation ("Western Digital"), Hewlett-Packard Corporation ("Hewlett Packard")
and Micropolis Corporation ("Micropolis"). Aggregate shipments to Maxtor,
Western Digital, Hewlett-Packard and Micropolis represented 73.7%, 5.9%, 0.0%
and 11.2%, respectively, of net sales in fiscal 1995 and 40.5%, 35.8%, 3.7% and
9.1%, respectively, of net sales during fiscal 1996. There are a relatively
small number of disk drive manufacturers, and the Company expects that its
dependence on a few customers will continue in the future. Loss of or a
reduction in orders from one or more of the Company's customers could result in
a substantial reduction in net sales. Because many of the Company's expense
levels are based, in part, on its expectations as to future revenues, decreases
in net sales may result in a disproportionately greater negative impact on
operating results. The Company's success will therefore depend on the success of
its key customers. For example, in fiscal 1994 the Company's operating results
were adversely affected by operating difficulties experienced by the Company's
then largest customer. One or more of the Company's customers could develop or
expand their ability to produce thin film disks internally and, as a result,
could reduce the level of purchases or cease purchasing from the Company or
could sell thin film disks in competition with the Company. For example, one of
the Company's customers, Western Digital, manufactures thin film disks for its
own use and an affiliate of another customer, Maxtor, has recently announced
plans to do so. There has also been a trend toward consolidation in the disk
drive industry, which the Company expects to continue. For example, in February
1996, two leading disk drive manufacturers, Seagate Technology, Inc. ("Seagate")
and Conner Peripherals, Inc., combined to form the world's largest disk drive
manufacturing company. If any of the Company's customers or competitors were to
combine and reduce suppliers and competitive product lines, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Business -- Customers, Sales and Support."
Qualifying thin film disks for incorporation into a new disk drive product
requires the Company to work extensively with the customer and the customer's
other suppliers to meet product specifications. Therefore, customers often
require a significant number of product presentations and demonstrations, as
well as substantial interaction with the Company's senior management, before
making a purchasing decision. Accordingly, the Company's products typically have
a lengthy sales cycle, which can range from six to 12 months, during which the
Company may expend substantial financial resources and management time and
effort with no assurance that a sale will result.
INTENSE COMPETITION
The market for the Company's products is highly competitive, and the
Company expects competition to continue in the future. Certain of the Company's
competitors have significantly greater financial, technical and marketing
resources than the Company. There can be no assurance that in the future the
Company will be able to develop and manufacture products on a timely basis with
the quality and features necessary in order to remain competitive. Competitors
in the thin film disk industry fall into three groups: U.S. non-captive
manufacturers, Japan-based manufacturers and U.S.
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captive manufacturers. Historically, each of these groups has supplied
approximately one-third of the worldwide thin film disk unit output. The
Company's primary U.S. non-captive competitors are Akashic Memories Corporation,
a subsidiary of Kubota, Inc. ("Akashic"), Komag, Incorporated ("Komag") and
StorMedia Incorporated ("StorMedia"). Japan-based competitors include Fuji
Electric Company, Ltd. ("Fuji"), Mitsubishi Kasei Corporation ("Mitsubishi"),
Showa Denko K.K. ("Showa Denko") and Hoya Corporation ("Hoya"). In addition,
U.S. captive manufacturers, which include certain computer manufacturers, as
well as disk drive manufacturers such as Seagate, an affiliate of Maxtor and
Western Digital, manufacture disks or plan to manufacture disks for their
internal use as part of their vertical integration programs. These companies
could increase their internal production and reduce or cease purchasing from
independent disk suppliers such as the Company. In the event of an oversupply of
disks, these customers are likely to utilize their internal capacity prior to
purchasing disks from independent suppliers such as the Company. Moreover, while
captive manufacturers have, to date, sold only nominal quantities of thin film
disks in the open market, there can be no assurance that such companies will not
in the future do so in direct competition with the Company. Furthermore, there
can be no assurance that other current and potential customers will not acquire
or develop capacity to produce thin film disks for internal use. Any such
changes could have a material adverse effect on the Company's business,
operating results and financial condition. Announcement or implementation of any
of the following by the Company's competitors could have a material adverse
effect on the Company's business, operating results and financial condition:
changes in pricing, product introductions, increases in production capacity,
changes in product mix and technological innovation. Specifically, the thin film
disk industry is characterized by intense price competition. The Company has
experienced pricing pressures in the past, and there can be no assurance that
the Company will not experience increased price competition in the future.
Pricing pressure has included, and may in the future include, demands for
discounts, long-term supply commitments and extended payment terms. Any increase
in price competition could have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Competition."
The Company believes that certain of its competitors are currently engaged
in substantial efforts to increase disk manufacturing capacity in light of the
apparent imbalance between current levels of demand for disks and existing
industry capacity. These efforts should result in significant additional
capacity in the industry within the next one to two years. To the extent that
these efforts result in industry capacity in excess of levels of demand, the
Company could experience increased levels of competition, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON INTENSELY COMPETITIVE AND CYCLICAL HARD DISK DRIVE INDUSTRY
The Company's operating results are dependent on current and anticipated
demand for high-end, high-capacity hard disk drives, which in turn depend on the
demand for high-end PCs, network servers and workstations. The disk drive
industry is cyclical and historically has experienced periods of oversupply and
reduced production levels, resulting in significantly reduced demand for thin
film disks, as well as pricing pressures. The effect of these cycles on
suppliers, including thin film disk manufacturers, has been magnified by hard
disk drive manufacturers' practice of ordering components, including thin film
disks, in excess of their needs during periods of rapid growth, which increases
the severity of the drop in the demand for components during periods of reduced
growth or contraction. In recent years, the disk drive industry has experienced
significant growth, and the Company has expanded its capacity and expects to do
so further. There can be no assurance that such growth will continue, that the
level of demand will not decline, or that future demand will be sufficient to
support existing and future capacity. A decline in demand for hard disk drives
would have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Backlog."
Additionally, the hard disk drive industry is intensely competitive, and, in the
past, some disk drive manufacturers have experienced substantial financial
difficulties. To date, the Company has not incurred significant bad debt
expense. However, there can be no assurance that the Company will not
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<PAGE> 14
face greater difficulty in collecting receivables or be required to offer more
liberal payment terms in the future, particularly in a period of reduced demand.
Any failure to collect or delay in collecting receivables could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Customers, Sales and Support."
RAPID TECHNOLOGICAL CHANGE
The thin film disk industry has been characterized by rapid technological
development and short product life cycles. Product life cycles typically range
from nine to twelve months. As a result, the Company must continually
anticipate, and adapt its products to meet, demand for increased storage
capacity. Although the Company is continually developing new products and
production techniques, there can be no assurance that the Company will be able
to anticipate technological advances in disk drives and develop products
incorporating such advances in a timely manner or to compete effectively against
its competitors' new products. In addition, there can be no assurance that
customers will certify the Company's products for inclusion in new disk drive
products. The Company anticipates continued changes in the requirements of the
disk drive industry and thin film disk manufacturing technologies, and there can
be no assurance that the future technological innovations will not reduce demand
for thin film disks. The Company's business, operating results and financial
condition will be materially adversely affected if the Company's efforts are not
successful, if the technologies that the Company has chosen not to develop prove
to be competitive alternatives or if any trend develops toward technology that
would replace thin film disks as a storage medium. See "Business -- Industry
Background -- Challenges Facing the Disk Drive Industry" and "-- Products."
DEPENDENCE ON SUPPLIERS
The Company relies on a limited number of suppliers for many materials used
in its manufacturing processes, including substrates, texturizers, plating
chemicals, abrasive tapes and slurries, certifier heads, sputter targets and
certain other materials. In general, the Company seeks to have two or three
suppliers for its requirements; however, there can be no assurance that the
Company can secure more than one source for all of its materials requirements in
the future or that its suppliers will be able to meet the Company's requirements
on a timely basis or on acceptable terms. Shortages have occurred in the past
and there can be no assurance that shortages will not occur in the future, or
that materials will be available without longer lead times. Moreover, changing
suppliers for certain materials, such as lube or buffing tape, would require
that the product be requalified with each customer. Requalification could
prevent an early design-in, or could prevent or delay continued participation in
disk drive programs for which the Company's products have been qualified. In
addition, long lead times are required to obtain many materials. Regardless of
whether these materials are available from established or new sources of supply,
these lead times could impede the Company's ability to quickly respond to
changes in demand and product requirements. Furthermore, a significant increase
in the price of one or more of these materials could adversely affect the
Company's business, operating results and financial condition. In addition,
there are only a limited number of providers for thin film disk manufacturing
equipment, such as sputtering machines, glide testers and certifiers, and
ordering additional equipment for replacement or expansion requires long lead
times, limiting the rate and flexibility of capacity expansion. Any limitations
on, or delays in, the supply of materials or equipment could disrupt the
Company's production volume and could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Sources of Supply."
While the Company has implemented procedures to monitor the quality of the
materials received from its suppliers, there can be no assurance that materials
will meet the Company's specifications and will not adversely impact
manufacturing yields or cause other production problems. Minor variations from
the Company's specifications could have a disproportionately adverse impact on
manufacturing yields. For example, in the quarter ended March 31, 1995, the
Company's operating results were materially adversely affected by chlorine
contamination of its thin film disk products that it believes
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<PAGE> 15
resulted from chlorine contamination of disk carriers provided by one of its
suppliers. See "Business -- Manufacturing and Quality -- Quality Assurance."
NEED FOR ADDITIONAL FINANCING
The disk media business is capital intensive, and the Company believes that
in order to remain competitive, it will need significant additional financing
resources over the next several years for capital expenditures, working capital,
and research and development. Among other things, the Company's customers prefer
suppliers that can meet a substantial portion of their volume requirements, so
the Company will need to expand its manufacturing capacity to remain
competitive. The Company currently expects to spend in excess of $250 million on
capital expenditures directed toward expansion of production capacity over the
next eighteen months, of which in excess of $150 million are expected to be
incurred within the next 12 months. The Company believes that it will be able to
fund planned expenditures for at least the next twelve months from a combination
of the proceeds of the Offerings, funds available under its credit facilities,
cash flow from operations and existing cash balances. Assuming completion of the
Offerings and the application of the net proceeds therefrom, as of March 31,
1996, the Company would have had approximately $196.1 million in working
capital, including approximately $186.0 million in cash and cash equivalents. In
addition, the Company's operations generated cash flow of $50.4 million during
the year ended March 31, 1996. In order to accelerate or increase the scope of
its facilities expansion, the Company will require additional capital. The
Company intends to use approximately $106 million of the net proceeds of the
Offerings to prepay all of the subordinated promissory notes and redeem the
Company's Series A Preferred Stock, which amounts will not be available for
future operations. Upon completion of the Offerings, the Company will continue
to have significant future obligations and expects that it will require
additional capital to support future growth, if any. The Company may not be able
to obtain additional financing as needed on acceptable terms or at all. If the
Company is unable to obtain sufficient capital, it could be required to curtail
its capital expenditures and research and development expenditures, which could
materially adversely affect the Company's future operations and competitive
position. Moreover, the Company's need to raise additional capital through the
issuance of securities may result in additional dilution to earnings per share.
See "Use of Proceeds," "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid expansion in its
operations that has placed, and could continue to place, a significant strain on
the Company's management and other resources. In addition, through November
1995, some managerial functions were performed by Hitachi Metals, Ltd., and the
Company has only recently added additional resources necessary to enable it to
operate as an independent company. Although the Company's management team has
extensive industry experience, most of its members have only a limited history
with the Company, having joined the Company since February 1994, when Ronald L.
Schauer became Chief Executive Officer. Larry J. Anderson joined the Company as
Vice President, Marketing and Sales in January 1996, and Peter S. Norris joined
the Company as Chief Financial Officer upon completion of the Leveraged
Recapitalization in November 1995. Mr. Norris has subsequently hired additional
members of the finance and accounting organization and has begun to enhance the
reporting, financial controls and management information systems of the Company.
The Company's status as a public company since its March 1996 initial public
offering has placed additional demands on the Company's management, including
its finance and accounting organization. The Company's ability to manage its
expanding operations effectively will require it to continue to improve its
operational, financial, and management information systems, and to train,
motivate and manage its employees. If the Company's management is unable to
manage its operations effectively, the Company's business, operating results and
financial condition could be adversely affected. See "Management."
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Because the Company has been operating at close to full capacity, growth in
the Company's net sales depends on the successful expansion by the Company of
its manufacturing capacity. Although the Company has increased its production
capacity in its existing facility, significant additional increases will depend
on successfully developing a new production facility at its Fremont, California
site and on successfully expanding aluminum substrate production, and
establishing a nickel plating and polishing capability, at its recently acquired
facility in Eugene, Oregon. Maintaining current production while concurrently
pursuing expansion plans at two sites will place additional strain on the
Company's management resources. There can be no assurance that the Company will
be able to successfully increase capacity and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
Patents may not be issued with respect to the Company's pending patent
applications, and its issued patents may not be sufficiently broad to protect
the Company's technology. No assurance can be given that any patent issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide adequate protection to the Company's
products. In addition, the Company has only limited patent rights outside the
United States, and the laws of certain foreign countries may not protect the
Company's intellectual property rights to the same extent as do the laws of the
United States.
The Company may from time to time be notified by third parties that it may
be infringing patents owned by such third parties. If necessary, the Company may
have to seek a license under such patent or modify its products and processes in
order to avoid infringement of such patents. There can be no assurance that such
a license would be available on acceptable terms, if at all, or that the Company
could so avoid infringement of such patents, in which case the Company's
business, operating results and financial condition could be materially
adversely affected.
The Company and one of its customers have been contacted by Virgil L.
Hedgcoth concerning the use of certain disk preparation techniques allegedly
patented by Mr. Hedgcoth (the "Hedgcoth Patents"). The Company generally
provides its customers with indemnification for damages sustained by a customer
as a consequence of patent infringement claims arising out of use of the
Company's products and agrees to defend its customers against such claims. Based
on its review of the Hedgcoth Patents, the Company believes that it does not use
the techniques described in the Hedgcoth Patents. The Company is aware that
another manufacturer is currently litigating the validity of the Hedgcoth
Patents. Should they be upheld, there can be no assurance that Mr. Hedgcoth will
not make a claim against the Company, in which case the Company could be
required to defend its position.
Litigation may be necessary to enforce the Company's patents, copyrights or
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or claims for indemnification resulting
from infringement claims by third parties. Such litigation, even if successful,
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Intellectual Property and Proprietary
Rights."
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its officers and personnel, many of whom would be
difficult to replace. The Company does not have employment agreements with any
employee. The loss of its officers or other key personnel, who are critical to
the Company's success, could have a material adverse effect on the business,
operating results and financial condition of the Company. See "Management." In
addition, the Company's future
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operating results depend in part upon its ability to attract, train, retain and
motivate other qualified management, technical, manufacturing, sales and support
personnel for its operations. Competition for such personnel is intense,
especially since many of the Company's competitors are located near the
Company's facilities in Fremont, California. Among the competitive factors in
attracting personnel are compensation and benefits, equity incentives and
geographic location. There can be no assurance that the Company will be
successful in attracting or retaining such personnel. The loss of the services
of existing personnel as well as the failure to recruit additional personnel
could materially adversely effect the Company's business, operating results and
financial condition. See "Business -- Employees."
DEPENDENCE ON FREMONT MANUFACTURING FACILITY; ENVIRONMENTAL ISSUES
The Company's Fremont facility, which currently accounts for all of its
production of finished products, is located near major earthquake faults.
Disruption of operations at the Company's production facility for any reason,
including power failures, work stoppages or natural disasters such as fire,
floods or earthquakes, would cause delays in, or an interruption of, production
and shipment of products, which would materially adversely affect the Company's
business, operating results and financial condition. See
"Business -- Properties."
The Company's operations and manufacturing processes are subject to certain
environmental laws and regulations, which govern the Company's use, handling,
storage, transportation, disposal, emission and discharge of hazardous materials
and wastes, the pre-treatment and discharge of process waste waters and its
emission of air pollutants. The Company has from time to time been notified of
minor violations of environmental laws and regulations, including its waste
water discharge permits, San Francisco Bay Area air quality regulations and
hazardous material regulations including releases of hazardous materials. There
can be no assurance that the Company's failure to comply with either present or
future laws or regulations, which may become more stringent, would not subject
the Company to significant compliance expenses, production suspension or delay,
restrictions on expansion or the acquisition of costly equipment. See
"Business -- Environmental Regulation."
RISKS OF INTERNATIONAL SALES
In fiscal 1995 and 1996, substantially all of the Company's net sales
consisted of products delivered to customers in Asia, primarily foreign
subsidiaries of U.S. companies, and the Company anticipates that the substantial
majority of its products will be delivered to customers outside of the United
States for the foreseeable future. Accordingly, the Company's operating results
are subject to the risks of doing business in foreign jurisdictions, including
compliance with, or changes in, the law and regulatory requirements of foreign
jurisdictions, local content rules, taxes, tariffs or other barriers, and
transportation delays and other interruptions. Although presently all of the
Company's sales are made in U.S. dollars, there can be no assurance that future
international sales will not be denominated in foreign currency.
CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER EFFECTS
Upon the completion of the Offerings and based on shares outstanding at
March 31, 1996, directors, officers and holders of 5% or more of the outstanding
shares of Common Stock of the Company will own approximately 62% of the
outstanding shares of Common Stock (56% assuming exercise of all outstanding
options and warrants to purchase Common Stock). As a result, the directors,
officers and holders of 5% or more of the outstanding shares of the Company's
Common Stock, acting together, will have the ability to elect all of the
Company's directors and control most corporate actions. Certain provisions of
the Company's Amended and Restated Certificate of Incorporation, Bylaws and
Delaware law, including the provisions of Section 203 of the Delaware General
Corporation Law, which restrict the ability of a substantial stockholder to
acquire the Company, may also discourage certain transactions involving a change
in control of the Company. In addition to the foregoing, the ability of the
Board of Directors to issue "blank check" preferred stock without further
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<PAGE> 18
stockholder approval could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
SUBORDINATION AND ABSENCE OF FINANCIAL COVENANTS
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness of the Company. As a result of such
subordination, in the event of any insolvency, liquidation or reorganization of
the Company, or default on Senior Indebtedness, the assets of the Company will
be available to satisfy obligations on the Notes only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
the incurrence of other indebtedness and other liabilities by the Company, and
the incurrence of additional indebtedness and other liabilities by the Company
could adversely affect the Company's ability to satisfy its obligations on the
Notes. As of March 31, 1996, the Company had approximately $8.5 million of
outstanding indebtedness which would have constituted Senior Indebtedness. The
Company anticipates that from time to time it will incur additional
indebtedness, including Senior Indebtedness. Moreover, the cash flow and
consequent ability of the Company to service debt, including the Notes, may
become dependent in part upon the earnings from the business conducted by the
Company through subsidiaries and the distribution of those earnings, or upon
loans or other payments of funds by those subsidiaries, to the Company. See
"Description of Notes -- Subordination."
The Indenture does not contain any financial performance covenants.
Consequently, the Company is not required under the Indenture to meet any
financial tests such as those that measure the Company's working capital,
interest coverage, fixed charge coverage or net worth in order to maintain
compliance with the terms of the Indenture.
LIMITATIONS ON REPURCHASE UPON A DESIGNATED EVENT
No Notes may be repurchased at the option of holders upon a Designated
Event if there has occurred and is continuing an Event of Default (other than a
default in the payment of the repurchase price with respect to such Notes on the
repurchase date). If a Designated Event were to occur, there can be no assurance
that the Company would have sufficient financial resources, or would be able to
arrange financing, to pay the repurchase price for all Notes tendered by holders
thereof. The Company's credit agreement with respect to its senior bank
revolving credit facility prohibits the Company from repurchasing any Notes,
which would constitute an event of default under such credit agreement. Any
future credit agreements or other agreements relating to other indebtedness
(including other Senior Indebtedness) to which the Company becomes a party may
contain similar restrictions and provisions. If the Company does not obtain such
a consent or repay the Notes upon a Designated Event, the Company would remain
prohibited from repurchasing the Notes. Any failure by the Company to repurchase
the Notes when required following a Designated Event would result in an Event of
Default under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under Senior Indebtedness of the Company. Moreover, the occurrence of
a Designated Event may cause an event of default under Senior Indebtedness of
the Company. As a result, in each case, any repurchase of the Notes would,
absent a waiver, be prohibited under the subordination provisions of the
Indenture until the Senior Indebtedness is paid in full. See "Description of
Notes -- Repurchase at Option of Holders Upon a Designated Event."
VOLATILITY
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to a variety of factors, including quarterly variations
in operating results, announcements of technological innovations or new products
by the Company, its customers or its competitors, developments in patents or
other intellectual property rights, general conditions in the computer or disk
drive industry, and general economic and market conditions. Additionally, the
stock market in general, and the market for technology stocks in particular, has
experienced extreme price volatility in
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recent years. This volatility has often had a substantial effect on the market
prices of many technology companies for reasons unrelated or disproportionate to
the operating performance of such companies. Broad market fluctuations could
have a significant impact on the market price of the Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of the Company's Common Stock in the public
market after the Offerings could adversely affect the market price of the
Company's Common Stock and the Company's ability to raise additional capital at
a price favorable to the Company. Upon completion of the Offerings and based on
shares outstanding at March 31, 1996, there will be 43,979,178 shares of Common
Stock outstanding, of which 13,660,000 shares (assuming the issuance of the
4,000,000 shares offered hereby) will be eligible for immediate sale. 30,121,057
of the shares are subject to lockup agreements with the underwriters of the
Company's initial public offering. Such lockup agreements expire four days after
the announcement by the Company of its operating results for the three months
ending September 30, 1996 as to 8,153,000 restricted shares. Of these 8,153,000
restricted shares, 3,883,206 will be available for immediate sale pursuant to
Rule 144 and Rule 701, 73,190 may be available for immediate sale pursuant to
Rule 144 and Rule 701 based upon achievement of certain performance goals, and
the remaining 4,196,604 will be subject to rights of repurchase in favor of the
Company that expire at various dates through December 2004 pursuant to monthly
vesting, or earlier upon the achievement of certain performance goals, and may
not be resold until such rights expire. Such lockup agreements expire on March
13, 1997 as to the remaining 21,968,057 restricted shares. The holders of such
21,968,057 shares will be eligible to sell such shares pursuant to Rule 144 upon
the expiration of a two-year holding period from the date such shares were
acquired (in most cases November 30, 1995), subject to certain volume
limitations under Rule 144. The holders of 30,541,851 shares of Common Stock and
warrants to purchase shares of Common Stock are entitled to certain rights with
respect to registration of such shares of Common Stock for offer or sale to the
public beginning 180 days after the date of this Prospectus. In addition, the
Company has filed a registration statement covering an aggregate of 8,212,000
shares of Common Stock reserved for issuance under the Company's 1995 Stock
Option Plan, 1995 Management Stock Option Plan, 1996 Equity Incentive Plan, 1996
Non-Employee Directors' Stock Option Plan and Employee Stock Purchase Plan. As
of May 30, 1996 options to purchase approximately 3,848,411 of these shares will
be exercisable and immediately saleable. The remainder of these shares will
become exercisable and saleable at various dates through April 2000 pursuant to
monthly vesting. See "Management -- Employee Benefit Plans," "Description of
Capital Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting,"
ABSENCE OF PUBLIC MARKET FOR THE NOTES
Prior to the Note Offering, there has been no trading market for the Notes.
The Company expects that the Notes will trade on the over-the-counter market.
However, there can be no assurance that an active trading market for the Notes
will develop or, if such market develops, as to the liquidity or sustainability
of such market. The Underwriters named on the cover page of this Prospectus have
advised the Company that they currently intend to make a market in the Notes,
but they are not obligated to do so and may discontinue such market making at
any time. There can be no assurance that an active market for the Notes will
develop and continue upon completion of the Note Offering or that the market
price of the Notes will not decline. Various factors such as changes in
prevailing interest rates or changes in perceptions of the Company's
creditworthiness could cause the market price of the Notes to fluctuate
significantly. The trading price of the Notes could also be significantly
affected by the market price of the Common Stock, which could be subject to wide
fluctuations in response to a variety of factors, including quarterly variations
in operating results, announcements of technological innovations or new products
by the Company, its customers or its competitors, developments in patents or
other intellectual property rights, general conditions in the computer or disk
drive industry and general economic and market conditions. Factors creating
volatility in the trading price of the Common Stock could have a significant
impact on the trading price of the Notes.
17
<PAGE> 20
THE COMPANY
HMT Technology Corporation is an independent supplier of high-performance
thin film disks for high-end, high-capacity hard disk drives, which in turn are
used in high-end PCs, network servers and workstations. HMT was incorporated in
Delaware in 1988 as a subsidiary of Hitachi Metals, Ltd. ("Hitachi Metals") to
acquire certain assets and certain liabilities of the thin film division of
Xidex Corporation, which had been producing thin film disks since 1983. Since
completing the acquisition, the Company has continued to supply thin film disks
to manufacturers of hard disk drives. As used in this Prospectus, the terms
"Company" and "HMT" refer to HMT Technology Corporation, a Delaware corporation.
The Company's principal offices are located at 1055 Page Avenue, Fremont,
California 94538, and its telephone number is (510) 490-3100.
LEVERAGED RECAPITALIZATION
RECAPITALIZATION TRANSACTION
On November 30, 1995 the Company effected a leveraged recapitalization (the
"Leveraged Recapitalization"). The Leveraged Recapitalization and related
transactions consisted of: (i) the repurchase by the Company from Hitachi Metals
of shares of Common Stock representing all the outstanding capital stock of the
Company for an aggregate purchase price of $52.1 million in cash; (ii) the
recapitalization of the Company through the issuance of 21,968,057 shares of
Common Stock for an aggregate purchase price of approximately $0.7 million,
5,900,000 shares of Series A Preferred Stock for an aggregate purchase price of
approximately $59.0 million, $47.0 million of subordinated promissory notes
("Subordinated Notes") and $60.0 million in senior debt with associated warrants
to purchase 701,344 shares of Common Stock at an exercise price of $0.0003 per
share. See "Description of Capital Stock -- Warrants." The purchasers of the
Company's securities in the Leveraged Recapitalization included certain
investment funds affiliated with Summit Partners, L.P. ("Summit Partners") and
certain other investment funds, the Company's management and employees and
Hitachi Metals. The terms of the Leveraged Recapitalization were determined
through negotiations between Hitachi Metals and Summit Partners, who, prior to
the Leveraged Recapitalization, did not have any affiliation with the Company.
Pursuant to these negotiations, the shares of Common Stock were valued at $0.03
per share. The Series A Preferred Stock was valued at $10.00 per share, and the
Subordinated Notes were valued at face value. The values of these securities
were confirmed by a third party appraisal. See "-- Third Party Appraisal."
The Leveraged Recapitalization has been accounted for as a
recapitalization, and accordingly, no change in the accounting basis of the
Company's assets has been made.
As of November 30, 1995 (immediately prior to the Leveraged
Recapitalization), the Company had $98.5 million in assets and $122.7 million in
liabilities. Immediately following the Leveraged Recapitalization, the Company
had $110.9 million in assets, $132.1 million in liabilities (including a $60.0
million senior bank term loan and $47.0 million of Subordinated Notes) and $59.0
million of Series A Preferred Stock. See "Certain Relationships and Related
Transactions -- Leveraged Recapitalization."
THIRD PARTY APPRAISAL
The Company retained Willamette Management Associates ("Willamette") to
provide an opinion as to the fair market value of certain securities, including
Common Stock issued as of November 30, 1995 and January 9, 1996, to assist the
Company's Board of Directors in confirming the fair market value of the
Company's Common Stock for incentive stock options granted by the Company.
Willamette interviewed the Company's management, and was informed of the history
of the Company, of the various risk factors facing the Company, and of the
Company's expectation at the time of an initial public offering of the Common
Stock. Willamette's appraisal of the intrinsic value of the Common Stock on
those dates did not include the proceeds of any subsequent public offering.
18
<PAGE> 21
Willamette's valuation methods included a prior transaction approach, a market
approach based on comparable publicly traded companies, and an income approach
based on discounted cash flows. Willamette's valuation analysis included an
assessment of all of the capital components issued in connection with the
Leveraged Recapitalization, including Common Stock, Series A Preferred Stock,
and the Subordinated Notes as well as consideration of the November 1995
redemption of the equity ownership of Hitachi Metals, which was an important
indication of the fair value of the Company's Common Stock. That transaction
occurred between a sophisticated financial buyer and seller and was similar to
prices under negotiation with other potential buyers of the business.
Willamette concluded that the fair market value of the Common Stock at
November 30, 1995 was $0.03 per share and at January 9, 1996 was $0.09 per
share. With regard to the Series A Preferred Stock and the Subordinated Notes,
Willamette concluded that the stated values of the Series A Preferred Stock of
$10.00 per share and of the Subordinated Notes of face value were reasonable
estimations of their fair market values. Management is responsible for estimates
of the value of the Company's Common Stock for purposes of measuring in its
financial statements compensation attributable to stock options granted to
employees. In its valuation of the Company's Common Stock at January 9, 1996,
management considered, in addition to the appraiser's report, the Company's
forecasted earnings before depreciation, interest and taxes, and the likelihood
that the Company could successfully restructure its capitalization and provide
liquidity to holders of the Common Stock within the near term.
SUBSEQUENT FINANCING
In March 1996, the Company completed its initial public offering of
8,400,000 shares of Common Stock at $10.00 per share. An additional 1,260,000
shares were sold in April 1996 upon exercise of the over-allotment option by the
underwriters of that offering. Of the net proceeds to the Company of
approximately $88.7 million, approximately $50.2 million was used to repay the
principal balance and interest then outstanding under the senior bank term loan
incurred in connection with the Leveraged Recapitalization.
Upon the completion of the Offerings described in this Prospectus, the
Company intends to prepay the principal balance of the currently outstanding
Subordinated Notes ($47.0 million) and to redeem the currently outstanding
Series A Preferred Stock ($59.0 million), thereby retiring the last of the
Company's debt obligations that were incurred in connection with the Leveraged
Recapitalization. See "Use of Proceeds."
19
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
by the Company are estimated to be approximately $98.8 million based on an
assumed public offering price of $26.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The net
proceeds to the Company from the sale of the Notes offered hereby are estimated
to be approximately $145.6 million after deducting underwriting discounts and
commissions and estimated offering expenses ($167.5 million if the Underwriters'
over-allotment option is exercised in full). Neither the closing of the Common
Stock Offering nor the closing of the Note Offering is conditioned on the
closing of the other offering. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders pursuant to the
over-allotment options granted to the Underwriters in the Common Stock Offering.
The Company expects to use approximately $47.0 million of the net proceeds
of the Offerings to prepay the Subordinated Notes, together with all accrued but
unpaid interest, approximately $59.0 million of the net proceeds of the
Offerings to redeem the Series A Preferred Stock, and the remainder of the net
proceeds for capital expenditures, including investment in facilities and
equipment, working capital and other general corporate purposes. The currently
outstanding Subordinated Notes, which were incurred in connection with the
Leveraged Recapitalization, mature on December 31, 2005 and currently bear
interest at 12.0% per year. See "Certain Relationships and Related
Transactions -- Leveraged Recapitalization." The Company currently expects to
spend in excess of $250 million and $150 million on capital expenditures over
the next 18 months and 12 months, respectively. A portion of the net proceeds
may also be used to acquire businesses for the purpose of capacity expansion.
The Company has no present plans, agreements or commitments and is not currently
engaged in any negotiations with respect to acquisition of any business that
would be material to the Company. Pending such uses, the Company intends to
invest the net proceeds in short-term, interest bearing, investment grade
financial instruments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all future earnings for use in its
business, and does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. In addition, no dividends may be paid on Common Stock as
long as the Series A Preferred Stock remains outstanding, and the terms of the
Company's revolving credit facility prohibit the payment of dividends without
the banks' prior approval. See Notes 5 and 8 of Notes to Consolidated Financial
Statements.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol "HMTT" effective March 13, 1996. The following table
sets forth, for the calendar periods indicated, the range of high and low
closing sales prices for the Common Stock on the Nasdaq National Market since
March 13, 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996
First Quarter (March 13, 1996 through March 31, 1996)............ $11 1/2 $9 7/8
Second Quarter (through May 24, 1996)............................ 28 1/4 10 1/2
</TABLE>
As of March 31, 1996, there were approximately 74 holders of record of the
Common Stock. On May 24, 1996, the last sale price reported on the Nasdaq
National Market for the Company's Common Stock was $26.00 per share.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on an actual basis and (ii) as adjusted after giving effect
to (A) the sale of 4,000,000 shares of Common Stock offered by the Company
hereby at an assumed public offering price of $26.00 per share, (B) the sale of
$150.0 million of the Notes, (C) the application of the estimated net proceeds
from the Offerings (after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company) and (D) the sale of
1,260,000 shares of Common Stock at $10.00 per share on April 12, 1996 pursuant
to the over-allotment option of the underwriters of the Company's initial public
offering, resulting in net proceeds of approximately $11.7 million (as if the
sale occurred on March 31, 1996). Neither the closing of the Common Stock
Offering nor the closing of the Note Offering is conditioned on the closing of
the other offering. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Subordinated promissory notes payable to stockholders................. $ 47,000 --
% Convertible Subordinated Notes due 2003........................ -- $ 150,000
Mandatorily Redeemable Series A Preferred Stock, $0.001 par value;
5,900,000 shares authorized; 5,900,000 shares issued and
outstanding, actual; none issued and outstanding, as adjusted(1).... 60,157 --
Stockholders' equity:
Common Stock, $0.001 par value; 100,000,000 shares authorized;
38,719,178 shares issued and outstanding, actual; 43,979,178
shares issued and outstanding, as adjusted(2).................... 39 44
Preferred Stock, $0.001 par value; 9,100,000 shares authorized; none
issued and outstanding, actual and as adjusted...................... -- --
Additional paid-in capital.......................................... 77,913 188,468
Distribution in excess of basis..................................... (76,649) (76,649)
Retained earnings................................................... 18,221 19,378
Total stockholders' equity....................................... 19,524 131,241
-------- --------
Total capitalization........................................ $126,681 $ 281,241
======== ========
</TABLE>
- ---------------
(1) Actual amounts include $59.0 million of principal amount and $1.2 million of
accretion for dividends payable commencing January 1, 1998. None of such
accreted amounts will be payable if the Company redeems the Series A
Preferred Stock prior to such date.
(2) Excludes 4,338,517 shares of Common Stock issuable upon the exercise of
outstanding options and warrants as of March 31, 1996. Also excludes
shares issuable upon conversion of the Notes. Options to purchase
Common Stock outstanding as of March 31, 1996 had a weighted average
exercise price of $0.32 per share, and warrants to purchase shares of Common
Stock outstanding as of March 31, 1996 had an exercise price of $0.0003 per
share. See "Management -- Option Grants in Last Fiscal Year" and
"-- Employee Benefit Plans," "Certain Relationships and Related Transactions
-- Leveraged Recapitalization" and "Description of Capital Stock."
(3) Adjusted to reflect (i) the sale by the Company of the 4,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $26.00
per share, less underwriting discounts and commissions and estimated
offering expenses payable by the Company, (ii) the sale by the Company of
$150.0 million of the Notes, less underwriting discounts and commissions and
estimated offering expenses, (iii) the application of the net proceeds from
the Offerings and (iv) the sale of 1,260,000 shares of Common Stock at
$10.00 per share in April 1996 pursuant to the over-allotment option of the
underwriters of the Company's initial public offering, resulting in net
proceeds of approximately $11.7 million (as if the sales had occurred on
March 31, 1996). See "Use of Proceeds."
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified in their entirety by, and should be read in conjunction with, the
Consolidated Financial Statements of the Company, including the Notes thereto,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The Consolidated Statements of Operations
Data for the years ended March 31, 1994, 1995 and 1996 and the Consolidated
Balance Sheet Data as of March 31, 1995 and 1996 are derived from, and are
qualified by reference to, the audited consolidated financial statements
included elsewhere in this Prospectus. The Consolidated Statements of Operations
Data for the fiscal years ended March 31, 1992 and 1993 and the Consolidated
Balance Sheet Data as of March 31, 1992, 1993 and 1994 are derived from audited
consolidated financial statements not included herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 44,076 $ 70,987 $ 64,242 $ 72,893 $194,401
Cost of sales............................................... 52,863 76,237 67,648 67,539 119,803
-------- -------- -------- -------- --------
Gross profit (loss)......................................... (8,787) (5,250) (3,406) 5,354 74,598
-------- -------- -------- -------- --------
Operating expenses:
Research and development.................................. 2,403 2,499 2,781 3,130 3,803
Selling, general and administrative....................... 4,834 4,725 5,115 4,230 7,774
Recapitalization expenses................................. -- -- -- -- 4,347
-------- -------- -------- -------- --------
Total operating expenses............................ 7,237 7,224 7,896 7,360 15,924
-------- -------- -------- -------- --------
Operating income (loss)..................................... (16,024) (12,474) (11,302) (2,006) 58,674
Interest expense and other, net............................. 5,061 4,806 6,001 6,915 8,578
-------- -------- -------- -------- --------
Income (loss) before income tax provision (benefit) and
extraordinary debt extinguishment costs................... (21,085) (17,280) (17,303) (8,921) 50,096
Income tax provision (benefit).............................. -- (224) 22 20 2,590
-------- -------- -------- -------- --------
Net income (loss) before extraordinary debt extinguishment
costs..................................................... (21,085) (17,056) (17,325) (8,941) 47,506
Extraordinary debt extinguishment costs, net of income
taxes..................................................... -- -- -- -- 1,127
Net income (loss)........................................... $(21,085) $(17,056) $(17,325) $ (8,941) $ 46,379
-------- -------- -------- -------- --------
Accretion for dividends on Mandatorily Redeemable Series A
Preferred
Stock..................................................... -- -- -- -- (1,157)
-------- -------- -------- -------- --------
Net income (loss) available for common stockholders......... (21,085) (17,056) (17,325) (8,941) 45,222
========= ========= ========= ========= =========
Net income (loss) available for common stockholders per
share(1).................................................. $ (0.61) $ (0.49) $ (0.50) $ (0.26) $ 1.28
========= ========= ========= ========= =========
Shares used in computing per share amounts(1)............... 34,822 34,822 34,822 34,822 35,224
Ratio of earnings to fixed charges(2)....................... -- -- -- -- 5.6x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................................... $(31,625) $(55,720) $(71,175) $(82,715) $ 45,899
Total assets................................................ 96,343 92,432 84,104 75,936 165,786
Long-term and senior bank debt, less current portion........ 47,100 34,650 12,200 9,750 --
Subordinated promissory notes payable to stockholders....... -- -- -- -- 47,000
Mandatorily Redeemable Series A Preferred Stock............. -- -- -- -- 60,157
Total stockholders' equity (deficit)........................ (11,713) (28,768) (46,093) (51,550) 19,524
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing net income
(loss) per share.
(2) The ratio of earnings to fixed charges is computed by dividing (x) the sum
of income before provision for income taxes, extraordinary items and fixed
charges, less capitalized interest, by (y) fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of debt expense and
discount or premium relating to indebtedness, including a one time charge
related to debt extinguishment. Earnings were inadequate to cover fixed
charges for all periods prior to fiscal 1996. The deficiencies of earnings
were approximately $22.0 million, $17.6 million, $17.4 million and $8.9
million for fiscal 1992, 1993, 1994 and 1995.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
HMT Technology Corporation is an independent supplier of high-performance thin
film disks for high-end, high-capacity hard disk drives, which in turn are used
in high-end PCs, network servers and workstations. HMT was incorporated in 1988
as a subsidiary of Hitachi Metals for the purpose of acquiring certain assets
and certain liabilities of the thin film division of Xidex Corporation, which
had been producing thin film disks since 1983. Since completing the acquisition,
the Company has continued to supply thin film disks to manufacturers of hard
disk drives. On November 30, 1995, the Company effected the Leveraged
Recapitalization pursuant to which the Company repurchased from Hitachi Metals
all of the outstanding shares of Common Stock of the Company, and certain
investment funds, members of management and Hitachi Metals purchased Common
Stock, Series A Preferred Stock and Subordinated Notes. During March and April
1996, the Company sold 9,660,000 shares of Common Stock at $10.00 per share
(including exercise of the underwriters' over-allotment option) through its
initial public offering. The net proceeds (after underwriter's discounts and
commissions and other costs associated with the initial public offering) totaled
$88.7 million.
Beginning in 1994, HMT's new management team refocused the strategy and
operations of the Company. The new management concentrated on the 3 1/2-inch
disk form factor, focused on the high-end, high-capacity segment of the disk
drive market and expanded the Company's customer base. In addition, HMT
implemented an extensive quality assurance program, developed proprietary
manufacturing processes and optimized production capacity utilization. These
changes resulted in higher production volumes, lower unit costs, and higher
average selling prices primarily associated with new high-end products. As a
result, the Company has increased sales and improved gross margins, achieving
net income of $46.4 million for the year ended March 31, 1996 compared with a
net loss of $8.9 million for fiscal 1995. The rate of improvement in the
Company's operating results experienced in fiscal 1996 is not expected to
continue in future periods.
The Company derives substantially all of its sales from the sale of thin
film disks to a small number of customers. Loss of or a reduction in orders from
one or more of the Company's customers could result in a substantial reduction
in net sales. Because many of the Company's expense levels are based, in part,
on its expectations as to future revenues, decreases in net sales may result in
a disproportionately greater negative impact on operating results. Due to the
rapid technological change and frequent development of new disk drive products,
it is common in the industry for the relative mix of customers and products to
change rapidly, even from quarter to quarter. At any one time the Company
typically supplies disks in volume for fewer than ten disk drive products.
The Company has recently experienced a period of rapid expansion in its
operations that has placed, and could continue to place, a significant strain on
the Company's management and other resources. In addition, through November
1995, some managerial functions were performed by Hitachi Metals, and the
Company has only recently added additional resources necessary for it to operate
as an independent company. Although the Company's management team has extensive
industry experience, most of its members have only a limited history with the
Company, having joined the Company since February 1994. The Company has recently
announced plans to construct a new production facility at
23
<PAGE> 26
its Fremont, California site. In addition, the Company recently acquired an
aluminum substrate manufacturing facility and related equipment located in
Eugene, Oregon. See "Business -- Manufacturing and Quality -- Manufacturing
Facilities and Capability."
In connection with the Leveraged Recapitalization, the Company issued
5,900,000 shares of Series A Preferred Stock. Beginning on January 1, 1998, the
shares of Series A Preferred Stock will begin to accrue cumulative dividends at
a rate of approximately $5.9 million a year. However, the Company is required to
accrete for accounting purposes the aggregate amount of dividends payable under
the terms of the Series A Preferred Stock through the mandatory redemption date.
Such accretion reduced earnings available for holders of Common Stock by $1.2
million for fiscal 1996. See Note 7 of Notes to Consolidated Financial
Statements. If the Series A Preferred Stock is redeemed prior to January 1,
1998, none of such accreted amounts will be payable by the Company. The Company
expects to use a portion of the net proceeds of the Offerings to redeem the
Series A Preferred Stock. Other assets at March 31, 1996 include approximately
$0.9 million of remaining unamortized deferred financing costs associated with
the Company's revolving credit facility.
Due to the changes in ownership resulting from the Leveraged
Recapitalization, utilization of net operating losses is limited to
approximately $0.8 million per year over the loss carryforward period (expiring
between 2008 and 2010). The benefit from the net operating losses was recorded
in the quarter ended December 31, 1995. Had the Company been obligated to pay
taxes at the statutory rates for fiscal 1996, net income would have been $30.7
million.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 119.9 107.4 105.3 92.7 61.6
----- ----- ----- ----- -----
Gross profit (loss)............................. (19.9) (7.4) (5.3) 7.3 38.4
Operating expenses:
Research and development...................... 5.5 3.5 4.3 4.3 2.0
Selling, general and administrative........... 11.0 6.7 8.0 5.8 4.0
Recapitalization expenses..................... -- -- -- -- 2.2
----- ----- ----- ----- -----
Total operating expenses................. 16.5 10.2 12.3 10.1 8.2
----- ----- ----- ----- -----
Operating income (loss)......................... (36.4) (17.6) (17.6) (2.8) 30.2
Interest expense and other, net................. 11.4 6.7 9.3 9.4 4.4
Income (loss) before income tax provision
(benefit) and extraordinary debt
extinguishment costs.......................... (47.8) (24.3) (26.9) (12.2) 25.8
Income tax provision (benefit).................. -- (0.3) 0.1 0.1 1.3
Extraordinary debt extinguishment costs, net of
income taxes.................................. -- -- -- -- 0.6
----- ----- ----- ----- -----
Net income (loss)............................... (47.8)% (24.0)% (27.0)% (12.3)% 23.9%
===== ===== ===== ===== =====
</TABLE>
24
<PAGE> 27
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Net Sales. Net sales were $64.2 million in fiscal 1994, $72.9 million in
fiscal 1995 and $194.4 million in fiscal 1996. This represented an increase of
13.5% from fiscal 1994 to fiscal 1995, and 166.7% from fiscal 1995 to fiscal
1996. The increase in net sales in fiscal 1995 was a result of increased
production volumes due to improved manufacturing processes and higher unit
shipments, partially offset by a manufacturing disruption experienced in the
three months ended March 31, 1995. The increase in net sales in fiscal 1996 was
primarily attributable to an increase in manufacturing capacity and improved
utilization of existing capacity, improved manufacturing processes, and
increased yields, resulting in higher production volume and unit shipments, as
well as higher average selling prices primarily associated with the sale of new
high-end products. Substantially all of the Company's net sales consist of
products delivered to customers in Asia, primarily foreign subsidiaries of U.S.
companies.
Gross Profit (Loss). Gross margin was (5.3%) in fiscal 1994, 7.3% in
fiscal 1995 and 38.4% in fiscal 1996. The increases in gross margin in fiscal
1995 and fiscal 1996 were a result of decreased unit production costs, improved
utilization of manufacturing capacity, improved manufacturing processes,
increased yields and the absorption of fixed costs over higher unit production
volume effected by the refocusing of the strategy and operations of the Company.
The increase in gross margin in fiscal 1995 also reflected a partial offset by
the manufacturing disruption experienced during the three months ended March 31,
1995.
Research and Development. Research and development expenses were $2.8
million or 4.3% of net sales in fiscal 1994, $3.1 million or 4.3% of net sales
in fiscal 1995 and $3.8 million or 2.0% of net sales in fiscal 1996. Research
and development expenses increased in absolute dollars in fiscal 1995 and 1996
due to an increase in headcount related to the Company's new product
introductions. The decrease of research and development expenses as a percentage
of net sales in fiscal 1996 was primarily a result of the substantial increase
in net sales over the same period. The Company develops manufacturing processes
for new products directly on active production lines during the research and
development phase, avoiding the need for substantial capital investment in
dedicated research equipment. The Company anticipates that research and
development expenses will increase in absolute dollars in future periods,
although as a percentage of net sales, research and development expenses may
fluctuate.
Selling, General and Administrative. Selling, general and administrative
expenses were $5.1 million or 8.0% of net sales in fiscal 1994, $4.2 million or
5.8% of net sales in fiscal 1995 and $7.8 million or 4.0% of net sales in fiscal
1996. The decrease in fiscal 1995 was primarily a result of reduction in
headcount associated with a management reorganization and the associated
reduction in compensation expense. The fiscal 1996 increase in selling, general
and administrative expenses in absolute dollars reflected increased headcount
necessary to support higher production volume and unit shipments, while the
decline as a percentage of net sales primarily reflects the increase in net
sales over the same period. The Company anticipates that selling, general and
administrative expenses will continue to increase in absolute dollars as
headcount is increased to support anticipated higher levels of production volume
and unit shipments, as well as the demands of administering a stand-alone public
entity, although as a percentage of net sales, selling general and
administrative expenses may fluctuate.
Recapitalization Expenses. On November 30, 1995, the Company effected the
Leveraged Recapitalization, and recorded a $4.3 million charge for related
expenses for the quarter ending December 31, 1995.
Interest Expense and Other, Net. Interest expense and other, net was $6.0
million or 9.3% of net sales in fiscal 1994, $6.9 million or 9.4% of net sales
in fiscal 1995 and $8.6 million or 4.4% of net sales in fiscal 1996. The
increase in fiscal 1995 was primarily the result of increased short-term
borrowings. The fiscal 1996 increase in absolute dollars was primarily a result
of higher average debt balances and interest rates, as compared to fiscal 1995.
The Company anticipates interest expense and other, net may
25
<PAGE> 28
fluctuate in absolute dollars, but will decline as a percentage of net sales as
a result of lower average debt balances and improved capital resources resulting
from the initial public offering in March 1996.
Provision for Income Taxes. The Company recorded an income tax provision
of $22,000, $20,000 and $2.6 million in fiscal 1994, 1995 and 1996,
respectively. During fiscal 1996, the Company assessed the recoverability of
deferred tax assets and, based on expectations about operating results for the
three months ending March 31, 1996 and the fiscal year ending March 31, 1997,
determined it was more likely than not that the entire balance of deferred tax
assets would be recovered. As the facts that supported the reduction of the
valuation allowance related to the period immediately following the Leveraged
Recapitalization, the Company reduced its income tax expense by approximately
$6.9 million to reflect the tax benefit associated with recognition of deferred
tax assets at December 31, 1995. The recognition of deferred tax assets and the
utilization of $12.7 million of net operating loss carryforwards produced an
effective tax rate of 5.2% for fiscal 1996. Due to losses in fiscal 1994 and
1995, the Company required no federal income tax provision. The income tax
provision recorded during fiscal 1994 and 1995 was based upon state income taxes
of Hitachi Metals allocated to the Company. The Company anticipates an effective
tax rate of approximately 38% in future periods.
Extraordinary debt extinguishment costs, net of income taxes. Pursuant to
the senior bank credit agreement, the Company repaid the balance of a senior
bank term loan incurred in connection with the Leveraged Recapitalization on
March 14, 1996, after completion of the initial public offering. As a result,
the Company recorded a one-time non-cash charge of $1.1 million, net of income
taxes, for the write-off of the portion of unamortized debt issue costs related
to the senior bank term loan.
ASSET PURCHASE
During May 1996, the Company purchased an aluminum substrate manufacturing
facility and other related equipment in Eugene, Oregon for approximately $5.0
million. The acquisition will be accounted for as an asset purchase, and
acquisition related expenses are not expected to have a significant impact on
first quarter fiscal 1997 results.
26
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
financial information for each of the Company's last eight quarters. The Company
believes that all necessary adjustments, including normal recurring accruals,
have been included in the amounts stated below to present fairly the selected
quarterly information when read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future periods or for the entire fiscal year.
The Company operates under thirteen- to fourteen-week quarters that end on
the Sunday closest to calendar quarter end. As a result, a fiscal quarter may
not end on the same day as the calendar quarter end. For convenience of
presentation, the following unaudited quarterly consolidated financial
information has been shown as ending on the last day of the calendar quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS
DATA:
Net sales.............. $18,203 $19,989 $19,874 $14,827 $28,589 $44,422 $56,346 $65,044
Cost of sales.......... 15,792 16,688 17,631 17,428 21,971 27,207 32,800 37,825
------- ------- ------- ------- ------- ------- -------
Gross profit (loss).... 2,411 3,301 2,243 (2,601) 6,618 17,215 23,546 27,219
Operating expenses:
Research and
development........ 738 787 766 839 788 898 895 1,222
Selling, general and
administrative..... 799 1,001 1,170 1,260 1,401 1,520 2,345 2,508
Recapitalization
expenses........... -- -- -- -- -- -- 4,347 --
------- ------- ------- ------- ------- ------- -------
Total
operating
expenses.... 1,537 1,788 1,936 2,099 2,189 2,418 7,587 3,730
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)............... 874 1,513 307 (4,700) 4,429 14,797 15,959 23,489
Interest expense and
other, net........... 1,565 1,679 1,724 1,947 1,739 1,840 2,076 2,923
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax provision
(benefit) and
extraordinary debt
extinguishment
costs................ (691 ) (166) (1,417 ) (6,647) 2,690 12,957 13,883 20,566
Income tax provision
(benefit)............ 5 5 5 5 123 637 (6,029 ) 7,859
------- ------- ------- ------- ------- ------- -------
Net income (loss)
before extraordinary
debt extinguishment
costs................ (696 ) (171) (1,422 ) (6,652) 2,567 12,320 19,912 12,707
Extraordinary debt
extinguishment costs,
net of income
taxes................ -- -- -- -- -- -- -- 1,127
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (696 ) $ (171) $(1,422 ) $(6,652) $ 2,567 $12,320 $19,912 $11,580
======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 30
The following table sets forth certain unaudited quarterly consolidated
statement of operations data expressed as a percentage of net sales for the
eight quarters ended March 31, 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......... 86.8 83.5 88.7 117.5 76.9 61.2 58.2 58.2
----- ----- ----- ------ ----- ----- ------
Gross profit (loss).... 13.2 16.5 11.3 (17.5) 23.1 38.8 41.8 41.8
Operating expenses:
Research and
development........ 4.0 3.9 3.9 5.7 2.7 2.0 1.6 1.9
Selling, general and
administrative..... 4.4 5.0 5.9 8.5 4.9 3.4 4.2 3.8
Recapitalization
expenses........... -- -- -- -- -- -- 7.7 --
----- ----- ----- ------ ----- ----- ------
Total
operating
expenses.... 8.4 8.9 9.8 14.2 7.6 5.4 13.5 5.7
----- ----- ----- ------ ----- ----- ------
Operating income
(loss)............... 4.8 7.6 1.5 (31.7) 15.5 33.4 28.3 36.1
Interest expense and
other, net........... 8.6 8.4 8.7 13.1 6.1 4.2 3.7 4.5
----- ----- ----- ------ ----- ----- ------
Income (loss) before
income tax provision
(benefit) and
extraordinary debt
extinguishment
costs................ (3.8) (0.8) (7.2) (44.8) 9.4 29.2 24.6 31.6
Income tax provision
(benefit)............ -- -- -- -- 0.4 1.4 (10.7) 12.1
----- ----- ----- ------ ----- ----- ------
Net income (loss)
before extraordinary
debt extinguishment
costs................ (3.8) (0.8) (7.2) (44.8) 9.0 27.8 35.3 19.5
Extraordinary debt
extinguishment costs,
net of income
taxes................ -- -- -- -- -- -- -- 1.7
----- ----- ----- ------ ----- ----- ------
Net income (loss)...... (3.8)% (0.8)% (7.2)% (44.8)% 9.0% 27.8% 35.3% 17.8%
===== ===== ===== ====== ===== ===== ======
</TABLE>
The Company's operating results historically have been, and may continue to
be, subject to significant quarterly and annual fluctuations. As a result, the
Company's operating results in any quarter may not be indicative of its future
performance. Factors affecting operating results include: market acceptance of
new products; timing of significant orders; changes in pricing by the Company or
its competitors; timing of product announcements by the Company, its customers
or its competitors; order cancellations, modifications and quantity adjustments
and shipment reschedulings; changes in product mix; manufacturing yields; the
level of utilization of the Company's production capacity; increases in
production and engineering costs associated with initial manufacture of new
products; and changes in the cost of or limitations on availability of
materials. The impact of these and other factors on the Company's revenues and
operating results in any future period cannot be forecasted with certainty. The
Company's expense levels are based, in part, on its expectations as to future
revenues. Because the Company's sales are generally made pursuant to purchase
orders that are subject to cancellation, modification, quantity reduction or
rescheduling on short notice and without significant penalties, the Company's
backlog as of any particular date may not be indicative of sales for any future
period, and such changes could cause the Company's net sales to fall below
expected levels. If revenue levels are below expectations, operating results are
likely to be materially adversely affected. Net income, if any, and gross
margins may be disproportionately affected by a reduction in net sales because a
proportionately smaller amount of the Company's expenses varies with its
revenues.
28
<PAGE> 31
During fiscal 1996, HMT increased its manufacturing capacity by balancing
manufacturing through addition of sputtering lines and other production
equipment, improving utilization of existing manufacturing capacity, and
improving manufacturing processes and yields. As a result, an increase in unit
shipments and, to a lesser extent, higher average selling prices associated with
new high-end products led to increased net sales in each quarter of fiscal 1996.
Gross margin also increased during this period primarily as a result of lower
unit production costs and higher average selling prices associated with new
high-end products.
The Company experienced significantly decreased net sales and negative
gross margins for the three months ended March 31, 1995 primarily as a result of
a manufacturing disruption and the related return of a significant number of
disks. This disruption, which resulted from contaminated material from one of
the Company's suppliers, caused both lost production and sales and resulted in a
significant write-off of inventory that had been contaminated. See
"Business -- Sources of Supply."
The decrease in gross margin for the three months ended December 31, 1994
was primarily the result of a large portion of shipments of an older product
with lower average selling prices.
Research and development expenses have generally increased during the
periods presented, but have fluctuated quarterly depending primarily upon the
timing of additions to Company's engineering staff and the number and nature of
projects under development. In the three months ended March 31, 1995, research
and development expenses increased marginally in absolute dollars, but increased
significantly as a percentage of net sales, primarily a result of lower sales
during the same period.
Selling, general and administrative expenses increased significantly as a
percentage of net sales in the three months ended March 31, 1995 primarily as a
result of lower sales during the same period, and increased in the three months
ended December 31, 1995 primarily as a result of increased legal and
environmental reserves. Selling, general and administrative expenses have
generally increased in absolute dollars over the past seven quarters as
headcount was increased to support expanding production volume and unit
shipments.
During the three months ended December 31, 1995, the Company recorded
recapitalization expenses of $4.3 million in connection with the Leveraged
Recapitalization.
During the three months ended March 31, 1996, the Company repaid the
balance of a senior bank term loan and recorded a one-time non-cash charge of
$1.1 million, net of income taxes, for the write-off of the portion of
unamortized debt issue costs related to the senior bank term loan.
During the three months ended December 31, 1995, the Company reduced its
income tax expense to reflect a $6.8 million tax benefit associated with the
recognition of deferred tax assets and the utilization of $10.2 million of net
operating loss carryforwards, producing a net tax benefit of $6.0 million. The
income tax provision recorded during the three months ended March 31, 1996 was
$7.9 million, reflecting an effective tax rate of approximately 38%. The Company
anticipates an effective tax rate of approximately 38% in future periods.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1994, the Company financed its cash requirements through cash
from investing activities, primarily the refinancing of $19.6 million in
equipment. In fiscal 1995, the Company financed its cash requirements primarily
through cash from operations. During fiscal 1996, the Company financed its cash
requirements primarily through cash from operating and financing activities.
The Company's operations provided net cash of $8.7 million and $50.4
million for fiscal 1995 and 1996, respectively. Cash generated during fiscal
1996 reflects net income plus depreciation and amortization, as well as an
increase in liabilities, partially offset by increases in receivables and
deferred income taxes. Increased sales and improved margins contributed to the
positive cash flow provided by operations in each of the past two years.
29
<PAGE> 32
For fiscal 1995 and 1996, net cash used in investing activities was $7.3
million and $35.5 million, respectively. The Company invested $7.3 million and
$39.6 million in property, plant and equipment during fiscal 1995 and 1996,
respectively.
For fiscal 1995 and 1996, net cash from financing activities was $(0.6)
million and $20.0 million, respectively. Cash provided by financing activities
for fiscal 1996 reflects the $76.9 million in cash generated from the sale of
common stock during the Company's initial public offering (before exercise of
the underwriters' over-allotment option, which was exercised after the
completion of fiscal 1996), partially offset by the repayment of the senior bank
term loan and the net cash used for the Leveraged Recapitalization, which was
effected on November 30, 1995, through a $60.0 million senior bank term loan and
an aggregate of $106.7 million in debt and equity financing provided by certain
investment funds, management and employees, and Hitachi Metals.
As of March 31, 1996, the Company's principal sources of liquidity
consisted of $35.8 million in cash and cash equivalents, and a $30.0 million
revolving credit facility under which there were no borrowings. At March 31,
1996, the Company had indebtedness of $47.0 million in principal amount of
Subordinated Notes payable to existing stockholders that bear interest at 12.0%
(increasing by 1% per year commencing January 1, 1999) and begin to require
annual payments of principal on December 31, 2003. The Company also had $59.0
million of Series A Preferred Stock. The Company expects to use approximately
$47.0 million of the net proceeds of the Offerings to prepay the Subordinated
Notes, together with all accrued but unpaid interest, approximately $59.0
million of the net proceeds of the Offerings to redeem the Series A Preferred
Stock, and the remainder of the net proceeds for capital expenditures, including
investment in facilities and equipment, working capital and other general
corporate purposes. See Note 7 of Notes to the Consolidated Financial
Statements, "Description of Capital Stock" and "Use of Proceeds." The revolving
credit facility is secured by all of the Company's assets. Subsequent to March
31, 1996, the Company received an additional $11.7 million in cash for Common
Stock sold pursuant to the over-allotment option of the underwriters of the
Company's initial public offering. The Company expects to spend in excess of
$250.0 million on capital expenditures directed toward expansion of production
capacity over the next eighteen months.
The Company believes existing cash balances, cash generated from
operations, and funds available under its credit facilities, together with the
proceeds of the Offerings, will provide adequate cash to fund its operations for
at least the next twelve months. While operating activities are expected to
provide cash in certain periods, continued expansion of the Company's
manufacturing capacity will require the Company to obtain additional sources of
financing. Additional sources of long-term liquidity could include cash
generated from operations and debt and equity financings. The Company continues
to have significant future obligations and expects that it will require
additional capital to support planned expansion of the Company's manufacturing
capacity and growth, if any. There can be no assurance that the Company will be
able to obtain alternative sources of financing on favorable terms, if at all,
at such time or times as the Company may require such capital.
30
<PAGE> 33
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
HMT is an independent supplier of high-performance thin film disks for
high-end, high-capacity hard disk drives, which in turn are used in high-end
PCs, network servers and workstations. The disks currently being shipped by the
Company are primarily for disk drives with storage capacities ranging from 1.6
to 9 gigabytes (using three to 12 disks), and all have coercivity levels of 1900
Oe or higher. Since March 1994, the Company has focused on addressing the needs
of this high-end, high-capacity segment of the disk drive market. HMT believes
that its recent operating results reflect its success in meeting these needs and
that its future growth and success depend on its ability to continue to develop
and market products that enable its customers to produce high-performance disk
drives for high-end data storage applications. The Company provides a range of
magnetic density points (coercivities), glide heights and disk thicknesses to
match the design and performance requirements of each particular customer. The
Company currently focuses all of its production capacity on 3 1/2-inch disks,
although it is capable of producing disks in other standard form factors. In
fiscal 1996, HMT sold its disks to Maxtor, Western Digital, Micropolis, Quantum,
Iomega Corporation ("Iomega"), and Hewlett-Packard Company ("Hewlett-Packard").
The Company has also recently begun shipping disks to Samsung Electronics
Company Limited ("Samsung").
INDUSTRY BACKGROUND
The Disk Drive Market
Market demand for disks and disk drives is growing rapidly, stimulated by
demand for new computers, upgrades to existing computers and the growing use of
sophisticated network servers. The introduction of increasingly powerful
microprocessors and more memory intensive software, combined with the
development and growth of multimedia computing applications and Internet usage,
have stimulated demand for PCs in both the home and business markets. According
to International Data Corporation ("IDC"), worldwide shipments of PCs were 39
million units in 1993 and 58 million units in 1995, and are projected to reach
approximately 104 million units in 1999. In addition, the PC server market,
driven by the trend toward networking applications and the expansion of the
Internet, is expected to grow substantially through the year 2000.
The combined demand from the PC and server markets has resulted in strong
growth in unit shipments of disk drives. Worldwide shipments of hard disk drives
were 50 million units in 1993 and 89 million units in 1995 and are projected to
reach 144 million units in 1997. According to IDC, the worldwide market for hard
disk drives was $22 billion in 1995. Strong overall demand for disk drives has
also stimulated the growth of the thin film disk market. According to Trend
Focus, the number of thin film disks produced in 1993 was 134 million, in 1995
was 256 million and is projected to reach 416 million in 1997. The worldwide
market for thin film disks is estimated to have been $3.3 billion in 1995.
The applications being developed for PCs require greater storage capacity
and, as a result, have sharply increased the demand for high-capacity disk
drives. Users purchasing newer PCs for business and home are commonly attracted
by the availability of greater processing power, larger databases, multimedia
and other memory intensive applications and more sophisticated operating
systems, such as Windows 95 or Windows NT. Increasing use of the Internet and
on-line data, including image storage and retrieval, have further stimulated the
demand for storage capacity. The disk drive industry has responded to this
demand with significant technology and product advances. As a result, mean
storage capacity per disk drive has increased from 213 megabytes ("MB") in 1993
to 690 megabytes in 1995. Meanwhile, the average number of disks per drive has
remained relatively constant at about 2.5 disks. While storage capacity has
grown, the cost per MB has fallen from $1.26 in 1993 to $0.32 in 1995. Today's
market continues to generate pressure for advances to facilitate these trends in
computing,
31
<PAGE> 34
especially at the high-end. Thus, the Company believes that success in the disk
drive market has depended and for the foreseeable future will depend on the
ability of the disk drive manufacturer, together with its suppliers of critical
components, such as thin film disks, to keep pace with these advances.
Recently, removable-media storage devices, including removable hard disk
drives, have received increased attention in the data storage market. Removable
hard disk drives utilize cartridges incorporating thin film disks and combine
the high-capacity and rapid access of hard disk drives with the benefits of
removability. These devices can be used peripherally to increase the storage
capacity for PCs.
Disk Drive Technology
The basic elements of the disk drive, sized to fit various industry form
factors, have remained essentially the same since hard disk drives were first
introduced. The principal components of a hard disk drive are disks, heads,
spindle and actuator mechanics and electronics. Each disk drive typically
contains from one to ten disks that are attached to a spindle/motor assembly
within a sealed enclosure. The electronics control the spinning of the disk, the
positioning of the head and the writing and retrieval of data stored on the
disk. The recording head is a small magnetic transducer that, when the disk is
spinning, "flies" just above the disk surface. Data are written on
circumferential tracks on the disk when the electronic channel sends current
pulses to the head. The head converts these pulses to magnetic fields that cause
the magnetic layer within the disk and under the recording head to become
magnetized, oriented in the direction of the head's magnetic field. Reversing
the current in the head reverses the direction of the magnetic field on the
disk. During the read-back process, as the head scans over the disk, magnetic
flux from the disk's magnetic layer is picked up by the head and induces an
electrical current which is converted into voltage. The output signal voltage is
then transformed into digital data by the read channel electronics. The
following diagram illustrates the principal components of a typical hard disk
drive:
(GRAPHIC)
Major improvements in disk drive performance have been based on
technological advances in the principal components. In a typical disk drive
today, the spindle/motor assembly rotates the disk at 4,500 to 7,200 revolutions
per minute. The head reads and writes data onto the spinning disk while flying
at a height of 2.0 microinches (.05 micron) at data transfer rates of 40 to 80
megabits per second. The combination of modern head and disk technologies
enables this drive to store data on 4,000 to 6,000 circumferential tracks per
radial inch on the disk with 75,000 to 110,000 bits of data per inch along each
track.
Thin Film Disk Technology
A thin film disk is composed of a substrate, generally aluminum, coated
with thin films capable of storing information in the form of magnetic patterns.
The manufacturing of thin film disks is a multi-step process using processes
similar to those used for the production of silicon wafers for semiconduc-
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<PAGE> 35
tors. The manufacturing process involves the deposition of extremely thin,
uniform layers of magnetic film onto a substrate using a sputtering process, by
either a static or in-line system, similar to that used to coat silicon wafers.
The basic process consists of many interrelated steps and requires an extremely
clean environment. Minor deviations in the manufacturing process, minute
impurities in materials used, particulate contamination or other problems can
cause significant numbers of disks to be rejected, thereby causing significant
yield loss.
The most significant technological challenges facing disk manufacturers
today are associated with market demand for increased storage capacity and
durability. An effective implementation of thin film technology to meet these
challenges must address various performance-related characteristics, including
magnetics, glide height, durability and static friction ("stiction").
- Magnetics. Coercivity, a measure of the magnetic strength of the disk,
is expressed in Oersted ("Oe"). The magnetic strength of the disk is
determined by the types of disk substrate and thin film materials used,
substrate surface conditions before disk sputtering, and the conditions
that exist during the sputtering process, including temperature, vacuum
and possible sources of disk contamination. As areal density increases,
higher coercivity is needed to permit sharper transitions between
magnetized regions. This allows each bit of data to be stored in a
smaller area, and therefore more data can be stored in the same disk
area. Advanced drive designs currently require coercivities in the range
of 1800 to 2200 Oe, compared to a range of 950 to 1200 Oe five years ago.
The Company believes that most high-end disk drive manufacturers will
require coercivities of 2000 to 2400 Oe by the end of 1996. HMT currently
manufactures and sells disks in commercial quantities with coercivities
ranging from 1900 to 2200 Oe, with more than 40% of the Company's
revenues during the three months ended March 31, 1996 deriving from disks
with coercivities of 2000 Oe and above. The Company is also currently
producing small quantities of disks for use in customer development
programs with coercivities of up to 2700 Oe.
- Glide Height. The glide height of the disk is the measure of the height
at which the head can fly over the disk without hitting anything and is a
standard used in the specification of the disk. The actual flying height
of the head in the disk drive is higher than the glide height to provide
a margin for safety. Glide height depends on the smoothness and flatness
of the disk surface. The lower the disk head flies above the disk
surface, the more accurately the head can read the magnetic signal,
allowing a smaller magnetized region to store each bit of data and
thereby contributing to increases in areal density. While the current
industry standard glide height is 1.5 microinches, the Company expects
that glide heights will decrease to 1.2 microinches during 1996. The
Company currently manufactures and sells disks in commercial quantities
with glide heights of 1.5 microinches and 1.2 microinches.
- Durability Through Start/Stop Cycles. In most hard disk drives, the head
and disk come into contact when the disk drive is turned off and the head
rests directly on the inner diameter of the disk. To prevent wear on the
disk, a protective overcoat is deposited over the magnetic layer of the
disk. However, the thickness of this overcoat must be minimized because
this layer increases the distance of the head from the magnetic layer,
thereby reducing the strength of the magnetic signal reaching the head.
Customer specifications typically require 60,000 start/stop cycles for
desktop PCs.
- Stiction. Stiction is the static friction that occurs when two smooth
surfaces come into contact. In the case of hard disk drives, an extremely
smooth disk surface enables lower glide heights and can enhance
durability by reducing the friction which occurs when the head contacts
the disk. However, if a disk is too smooth, stiction will cause the head
to adhere to the disk surface when the drive is turned on and off,
causing irreparable damage to the hard disk drive. Disk manufacturers
minimize this problem primarily through texturizing the disk surface in a
controlled manner.
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<PAGE> 36
Disk manufacturers cannot simply address each performance characteristic
discretely because the interplay among characteristics significantly impacts the
overall performance of the disk. For example, a protective overcoat that yields
a highly durable disk may well reduce the disk's potential storage capacity.
Challenges Facing the Disk Drive Industry
Despite technological advances in components, including thin film disks,
and the prospects for continued data storage market growth, disk drive
manufacturers face a demanding marketplace. A strong competitive position is
best achieved through continual innovation. Improvements in product performance
characteristics, designed to meet the growing demands for increased storage
capacity, play an integral part in allowing the manufacturer to generate
acceptable gross margins. However, in the highly competitive disk drive
industry, other manufacturers have generally been able to develop comparable
products within a relatively short time. The likelihood of rapidly decreasing
profitability over the life cycle of any given product provides a strong
incentive for manufacturers to innovate. This results in extremely short product
cycles, currently estimated to be from nine to twelve months.
Disk drive manufacturers participating in the high-end, high-capacity disk
drive market segment can realize higher gross margins by successfully addressing
the need for drives capable of supporting today's demand for high-performance,
value-added computing products. In this segment, which supplies products
incorporated into high-end PCs, network servers and workstations, users are less
price sensitive than typical home PC consumers because they have a more
compelling need for a value-added product. Because of the short product cycles
and the significant technology improvements incorporated into each new
generation of high performance disk drives, the need to be in the forefront of
technological advances is particularly great for companies competing in this
segment.
Disk drive manufacturers can produce higher capacity products by putting
more disks in a drive or coupling a number of drives together in an array. These
approaches are limited by form factor constraints and technical complexity.
These are also relatively high cost solutions since the drive manufacturer is
adding more componentry. A more cost-effective solution is to develop a product
that can store more data using the same number of components. Thus, disk drive
manufacturers generally have relied on the development of new head technologies
and of thin film disks with improved areal density characteristics to support
generational advances in storage capacity and performance.
THE HMT APPROACH
HMT focuses on providing value added technological solutions that meet the
demands of the high-end, high-capacity disk drive market. The Company develops,
manufactures and sells technologically advanced products designed to provide
improved performance, principally through achieving higher coercivities and
lower glide heights. The Company seeks to be a supplier to disk drive
manufacturers with a proven record for technological leadership because these
customers have the greatest ability to fully exploit the value of
technologically superior disks. By working with such high-end customers and
their head vendors, HMT can influence leading edge disk drive designs and earn a
strong position as a supplier of disks for these products.
STRATEGY
The key elements of HMT's strategy are as follows:
- Establish and Maintain Leadership in High-End Product Technology. The
Company focuses its development resources principally on performance
improvements for disks sold to the high-end, high-capacity segment of the
disk drive industry. In order to improve product performance
characteristics, including magnetics, glide height, durability and
stiction, HMT is continually engaged in efforts to enhance its
proprietary technologies and processes. For example, efforts in the alloy
and process development area, focusing largely on non-precious metal
alloys, are directed toward improving disk coercivity above the 2500 Oe
level.
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- Develop Collaborative Relationships with Leading Head and Disk Drive
Manufacturers. The Company works closely with head manufacturers
developing new technologies, including TRI-PAD compatible and MR-head
ready disks. This collaboration enables the parties to develop compatible
products which can be effectively incorporated together into leading edge
disk drives. HMT also seeks to establish strong relationships with its
customers, enabling the Company to participate in establishing
technological and design requirements for new products. The Company
believes that close technical collaboration with its customers and their
other suppliers during the design phase of new disk drives facilitates
integration of the Company's products into new disk drives, improves the
Company's ability to reach cost effective high volume manufacturing
rapidly and enhances the likelihood that the Company will become a
primary supplier of thin film disks for high performance disk drive
products.
- Develop Advanced Manufacturing Processes to Support Volume
Production. HMT develops advanced manufacturing processes directly on
state-of-the-art production equipment. Developing manufacturing processes
for new products directly on active production lines during the research
and development phase increases the likelihood that the Company can
quickly and efficiently transition to high volume commercial production
of new products. The ability to implement new processes quickly also
helps the Company meet its customers' increasingly rapid time-to-market
demands and advances its goal of having its products designed into its
customers' disk drives.
- Expand Manufacturing Capacity. Demand for the Company's thin film disks
currently exceeds its manufacturing capacity. HMT has recently completed
an expansion of manufacturing capacity in its current facility and
announced plans to construct a new production facility at its Fremont,
California site. In addition, the Company recently acquired an aluminum
substrate manufacturing facility and related equipment located in Eugene,
Oregon and has announced plans to enlarge that facility in order to
increase substrate production and to add nickel plating and polishing
capability. The Company expects that added capacity will enable it to
improve its ability to meet the demands of current customers and position
it to take advantage of additional market opportunities.
- Maintain Strict Quality Control of Manufacturing Process. HMT believes
that its close attention to quality control results in a consistent
product and high production yields and is key to its success. Attention
to quality has the dual benefit of producing high performance disks and
lowering the Company's cost of production. In addition, product quality
is an essential factor in the supplier certification process of disk
drive manufacturers. Two customers currently accept shipments of the
Company's products directly to stock, which HMT believes indicates a high
degree of customer confidence in HMT's ability to manufacture a
consistently high quality product and which potentially reduces customer
costs associated with disk supply.
PRODUCTS
The Company provides a range of magnetic density points (coercivities),
glide heights and disk thicknesses. HMT currently manufactures and sells disks
in commercial quantities with coercivities ranging from 1900 to 2200 Oe and
glide heights of 1.5 microinches or less. The Company is also currently
producing small quantities of disks for use in customer development programs
with coercivities of up to 2700 Oe.
The Company's product mix continually shifts as technological advances are
implemented in anticipation of demand for disks with improved performance
characteristics and the Company transitions production from less technologically
sophisticated disks still in active use. For example, during the three months
ended March 31, 1995, 1800 Oe and below products comprised 95.0% of total units
shipped. In the three months ended March 31, 1996, all products shipped were
1900 Oe and above, with more than 40% of the units shipped having coercivities
of 2000 Oe and above.
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The Company's disks are currently used by seven disk drive manufacturers in
nine different 3 1/2-inch disk drive products. Currently, these disks are
primarily used in disk drives with capacities ranging from 1.6 GB to 9 GB and
have storage capacity per disk ranging from 525 to 750 MB. The Company has the
technological capability to produce disks to fit standard form factors of
5 1/4-inches and below, although it currently produces only 3 1/2-inch disks.
MANUFACTURING AND QUALITY
HMT believes that its internally developed proprietary and patented
manufacturing processes and state-of-the-art equipment, to which it has made
proprietary modifications, combined with its extensive expertise, currently
provide HMT with a technological advantage over competing independent thin film
disk manufacturers. HMT's expertise, processes and equipment also allow it to
develop new proprietary processes in response to customers' requirements for
improved product performance and to integrate new technologies into the
manufacturing process rapidly. The Company's production lines can be installed,
modified or expanded on a cost efficient basis. The use of a modular strategy
facilitates incremental capacity increases, efficient adaptation of
manufacturing equipment for new product processes and achievement of high volume
manufacturing capacity for new products on a timely basis.
Manufacturing Process
The Company's manufacturing process is briefly summarized as follows:
Chamfer, Grind, Bake and Wash. The initial input to the production of a
thin film disk is an aluminum blank that can be procured from a number of
sources. To create specialized aluminum alloy substrates, the manufacturer
chamfers the sharp inner and outer edges of the blank, rough grinds the blank to
achieve flatness, bakes the blank to bring out surface roughness, final grinds
to remove surface defects and improve surface finish, and then washes the blank
to remove particles. HMT manufactures a portion of its requirements for these
substrates, which must be flat, smooth and free of surface defects, and
purchases the balance of its requirements from independent vendors.
Plate, Polish, Texture and Wash. Aluminum substrates are plated with
electro-less nickel, a non-magnetic layer critical to corrosion resistance that
strengthens the disk and improves durability. The Company currently performs
most of its nickel plating in-house. Disks are then polished to produce a mirror
smooth surface. Polishing enhances the nickel surface, reducing its roughness,
while maintaining the overall flatness of the disk. The Company's texturizing
process, a highly automated patented process, produces a controlled roughness on
the disk's surface to improve its stiction characteristics. The final step in
these front-end processes is washing to present a clean disk surface. Subsequent
processes occur in class 10 clean rooms.
Sputter, Dip Lube and Kiss Buff. The sputter process uses equipment and a
process, similar to that used in silicon wafer fabrication, in which layers of
materials are deposited on the disk through a vacuum sputtering process. The
chrome and magnetic layers determine the magnetic properties of the disk. The
carbon layer is a protective overcoat. After sputtering, a microscopic layer of
lubrication is applied to the disk's surface to improve durability and reduce
surface friction. After lubrication, a surface finishing step is applied,
commonly referred to as kiss buff or tape burnish.
Glide/Certify. In the test and certification process each finished disk is
electronically screened and certified as acceptable based on the customer's
specifications. A robotically controlled tester electronically tests for glide
performance. The tester then writes information onto the disk, reads it back and
erases it, simulating performance in the customer's disk drive. Each disk is
tested for parametrics, errors in the read/erase process and surface defects.
The conversion of a specialized aluminum alloy substrate into a final
product requires three to five days.
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THE THIN FILM DISK PRODUCTION PROCESS
[GRAPHIC]
Quality Assurance
HMT has a dedicated quality assurance group. The Company believes that its
quality assurance program allows it to realize superior product yields and
consistently produce a quality product. Because a high quality product is
critical to achieving strong operating results and high customer satisfaction,
HMT's emphasis on this area will remain a top priority. The organization
consists of four separate groups:
- Application Engineering. The Application Engineering group is
responsible for reviewing customer requirements and specifications by
conducting specification reviews and soliciting customer and internal
manufacturing feedback. Other functions include correlating and evalu-
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ating the results of HMT and customer testing, generating standards and
performing source audits.
- Supplier Quality Engineering. Because quality assurance is a critical
aspect of the Company's strategy, the emphasis on quality must extend to
the supplier level. The Supplier Quality Engineering group is responsible
for ensuring incoming product quality through auditing suppliers,
reviewing process data, establishing internal specifications and creating
quality procedures and practices. The group also establishes material
specifications, supplier benchmarking and standards for qualification of
the supplier base.
- Reliability and Process Engineering. The Reliability and Process
Engineering group is responsible for performing ongoing reliability
testing, process improvement testing and new product development testing.
Specific functions involve statistical process control analysis, gauge
repeatability and reproducibility studies, equipment calibration, process
qualification improvements and in-process quality audits.
- Customer Support. The Customer Support group acts as liaison between the
customer and the Company's manufacturing organization. All customer
concerns and issues are handled through the group. Other responsibilities
include corrective action requests, non-conforming material reviews,
return material authorizations and document control.
Manufacturing Facilities and Capacity
The Company's manufacturing facilities, distribution center and
administrative offices are located in Fremont, California. The Company's Fremont
facility received ISO 9001 certification in May 1996. The Company operates
fourteen production scale sputtering lines for production and development of
products. A typical sputtering line consists of one sputtering machine and
associated equipment, such as texturizers, lubricators, glide testers and
certifiers. The Company's facilities, which currently operate seven days a week,
24 hours per day, are close to full capacity. The Company has recently announced
plans to construct a new production facility at its Fremont, California site, in
which it plans to install up to 16 additional production scale sputtering lines.
The Company has also recently acquired an aluminum substrate manufacturing
facility and related equipment located in Eugene, Oregon, and has announced
plans to enlarge that facility in order to increase substrate production and to
add nickel plating and polishing capability.
Because the Company has been operating at close to full capacity, growth in
the Company's net sales depends on the successful expansion by the Company of
its manufacturing capacity. Although the Company has improved its production
capacity in its existing facility, significant additional increases will depend
on successfully developing the new production facility in Fremont and on
successfully enlarging the Eugene, Oregon facility to provide an increased
internal supply of nickel plated and polished substrates. There can be no
assurance that the Company will be able to successfully increase capacity and
the failure to do so could have a material adverse effect of the Company's
business, operating results and financial condition.
TECHNOLOGY
The Company believes that there are a number of factors that are key to
establishing and maintaining an advanced technology position. The Company is
optimizing non-precious metal alloys, based on a cobalt/chromium/tantalum alloy,
for future products with coercivities that can support foreseeable demand for
increased storage capacity using relatively inexpensive materials. The Company
also has extensive expertise in the deposition of these and other alloys onto
disks. The Company uses state-of-the-art static sputtering machines in the
development and production of disks. Static machines differ from in-line, pallet
machines used by some other disk manufacturers in a number of important
respects. Static sputtering machines process one stationary disk at a time,
allowing for greater control of alloy deposition and minimizing spatial and
temperature variation; use isolated process chambers, permitting the
manufacturer to control and optimize each process step separately;
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and do not require a pallet, reducing the risk of contamination of the disk
surface during processing. The Company has further enhanced the performance of
sputtering equipment supplied by vendors through internally developed,
proprietary and patented modifications.
The Company believes its unique tribology approach, which minimizes
detrimental interaction between the head and disk, is another area of strength.
The method involves balancing the inter-relationship between texturizing, carbon
overcoating and lubrication. The Company's patented graded zone texture process
allows the Company to produce a rougher texture at the disk's inner diameter,
while creating a smoother surface on the remainder of the disk. This process
provides increased protection where the head most often comes into contact with
the disk, while also minimizing the distance between the head and the disk
magnetics in other regions of the disk where data is stored and read. A
nitrogen-containing carbon overcoat offers superior wear resistance. Application
of the Company's in-house blended lubricant results in disks that can withstand
an extreme range of temperature and humidity conditions. These additional layers
must be thick enough to achieve the desired protection of the disk and thin
enough to minimize the distance between the head and the magnetic layer of the
disk. The Company believes that its application of these technologies, with
particular attention to the inter-relationship between the technologies and
their combined effect on disk performance, have enabled it to develop
competitive high-capacity disks.
The Company also devotes considerable resources to developing disks for
drives utilizing new head technology. Head technology, traditionally based on
flying inductive heads that combine the read and write function within one head,
is undergoing significant evolution. Two important new technologies, proximity
recording and MR-heads, have emerged and over time are expected to replace
traditional inductive technology. The Company believes that proximity recording,
such as TRI-PAD or similar technology, which is an extension of current
inductive technology that, by design, allows a portion of the head to have
intermittent contact with the disk, will be an important technology for the next
several years. MR-head technology segregates the read and write function to
different elements of the head. By physically disconnecting the writing and
readback processes each can be individually tuned for optimized performance. The
Company expects that the superior performance offered by MR technology will make
it the dominant head technology of the future. In order to take advantage of the
technological potential of these new head technologies and enable the Company to
play a role in setting design specifications for the disk drive product, HMT
works directly with head manufacturers to develop compatible disks. The Company
has demonstrated the ability to produce disks for the new head formats through
the use of non-precious metal alloys, modified equipment and optimized
processes.
The Company believes that its materials science expertise and ongoing
commitment to developing new technologies is critical to remaining competitive
and achieving desired operating results. The Company expects its research and
development effort to remain focused on alloy and process development, substrate
finish and texture, overcoat development, and compatibility with advanced
recording concepts. As it has done in the past, the Company intends to conduct
many of its development programs directly on active production lines,
facilitating transition to high volume commercial production and minimizing
development expense. During the fiscal years 1994, 1995 and 1996, the Company
incurred $2.8 million, $3.1 million, and $3.8 million, respectively, of research
and development expenses. The Company believes that its future success depends
on its ability to continue to enhance its existing products and to develop new
products.
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CUSTOMERS, SALES AND SUPPORT
The Company sells its products directly to independent OEM disk drive
manufacturers for incorporation primarily into hard disk drives which are
marketed under the manufacturers' own labels. The following table sets forth the
percentage of net sales attributable to sales to the Company's principal
customers in the three months ended March 31, 1996, fiscal 1996 and fiscal 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 FISCAL 1996 FISCAL 1995
------------------ ----------- -----------
<S> <C> <C> <C>
Maxtor............................. 39.0% 40.5% 73.7%
Western Digital.................... 35.1 35.8 5.9
Hewlett-Packard.................... 10.7 3.7 0.0
Micropolis......................... 6.1 9.1 11.2
</TABLE>
The Company's other customers during the three months ended March 31, 1996
included Iomega, Quantum and Samsung. Iomega utilizes the disks in its removable
media hard disk drives. Due to cessation of its high-end manufacturing
operations, Quantum's high-end products are expected in the future to be
manufactured by Matsushita Kotobuki Electronics Industries ("MKE"), and the
Company is currently qualifying its products with MKE. The Company recently
began shipping products to Samsung. Due to the rapid and frequent development of
new disk drive products, it is common in the industry for the relative mix of
customers and products to change rapidly, even from quarter to quarter.
The Company believes that close technical collaboration with its customers
and their other suppliers during the design phase of new disk drives facilitates
integration of the Company's products into new disk drives, improves the
Company's ability to rapidly reach cost effective high volume manufacturing and
enhances the likelihood that the Company will become a primary supplier of thin
film disks for new disk drive products. However, the design-in process is
ongoing and recurs frequently, and the Company must compete for participation in
each new product program, even those of existing customers.
The Company's customer sales and service efforts are an integral part of
maintaining strong customer relations. The sales and service organization
processes requests from customers concerning product needs and acts to mobilize
the Company's resources to fulfill customer requests.
Although the Company has broadened its customer base, there are a
relatively small number of disk drive manufacturers, and the Company expects
that its dependence on a few customers will continue in the future.
Additionally, there is the possibility that one or more of the Company's
customers could develop or expand their ability to produce thin film disks
internally and, as a result, could reduce the level of purchases or cease
purchasing from the Company or could sell thin film disks in competition with
the Company. There has also been a trend toward consolidation in the disk drive
industry that the Company expects to continue. If any of the Company's customers
or competitors were to combine and rationalize suppliers and competitive product
lines, the Company's business, results of operations and financial condition
could be materially adversely affected.
BACKLOG
The Company's sales are generally made pursuant to purchase orders that are
subject to cancellation, modification, quantity reductions or rescheduling
without significant penalties. The Company's backlog of purchase orders
requesting delivery in the following quarter was approximately $69.3 million as
of March 31, 1996, compared with $25.8 million as of March 31, 1995. Customers
typically provide the Company with forecasts of expected requirements for the
next three to six months and submit purchase orders 60 to 90 days in advance of
shipment dates. Because these purchase orders may be modified or rescheduled by
customers on short notice and without penalty, the Company does not believe that
its backlog as of any particular date should be considered indicative of sales
for any future period.
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COMPETITION
Competitors in the thin film disk industry fall into three groups: U.S.
non-captive manufacturers, Japan-based manufacturers and U.S. captive
manufacturers. Historically each of these groups has supplied approximately
one-third of the worldwide thin film disk unit output. The Company's primary
U.S. non-captive competitors are Akashic, Komag and StorMedia. Japan-based
competitors include Fuji, Mitsubishi, Showa Denko and Hoya. Certain of these
companies have significantly greater financial, technical and marketing
resources than the Company. In addition, U.S. captive manufacturers, which
include certain computer manufacturers, as well as disk drive manufacturers such
as Seagate, an affiliate of Maxtor and Western Digital, manufacture disks or
plan to manufacture disks for their internal use as part of their vertical
integration programs. These companies could increase their internal production
and reduce or cease purchasing from independent disk suppliers such as the
Company. In the event of an oversupply of disks, these customers are likely to
utilize their internal capacity prior to purchasing disks from independent
manufacturers such as the Company. Moreover, while captive manufacturers have,
to date, sold only nominal quantities of thin film disks in the open market,
there can be no assurance that such companies will not in the future do so in
direct competition with the Company. Furthermore, there can be no assurance that
other current and potential customers will not acquire or develop capacity to
produce thin film disks for internal use, or that disk manufacturing capacity
will not exceed demand. Any such changes could have a material adverse effect on
the Company's business, operating results and financial condition. Announcement
or implementation of any of the following by the Company's competitors could
have a material adverse effect on the Company's business, operating results and
financial condition: changes in pricing, product introductions, increases in
production capacity, changes in product mix and technological innovation.
The market for thin film disk products is highly competitive, and the
Company expects competition to increase in the future. The Company believes that
the principal competitive factors affecting this market include performance,
quality, delivery capability and price. The Company believes that its products
compete favorably in the high-end segment of the market that it serves,
especially with respect to performance and quality. The thin film disk industry
is characterized by short product life cycles, ranging from nine to twelve
months. As a result, the Company must continually anticipate, and adapt its
products to meet, demand for increased storage capacity. There can be no
assurance that in the future the Company will be able to manufacture products on
a timely basis with the quality and features necessary in order to remain
competitive. In addition, the development of technologically innovative products
requires substantial investments in research and development. Specifically, the
thin film disk industry is characterized by intense price competition. While the
Company believes that consumers in the high-end high-capacity segment of the
market in which the Company operates are less sensitive to price, the Company
has experienced pricing pressures in the past, and there can be no assurance
that the Company will not experience increased price competition in the future.
Pricing pressure has included, and may in the future include, demands for
discounts, long-term supply commitments and extended payment terms. Any increase
in price competition could have a material adverse effect on the Company's
business, operating results and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, it believes that
its success will depend more upon the innovation, technological expertise and
marketing abilities of its employees. There can be no assurance that the Company
will be able to protect its technology adequately or that competitors will not
be able to develop similar technology independently. The Company has 26 patents
and 15 pending patent applications in the United States. In addition, the
Company has nine foreign patents. Patents may not be issued with respect to the
Company's pending patent applications, and its issued patents may not be
sufficiently broad to protect the Company's technology. No assurance can be
given that any patent issued to the Company will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide adequate
protection to the Company's products. In addition, the Company has
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<PAGE> 44
only limited patent rights outside the United States and the laws of certain
foreign countries may not protect the Company's intellectual property rights to
the same extent as do the laws of the United States.
The Company may from time to time be notified by third parties that it may
be infringing patents owned by such third parties. If necessary, the Company may
have to seek a license under such patents or modify its products and processes
in order to avoid infringement of such patents. There can be no assurance that
such a license would be available on acceptable terms, if at all, or that the
Company could so avoid infringement of such patents, in which case the Company's
business, operating results and financial condition could be materially
adversely affected. The Company and one of its customers have been contacted by
Virgil L. Hedgcoth concerning the use of certain disk preparation techniques
allegedly patented by Mr. Hedgcoth (the "Hedgcoth Patents"). The Company
generally provides its customers with indemnification for damages sustained by a
customer as a consequence of patent infringement claims arising out of use of
the Company's products and agrees to defend its customers against such claims.
Based on its review of the Hedgcoth Patents, the Company believes that it does
not use the techniques described in the Hedgcoth Patents. The Company is aware
that another manufacturer is currently litigating the validity of the Hedgcoth
Patents. Should they be upheld, there can be no assurance that Mr. Hedgcoth will
not make a claim against the Company, in which case the Company could be
required to defend its position.
Litigation may be necessary to enforce the Company's patents, copyrights or
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or claims for indemnification resulting
from infringement claims by third parties. Such litigation, even if successful,
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition.
SOURCES OF SUPPLY
The Company relies on a limited number of suppliers for many materials used
in its manufacturing processes, including substrates, texturizers, plating
chemicals, abrasive tapes and slurries, certifier heads, sputter targets and
certain other materials. In general, the Company seeks to have two or three
suppliers for its requirements; however, there can be no assurance that the
Company can secure more than one source for all of its materials requirements in
the future or that its suppliers will be able to meet the Company's requirements
on a timely basis or on acceptable terms. Shortages have occurred in the past
and there can be no assurance that shortages will not occur in the future, or
that materials will not be available only with longer lead times. Moreover,
changing suppliers for certain materials, such as lube or buffing tape, would
require that the product be requalified with each customer. Requalification
could prevent an early design-in, or could prevent or delay continued
participation in disk drive programs for which the Company's products have been
qualified. In addition, long lead times are required to obtain many materials.
Regardless of whether these materials are available from established or new
sources of supply, these lead times could impede the Company's ability to
quickly respond to changes in demand and product requirements. Furthermore, a
significant increase in the price of one or more of these materials could
adversely affect the Company's business, operating results and financial
condition. While the Company has implemented procedures to monitor the quality
of the materials received from its suppliers, there can be no assurance that
materials will meet the Company's specifications and will not adversely impact
manufacturing yields or cause other production problems. For example, in the
quarter ended March 31, 1995, the Company's operating results were adversely
affected by chlorine contamination of its thin film disk products that it
believes resulted from chlorine contamination of disk carriers provided by one
of its suppliers. In addition, there are only a limited number of providers for
thin film disk manufacturing equipment, such as sputtering machines, glide
testers and certifiers, and ordering additional equipment for replacement or
expansion requires long lead times, limiting the rate and flexibility of
capacity expansion. Any limitations on, or delays in, the supply of materials or
equipment could disrupt the Company's
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production volume and could have a material adverse effect on the Company's
business, operating results and financial condition.
ENVIRONMENTAL REGULATION
The Company's operations and manufacturing processes are subject to certain
environmental laws and regulations, which govern the Company's use, handling,
storage, transportation, disposal, emission and discharge of hazardous materials
and wastes, the pre-treatment and discharge of process waste waters and its
emission of air pollutants. The Company has from time to time been notified of
minor violations of environmental laws and regulations, including its waste
water discharge permits, San Francisco Bay Area air quality regulations and
hazardous material regulations including releases of hazardous materials. These
violations have been corrected in all material respects without undue expense.
Environmental laws and regulations, however, may become more stringent over time
and there can be no assurance that the Company's failure to comply with either
present or future laws or regulations would not subject the Company to
significant compliance expenses, production suspension or delay, restrictions on
expansion or the acquisition of costly equipment.
EMPLOYEES
As of March 31, 1996, the Company had 651 full-time employees, with 542 in
manufacturing, 37 in research and development, 32 in quality assurance and 40 in
administration and marketing. The Company believes it generally has good
relations with its employees. None of the Company's employees are represented by
a labor union, and the Company has never experienced a work stoppage. The
Company believes that attracting and motivating skilled technical personnel is
vital to its success. Although competition for such personnel is intense, the
Company believes that it has not historically experienced difficulties in
attracting personnel that are significantly different from those experienced by
its competitors.
PROPERTIES
The Company owns a 57,776 square foot building, used for manufacturing and
administration, on approximately 4.3 acres of land in Fremont, California, and
an adjacent five acre parcel. The Company has recently announced its intention
to build an additional 120,000 square foot manufacturing and administrative
facility on this site. The Company leases an adjacent 50,400 square foot
building used primarily for manufacturing under a lease that expires in December
1998 with four five-year extension options. The Company also leases 11,424
square feet of space in a nearby building that it uses for a distribution center
under a lease agreement that expires in September 1998, subject to an option to
extend for an additional five years. A smaller facility used for administrative
offices has a lease term ending March 1997.
On May 9, 1996, the Company purchased a 36,400 square foot building on
approximately 4.6 acres in Eugene, Oregon. The Company has announced plans to
enlarge this building, which is used for manufacturing and administration, to
75,000 square feet.
The Company's Fremont facilities, which currently account for all of its
finished disk production, are located near major earthquake faults. Disruption
of operations for any reason, including power failures, work stoppages or
natural disasters such as fire, floods or earthquakes, could materially
adversely affect the Company's business, operating results and financial
condition.
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GLOSSARY
AREAL DENSITY: The number of bits of data stored per unit of area.
BIT: The basic unit of storage of information in a computer system. Bits are
represented by the presence or absence of changes in orientation of the magnetic
domains along a track on the storage media.
BYTE: Equal to eight bits.
CHAMFER: The process of cutting the sharp edges from the inner and outer edges
of an aluminum blank.
COERCIVITY: A measure of the magnetic strength of the disk which is expressed
in Oersteds.
DISK SPUTTERING LINES: A sputtering system and related equipment such as
plating, polishing, texturizing, lubrication and test equipment as well as
related handling equipment.
GIGABYTE: Equal to one billion bytes or one thousand megabytes.
GLIDE HEIGHT: The height at which the head can fly over the disk without
hitting anything. The glide height is dependent on the smoothness and flatness
of the disk.
HEAD OR DISK DRIVE HEAD: Small magnetic transducer that flies above the surface
of the disk and performs the functions of reading and writing data on the disk.
INDUCTIVE WRITING AND READING HEADS: Refers to heads which use a single element
for both the writing and reading process. In the writing process, a current
induces an alternating magnetic field at the magnetic tips of the head. In the
reading process, the same element senses the magnetic field from the written
bits of data and thereby induces an electrical current.
MAGNETO-RESISTIVE (MR) HEADS: Recording heads that use an inductive thin film
element to write data on to the media and read the data with a separate
magneto-resistive element. The use of a separate but much more sensitive read
element permits data to be recorded and, subsequently, read at much higher track
densities than inductive thin film head technology.
MEGABYTE: Equal to one million bytes.
MICROINCH: One millionth of an inch.
MICRON: One millionth of a meter.
NETWORK SERVER OR SERVER: A computer generally configured for the support of
concurrent multi-user applications. The server is generally a storage repository
of software and data.
OERSTED (OE): A unit of magnetic strength.
PROXIMITY RECORDING: Extension of traditional inductive writing/reading
technology which improves performance by bringing transducer into direct contact
with disk.
SPUTTERING: A complex vacuum deposition process used to deposit multiple thin
film layers on a disk.
STICTION: The static friction that occurs when two smooth surfaces come into
contact. A common example is a coin on a wet counter.
SUBSTRATES: The disk material (typically aluminum) onto which the thin layers
of material are sputtered.
THIN FILMS: For magnetic disks, films with thickness measured in microinches
(millionths of an inch).
THIN FILM DISK OR DISK: A disk incorporating a thin magnetic film capable of
storing information in the form of magnetic patterns written and detected by a
separate magnetic head within a disk drive.
TRIBOLOGY: Refers to the mechanical interaction between the recording head and
the disk.
YIELD: A measure of manufacturing efficiency; the percent of acceptable product
obtained from a specific manufacturing process(es).
44
<PAGE> 47
MANAGEMENT
OFFICERS AND DIRECTORS
The current officers and directors of the Company and their ages as of
March 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Ronald L. Schauer....................... 51 President, Chief Executive Officer and
Chairman of the Board
Larry J. Anderson....................... 41 Vice President, Marketing and Sales
Ronald J. Buschur....................... 32 Vice President, Quality Assurance
George J. Hall.......................... 51 Vice President, Operations
Peter S. Norris......................... 44 Vice President, Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Michael A. Russak, Ph.D. ............... 49 Vice President, Research and Development
Bruce C. Edwards(1)..................... 42 Director
Neil M. Garfinkel ...................... 29 Director
Walter G. Kortschak(1)(2)............... 36 Director
Shotaro Takemoto(2)..................... 59 Director
Robert G. Teal(2)....................... 52 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Ronald L. Schauer joined the Company as President and Chief Executive
Officer and a member of the Board of Directors in February 1994. From June 1993
to February 1994, he was the owner, President and Chief Executive Officer of
PAWS, Inc., a plastics manufacturing company. From June 1991 to June 1993, he
was President and Chief Operating Officer of Magnetic Data, Inc., a contract
manufacturer of disk drives and computers. From June 1983 to May 1991, he was
Corporate Vice President and General Manager of the Memory Products Division of
Stolle Corporation, a wholly owned subsidiary of Alcoa, a diversified aluminum
manufacturing company. From 1972 to May 1983, Mr. Schauer held various technical
and general management positions in the Data Recording Products Division at 3M
Company, a diversified manufacturing company. Mr. Schauer holds a B.S. in
Electrical Engineering from South Dakota State University.
Larry J. Anderson joined the Company as Vice President, Marketing and Sales
in January 1996. From January 1992 to December 1995, he was National Sales
Manager for KAO Information Systems, a supplier of magnetic media storage
products. From December 1989 to December 1991, he was National Sales Manager of
the computer sales division of Maxell Corporation of America. From May 1987 to
December 1989, he held various sales positions with Xidex Corporation, a
supplier of data storage media. Mr. Anderson holds a B.A. in Business
Administration from Western Michigan University.
Ronald J. Buschur joined the Company as Director of Quality Systems in June
1994 and was appointed Vice President, Quality Assurance in February 1995. From
December 1993 to June 1994, he was a Customer Account Manager at StorMedia, a
thin-film disk manufacturer. From July 1993 to December 1993, he was a Supplier
Accounts Manager at Maxtor, a disk drive company. From May 1987 to July 1993, he
held various managerial positions at Digital Equipment Corporation, a computer
manufacturer. Mr. Buschur holds a B.A. in Business Administration and Management
from University of Phoenix and an Associate Degree in Electrical Engineering
Technology from ITT Technical Institute.
45
<PAGE> 48
George J. Hall joined the Company as Vice President, Operations in February
1995. From December 1990 to February 1995, he was General Manager of the Rigid
Media Division of Sequel, Inc., a media drive company. From 1988 to 1989, he was
Director of Operations at Seagate Magnetics, a media manufacturer. From 1985 to
1988, he was employed in development of rigid disk media for vertical recording
at Censtor Corporation, a thin film media/head company. From 1983 to 1985, he
was Vice President of Operations of Domain Technology, a thin film manufacturer,
which he co-founded. Prior to 1983, he held various positions relating to the
manufacture of rigid disk media at IBM Corporation, a computer company ("IBM").
Mr. Hall holds a B.S. in Industrial Technology from San Jose State University.
Peter S. Norris joined the Company as Vice President, Finance, Chief
Financial Officer, and Treasurer in December 1995. From 1975 to December 1995,
he held various positions at General Instrument Corporation, an electronics
company, most recently as Assistant Treasurer since 1981. Mr. Norris holds a
B.A. in Economics from Upsala College.
Michael A. Russak joined the Company as Vice President, Research and
Development in August 1993. From October 1987 to August 1993, he was a manager
at the Research Division of IBM. Dr. Russak holds a B.S. in Ceramic Engineering
and a Ph.D. in Materials Science from Rutgers University.
Bruce C. Edwards joined the Company's Board of Directors in January 1996.
Mr. Edwards was employed by AST Research, Inc. as Senior Vice President and
Chief Financial Officer from 1988 until July 1994 and as Executive Vice
President, Chief Financial Officer and a director from July 1994 to December
1995. Since February 1996, he has been President and Chief Executive Officer of
Milcom International Inc., a manufacturer of power amplifiers for wireless
telecommunications applications. Mr. Edwards is also a director of Diamond
Multimedia Systems, Inc., Milcom International Inc. and Xircom, Inc.
Neil M. Garfinkel joined the Company's Board of Directors in January 1996.
Since June 1995, he has been a Senior Associate of Summit Partners, L.P., a
venture capital partnership. From May 1994 to May 1995, he was an associate at
Wilson Sonsini Goodrich & Rosati, Professional Corporation, a law firm. From
September 1992 to April 1994, he was an associate at Cravath, Swaine & Moore, a
law firm.
Walter G. Kortschak joined the Company's Board of Directors in November
1995. Since August 1991, he has been a General Partner of Summit Partners, L.P.,
a venture capital partnership, where he has been employed since June 1989. From
June 1986 to June 1989, he was a Vice President at Crosspoint Venture Partners,
a venture capital partnership. He is also a director of McAfee Associates, Inc.,
Mecon, Inc., Diamond Multimedia Systems, Inc. and several privately held
companies.
Shotaro Takemoto joined the Company's Board of Directors in August 1993.
From 1990 through 1995, Mr. Takemoto has served in a number of positions at
Hitachi Metals, including as an Executive Managing Director and a member of the
Board of Directors.
Robert G. Teal joined the Company's Board of Directors in January 1996.
Since July 1988, he has been a General Partner of Capform Partners, a venture
capital limited partnership. From April 1982 to February 1988, he was a Senior
Vice President of Maxtor, which he co-founded. Mr. Teal has been Chairman of the
Board of Directors of Portable Energy Products, Inc., a battery manufacturer,
since September 1995, where he has served as a director since May 1990 and
served as President and Chief Executive Officer from February 1993 to September
1995. Portable Energy Products, Inc. filed for federal bankruptcy protection in
1994 and emerged from bankruptcy in July 1995. Mr. Teal is also a director of
MITTA Technology, Inc.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected or until their earlier resignation or
removal. Officers are appointed to serve, subject to the discretion of the Board
of Directors, until their successors are appointed. There are no family
relationships between the directors and officers of the Company.
46
<PAGE> 49
COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the services
provided by the Company's independent public accountants. The Compensation
Committee of the Board of Directors reviews and approves the compensation and
benefits of employees of the Company. The Compensation Committee also
administers the issuance of stock options and other awards under the Company's
stock plans.
DIRECTOR COMPENSATION
Non-employee directors are paid $1,500 per meeting for attendance at
meetings of the Board of Directors and $500 per meeting for attendance at
meetings of any committee thereof. Directors are reimbursed for reasonable
out-of-pocket expenses incurred in connection with attendance at such meetings.
In January 1996, Messrs. Edwards and Teal each received an option to purchase
46,500 shares of the Company's Common Stock at an exercise price per share of
$0.10 pursuant to the 1995 Stock Option Plan.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information for each of the last two fiscal years concerning the compensation of
the Company's President and Chief Executive Officer and the Company's three most
highly compensated officers, other than the Chief Executive Officer, who were
serving as executive officers at March 31, 1996 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND FISCAL ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (#) COMPENSATION(2)
- ---------------------- ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Ronald L. 1996 $249,995 $113,557 -- 3,596,000 $ 3,592
Schauer.............
President and Chief 1995 220,001 15,000 $ 184,542 -- --
Executive Officer
Mr. Ronald J. 1996 136,844 37,530 -- 992,000 2,910
Buschur.............
Vice President, 1995 -- -- -- -- --
Quality Assurance
Mr. George J. Hall.... 1996 165,675 63,811 -- 992,000 3,012
Vice President, 1995 -- -- -- -- --
Operations
Dr. Michael A. 1996 176,673 18,360 73,331 992,000 3,043
Russak..............
Vice President, 1995 163,652 15,000 54,035 -- --
Research and
Development
</TABLE>
- ---------------
(1) Consists of relocation payments.
(2) Includes (i) life insurance premiums paid by the Company in the amounts of
$306 for each of Mr. Schauer, Mr. Hall, and Dr. Russak, and $279 for Mr.
Buschur, and (ii) $3,286, $2,737, $2,706, and $2,631 to the Company's 401(k)
tax qualified employee savings and retirement plan on behalf of Mr. Schauer,
Dr. Russak, Mr. Hall and Mr. Buschur, respectively.
The compensation of each of Messrs. Anderson and Norris, who joined the
Company in fiscal 1996, is currently in excess of $100,000 on an annualized
basis.
47
<PAGE> 50
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MARCH 31, 1996
The following table provides certain information concerning grants of
options to purchase shares of Common Stock made during the fiscal year ended
March 31, 1996 to the Named Executive Officers. All grants were made under the
Company's 1995 Management Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OPTION TERM(3)
GRANTED FISCAL PRICE EXPIRATION --------------------
NAME (#) YEAR(1) ($/SH)(2) DATE 5% 10%
- ----------------------- --------- ------------ --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Schauer...... 2,568,660(4) 20.9 0.03 11/29/05 $52,110 $132,058
1,027,340(5) 8.4 0.03 11/29/05 20,842 52,817
Ronald J. Buschur...... 708,660(4) 5.8 0.03 11/29/05 14,377 36,433
283,340(5) 2.3 0.03 11/29/05 5,748 14,567
George J. Hall......... 708,660(4) 5.8 0.03 11/29/05 14,377 36,433
283,340(5) 2.3 0.03 11/29/05 5,748 14,567
Michael A. Russak...... 708,660(4) 5.8 0.03 11/29/05 14,377 36,433
283,340(5) 2.3 0.03 11/29/05 5,748 14,567
</TABLE>
- ---------------
(1) Based on 11,986,150 options granted in fiscal 1996.
(2) All stock options were granted with exercise prices equal to the fair market
value, as determined by the Board of Directors, on the grant date.
(3) These amounts are based on compounded annual rates of stock price
appreciation of five and ten percent over the 10-year term of the options,
are mandated by the rules of the Securities and Exchange Commission and are
not indicative of expected stock performance. Actual gains, if any, on
stock option exercises are dependent on future performance of the Common
Stock, overall market conditions, as well as the option holders continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or may be exceeded. The indicated
amounts are net of the option exercise price but before taxes that may be
payable upon exercise.
(4) Of the options, 30.4% vested immediately upon grant, and the remaining 69.6%
of the options vest monthly over a four-year period on a pro-rata basis.
(5) These options vest monthly over a four-year period on a pro-rata basis
beginning on December 31, 2000. The options have performance-based vesting
provisions, which accelerate the vesting of the options based on the
attainment of certain performance benchmarks.
48
<PAGE> 51
OPTION EXERCISES AND YEAR-END VALUES FOR FISCAL YEAR ENDED MARCH 31, 1996
The following table provides certain information concerning shares acquired
and value realized on exercise of options, the number of shares of Common Stock
underlying unexercised options held by each of the Named Executive Officers and
the value of such officers' unexercised options at March 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END(#) AT FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald L. Schauer(2)............ 2,568,660 $0 -- $ --
1,027,340 0 -- --
Ronald J. Buschur(3)............ 708,660 0 -- --
283,340 0 -- --
George J. Hall(4)............... 708,660 0 -- --
283,340 0 -- --
Michael A. Russak(5)............ 708,660 0 -- --
283,340 0 -- --
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock on the dates of
exercise minus the exercise price of the options.
(2) Options exercised pursuant to an Early Exercise Stock Purchase Agreement
executed by Mr. Schauer and the Company. As of March 31, 1996, 1,980,647 of
Mr. Schauer's shares were subject to the Company's right of repurchase.
(3) Options exercised pursuant to an Early Exercise Stock Purchase Agreement
executed by Mr. Buschur and the Company. As of March 31, 1996, 546,251 of
Mr. Buschur's shares were subject to the Company's right of repurchase.
(4) Options exercised pursuant to an Early Exercise Stock Purchase Agreement
executed by Mr. Hall. As of March 31, 1996, 546,251 of Mr. Hall's shares
were subject to the Company's right of repurchase.
(5) Options exercised pursuant to an Early Exercise Stock Purchase Agreement
executed by Dr. Russak. As of March 31, 1996, 546,251 of Dr. Russak's
shares were subject to the Company's right of repurchase.
EMPLOYEE BENEFIT PLANS
1995 Management Stock Option Plan and 1995 Stock Option Plan. In November
1995, the Board of Directors adopted and the stockholders approved the 1995
Management Stock Option Plan (the "1995 Management Plan") and the 1995 Stock
Option Plan (the "1995 Plan," and together with the 1995 Management Plan, the
"Stock Plans") and reserved 12,400,000 shares of Common Stock for issuance under
the Stock Plans. The Stock Plans provide for the grant to employees of the
Company of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and for the grant to
employees, directors and consultants of the Company of nonstatutory stock
options. As of March 31, 1996, the Company had granted options to purchase an
aggregate of 12,284,150 shares of Common Stock, of which options to purchase
3,917,723 shares remained outstanding, and an aggregate of 115,850 shares
remained available for grant.
The Stock Plans are administered by the Compensation Committee of the Board
of Directors, which determines the terms of any option granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof. No option may be transferred by the optionee other than by will or the
laws of descent or distribution or, in certain limited instances, pursuant to a
qualified domestic relations order.
49
<PAGE> 52
The term of a stock option granted under the Stock Plans generally may not
exceed 10 years. The exercise price of options granted under the Stock Plans is
determined by the Board of Directors, but in the case of an incentive stock
option cannot be less than 100% of the fair market value of the Common
Stock on the date of grant or, in the case of 10% stockholders, not less than
110% of the fair market value of the Common Stock on the date of grant. Shares
covered by currently outstanding options under the Stock Plans typically vest at
the rate of 1/4 of the shares subject to the option on the first anniversary of
the date of grant and 1/48 of such shares at the end of each calendar month
thereafter.
Certain of the shares exercisable under the 1995 Management Plan have a
performance accelerated vesting feature. The remaining unvested shares vest upon
the achievement of certain specified performance goals. Any shares that do not
become subject to the acceleration feature will vest over a four-year period at
a rate of 1/48 of such shares at the end of each calendar month beginning on
December 31, 2000.
Upon any merger, consolidation or similar transaction in which the Company
is not the surviving corporation, all outstanding awards under the Stock Plans
shall either be assumed or substituted by the surviving entity. If the surviving
entity determines not to assume or substitute such options, the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised prior to the transaction, except that those options
granted under the 1995 Management Plan that contain a vesting acceleration
feature will accelerate upon such a change in control only if the consideration
received in connection with the transaction equals or exceeds specified
thresholds.
The Board of Directors determined that no further options would be granted
under the Stock Plans after completion of the initial public offering.
1996 Equity Incentive Plan. In January 1996, the Board of Directors
adopted and in February 1996 the stockholders approved the 1996 Equity Incentive
Plan (the "Incentive Plan") and reserved 3,000,000 shares of Common Stock for
issuance under the Incentive Plan, less shares granted under the 1996
Non-Employee Directors' Stock Option Plan. The Incentive Plan provides for
grants of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees (including officers and
employee directors) and consultants of the Company. As of March 31, 1996, the
Company had not granted any options under the Incentive Plan. The Incentive Plan
is administered by the Compensation Committee, which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.
The term of a stock option granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, but, in the case of an incentive
stock option, cannot be less than 100% of the fair market value of the Common
Stock on the date of grant or, in the case of 10% stockholders, not less than
110% of the fair market value of the Common Stock on the date of grant. Options
granted under the Incentive Plan to new employees and consultants generally will
vest at the rate of 1/4 of the shares subject to option on the first anniversary
of the date of grant and 1/48th of such shares at the end of each calendar month
thereafter. No option may be transferred by the optionee other than by will or
the laws of descent or distribution or, in certain limited instances, pursuant
to a qualified domestic relations order. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three-month period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such longer period as may be determined by the Board of
Directors.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Incentive Plan. Furthermore, the Board of
Directors may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Incentive Plan. In the event of a decline in the value of the Company's
Common Stock, the Board of Directors has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
50
<PAGE> 53
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a service vesting schedule determined by the Board. The purchase price of
such awards will be at least 85% of the fair market value of the Common Stock on
the date of grant. Stock bonuses may be awarded in consideration for past
services without a purchase payment. Stock appreciation rights authorized for
issuance under the Incentive Plan may be tandem stock appreciation rights,
concurrent stock appreciation rights or independent stock appreciation rights.
Upon any merger, consolidation or similar transaction in which the Company
is not the surviving corporation, all outstanding awards under the Incentive
Plan shall either be assumed or substituted by the surviving entity. If the
surviving entity determines not to assume or substitute such awards, the time
during which such awards may be exercised shall be accelerated and the awards
terminated if not exercised prior to the transaction. The Incentive Plan will
terminate in January 2006, unless terminated sooner by the Board of Directors.
Employee Stock Purchase Plan. In January 1996, the Board of Directors
adopted and in February 1996 the stockholders approved the Employee Stock
Purchase Plan (the "Purchase Plan") covering an aggregate of 500,000 shares of
Common Stock. The Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. Under the Purchase
Plan, the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company,
or an affiliate of the Company designated by the Board of Directors, for at
least 20 hours per week and are employed by the Company or a subsidiary of the
Company designated by the Board of Directors for at least five months per
calendar year. Employees who participate in an offering can have up to 15% of
their earnings withheld pursuant to the Purchase Plan. The amount withheld will
then be used to purchase shares of the Common Stock on specified dates
determined by the Board of Directors. The price of Common Stock purchased under
the Purchase Plan will be equal to 85% of the lower of the fair market value of
the Common Stock on the commencement date of each offering period or the
specified purchase date. Employees may end their participation in an offering at
any time during the offering period. Participation ends automatically on
termination of employment with the Company.
Upon any merger, consolidation or similar transaction in which the Company
is not the surviving corporation, the Board of Directors has discretion to
provide that each right to purchase Common Stock will be assumed or an
equivalent right substituted by the surviving entity, or the Board may shorten
the offering period and provide for all sums collected by payroll deductions to
be applied to purchase stock immediately prior to such merger or other
transaction. The Purchase Plan will terminate at the Board's discretion. The
Board has the authority to amend or terminate the Purchase Plan, subject to the
limitation that no such action may adversely affect any outstanding rights to
purchase Common Stock.
1996 Non-Employee Directors' Stock Option Plan. In January 1996, the Board
adopted and in February 1996 the stockholders approved the 1996 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") to provide for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of the Company (other than employees or affiliates of Summit Partners,
L.P. or Hitachi Metals) and reserved 3,000,000 shares of Common Stock for
issuance under the Directors' Plan, less shares granted under the Incentive
Plan. As of March 31, 1996, no options had been granted under the Directors'
Plan. The Directors' Plan is administered by the Board of Directors, unless the
Board delegates administration to a committee comprised of members of the Board.
Pursuant to the terms of the Directors' Plan, each director of the Company
not otherwise employed by the Company and who is first elected as a non-employee
director after the completion of this offering (other than employees or
affiliates of Summit Partners, L.P. or Hitachi Metals) automatically will be
granted an option to purchase 8,000 shares of Common Stock upon such election.
Each director who continues to serve as a non-employee director (other than
employees or affiliates of
51
<PAGE> 54
Summit Partners, L.P. or Hitachi Metals) will be granted an additional option to
purchase 2,000 shares of Common Stock on each anniversary of the date of his or
her initial grant or, in the case of current non-employee directors, annually
commencing with the fourth anniversary of the date of this Prospectus.
The term of stock options granted under the Directors' Plan generally may
not exceed 10 years. The exercise price of options granted under the Directors'
Plan will be equal to 100% of the fair market of the Common Stock on the date of
grant. Options granted under the Directors' Plan generally vest at the rate of
1/4 of the shares subject to the option on the first anniversary of the date of
grant and 1/48 of such shares at the end of each calendar month thereafter.
Upon any merger, consolidation or similar transaction, the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised prior to the transaction. The Directors' Plan will
terminate in January 2006, unless earlier terminated by the Board.
401(k) Plan. Effective January 1, 1992, the Company adopted a
tax-qualified employee savings and retirement plan (the "401(k) Plan") covering
all of the Company's employees who have attained the age of 21 and have
completed six months of service with the Company. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
15% of eligible compensation or the annual statutory limit ($9,500 in 1996) and
have the amount of such reduction contributed to the 401(k) Plan. The 401(k)
Plan permits, but does not require, a Company matching contribution equal to the
employee's deferred amount, generally up to a maximum of 4% of such employee's
annual compensation. The employee's contributions are fully vested and
nonforfeitable at all times. The Company's matching contributions, if any, vest
at a rate of 100% after the two years of service. The trustee under the 401(k)
Plan, at the discretion of each participant, invests the assets of the 401(k)
Plan in any of several investment options. The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions by employees to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn, and so that the contributions by employees will be
deductible by the Company when made.
Severance Plan. In January 1996, the Company adopted an Executive
Severance Plan (the "Severance Plan") providing for certain benefits to
executive officers of the Company in the event an executive's employment is
involuntarily terminated without cause (generally meaning without any misconduct
on the executive's part) or that the executive voluntarily terminates employment
with good reason (generally meaning that the executive's responsibilities, title
or compensation was materially reduced). Upon the occurrence of such an event,
the Severance Plan provides for salary continuation for a period no greater than
one year. In addition, the Severance Plan provides for continued health benefits
coverage to the extent permitted by the Consolidated Omnibus Budget
Reconciliation Act of 1985 and the Company's group health policies.
Bonus Plan. The Company has a discretionary bonus program for certain
designated key employees of the Company, including all executive officers,
pursuant to which such employees are paid cash bonuses based upon the attainment
of certain specified corporate goals for the year established by the Board of
Directors. The amount of the bonus to which each such employee is entitled is
determined by the Board of Directors.
Profit Sharing Plan. In May 1996, the Board of Directors approved an
incentive-based profit sharing plan for employees of the Company, including all
executive officers. Under this plan, employees are paid cash bonuses on a
quarterly basis based upon the attainment of certain specified corporate goals
determined by the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law,
52
<PAGE> 55
(iii) unlawful payments of dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derives any
improper personal benefit. In addition, the Company's Bylaws provide that any
director or officer who was or is a party or is threatened to be made a party to
any action or proceeding by reason of his or her services to the Company will be
indemnified to the fullest extent permitted by the Delaware Law.
The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company has indemnified
each of them against expenses and losses incurred for claims brought against
them by reason of their being a director or executive officer of the Company. In
addition, the Company maintains directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or executive officer.
53
<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEVERAGED RECAPITALIZATION
On November 30, 1995, the Company effected the Leveraged Recapitalization.
The Leveraged Recapitalization and related transactions consisted of: (i) the
repurchase by the Company from Hitachi Metals of shares of Common Stock
representing all the outstanding capital stock of the Company for an aggregate
purchase price of $52.1 million in cash; (ii) the recapitalization of the
Company through the sale of 21,968,057 shares of Common Stock for an aggregate
purchase price of approximately $0.7 million, 5,900,000 shares of Series A
Preferred Stock for an aggregate purchase price of approximately $59.0 million
and $47.0 million of Subordinated Notes; and (iii) the grant of options to
purchase 11,451,865 shares of Common Stock under the Stock Plans to certain
officers and employees of the Company. The purchasers of the Company's
securities in the Leveraged Recapitalization included certain investment funds
affiliated with Summit Partners and certain other investment funds, the
Company's management and employees and Hitachi Metals. Messrs. Kortschak and
Garfinkel, directors of the Company, are a General Partner and an employee of
Summit Partners, respectively. The Leveraged Recapitalization was undertaken in
order to provide liquidity to Hitachi Metals with respect to a portion of its
ownership interest in the Company.
The following table shows the aggregate number of shares of Common Stock,
Series A Preferred Stock and Subordinated Notes received by affiliates of the
Company in connection with the recapitalization of the Company and the amount of
cash paid:
<TABLE>
<CAPTION>
PURCHASE
SHARES OF PRICE FOR PRINCIPAL
MANDATORILY MANDATORILY AMOUNT OF
PURCHASE REDEEMABLE REDEEMABLE SUBORDINATED
SHARES OF PRICE FOR SERIES A SERIES A PROMISSORY
COMMON COMMON PREFERRED PREFERRED NOTES
STOCK STOCK STOCK STOCK PURCHASED TOTAL
---------- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with Summit
Partners, L.P................. 14,720,691 $ 474,861 4,110,425 $41,104,250 $20,078,262 $ 61,657,373
Hitachi Metals, Ltd............. 5,146,744 166,024 1,382,269 13,822,690 11,011,286 25,000,000
Other investors................. 2,100,622 67,762 407,306 4,073,060 15,910,447 20,051,269
---------- -------- --------- ----------- ----------- -----------
TOTAL........................... 21,968,057 $ 708,647 5,900,000 $59,000,000 $46,999,995 $106,708,642
========== ======== ========= =========== =========== ===========
</TABLE>
The Subordinated Notes initially bear an interest rate of 12.0%, subject to
an increase of 1.0% a year beginning January 1, 1999. Interest on the
Subordinated Notes accrues through the earlier of July 31, 1996 or the payment
in full of a senior bank term loan incurred in connection with the Leveraged
Recapitalization. Thereafter, the interest will be payable quarterly in arrears
on the first business day of each calendar quarter. The Company repaid the
senior bank term loan in full in March 1996 upon completion of the initial
public offering. The Subordinated Notes are due in three equal installments of
principal on December 1, 2003, 2004 and 2005. While the Subordinated Notes may
be prepaid in whole or in part at the election of the Company, the Company is
obligated to prepay the Subordinated Notes from the proceeds of certain
financings after December 31, 1997. The Company intends to prepay the
Subordinated Notes and redeem the Series A Preferred Stock in full upon
completion of the Offerings.
The Leveraged Recapitalization constituted a leveraged transaction. As of
November 30, 1995 (immediately prior to the reorganization), the Company had
approximately $98.5 million of assets and approximately $122.7 million of
liabilities. Immediately following the reorganization, the Company had $110.9
million in assets, $132.1 million in liabilities (including a $60.0 million
senior bank term loan and $47.0 million of Subordinated Notes) plus $59.0
million of Series A Preferred Stock.
In connection with the Leveraged Recapitalization, the Company entered into
an agreement with Hitachi Metals providing for the reimbursement of California
franchise taxes paid by Hitachi Metals America, an affiliate of Hitachi Metals,
for the benefit of the Company in respect of fiscal 1995 and the period between
April 1, 1995 through November 30, 1995. The Company also paid Y7.0 million
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<PAGE> 57
(equivalent to approximately $65,000 based on Y107.0 per dollar as of May 24,
1996) to Hitachi Metals in consideration of the assignment of certain Japanese
patent rights held by Hitachi Metals to the Company.
HITACHI METALS, LTD. AND AFFILIATES
Prior to the Leveraged Recapitalization, HMT was a wholly owned subsidiary
of Hitachi Metals. As a corporate parent of HMT, Hitachi Metals and its
affiliates provided certain support services, such as research and development
assistance, technical support and the guarantee of certain Company obligations.
During fiscal 1994, 1995 and 1996, HMT paid $150,000, $202,000 and $514,000,
respectively, for research and development and technical support. The Company
terminated these agreements by the end of fiscal 1996. Hitachi Metals or
affiliates of Hitachi Metals provided bank guaranties, which were released upon
completion of the Leveraged Recapitalization, relating to an aggregate principal
amount of $117.5 million in debt.
The Company has secured distribution and sales support services from
Hitachi Metals Trading and Hitachi Kizoku Shoji, affiliates of Hitachi Metals,
for sales into the Japanese market. During fiscal 1994, 1995 and 1996, sales of
the Company's products through Hitachi Metals Trading totalled $23,000, $12,000,
and $19,000, respectively. During fiscal 1994 and 1995, sales through Hitachi
Kizoku Shoji were $4.7 million and $1.5 million, respectively.
The Company purchases various manufacturing materials from Hitachi Metals
and its affiliates. During fiscal 1994, 1995 and 1996, the Company purchased
$3.5 million, $3.0 million, and $5.5 million, respectively, of nickel-plated
polished substrates through Hitachi Metals Trading. During the same periods, the
Company purchased $1.4 million, $1.0 million, and $2.3 million, respectively, of
sputtering process targets and other parts from Hitachi Metals America, an
affiliate of Hitachi Metals.
The Company believes that these transactions with Hitachi Metals and its
affiliates were in the best interests of the Company and were on terms no less
favorable to HMT than could be obtained from unaffiliated third parties.
Nevertheless, the Board of Directors has adopted a policy that all future
material transactions with affiliates will be on terms no less favorable to the
Company than those available from unaffiliated third parties and will be subject
to review and approval by a majority of the disinterested members of the Board
of Directors.
55
<PAGE> 58
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1996 and as adjusted to
give effect to the sale of the shares of Common Stock offered hereby by (i) each
person (or group of affiliated persons) known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
director, (iii) each Named Executive Officer and (iv) all of the Company's
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY OWNED(1)
OWNED(1) -----------------------
------------ BEFORE AFTER
5% STOCKHOLDERS, DIRECTORS AND OFFICERS NUMBER OFFERING OFFERING
- ---------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Summit Partners, L.P.(2).................................. 14,720,691 38.0% 33.5%
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Walter G. Kortschak(2).................................... 14,720,691 38.0 33.5
Neil M. Garfinkel......................................... -- -- --
Hitachi Metals, Ltd.(3)................................... 5,146,744 13.3 11.7
Chiyoda Building, 2nd Floor
1-2 Marunouchi
2-Chome Chiyoda-ku
Tokyo 100 Japan
Bruce C. Edwards(4)....................................... 46,500 * *
Shotaro Takemoto(3)....................................... 5,146,744 13.3 11.7
Robert G. Teal(5)......................................... 46,500 * *
Ronald L. Schauer(6)...................................... 3,441,000 8.9 7.8
c/o HMT Technology Corporation
1055 Page Avenue
Fremont, CA 94538
Ronald J. Buschur(7)...................................... 992,000 2.6 2.3
George J. Hall(8)......................................... 781,200 2.0 1.8
Michael A. Russak(9)...................................... 889,635 2.3 2.0
All directors and executive officers as a group (11
persons)(10)............................................ 27,097,270 70.0 61.6
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 38,719,178 shares of Common
Stock outstanding as of March 31, 1996 and 43,979,178 shares of Common
Stock outstanding after completion of the Offerings.
(2) Includes (i) 6,778,429 shares beneficially owned by Summit Ventures III,
L.P. ("Summit III"), (ii) 6,778,429 shares beneficially owned Summit
Venture IV, L.P. ("Summit IV"), (iii) 253,952 shares beneficially owned by
Summit Investors II, L.P. ("Summit Investors II") and (iv) 909,881 shares
beneficially owned by Summit Subordinated Debt Fund, L.P. ("Summit Sub Debt
Fund"). Mr. Kortschak, a director of the Company, is a general partner of
Summit Partners, L.P., the general partner of Summit III, Summit IV, Summit
Investors II and Summit Sub Debt Fund. Mr. Kortschak disclaims beneficial
ownership of such shares held by Summit III, Summit IV,
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<PAGE> 59
Summit Investors II and Summit Sub Debt Fund, except to the extent of his
pecuniary interest therein.
(3) Mr. Takemoto, a director of the Company, is a principal of Hitachi Metals.
Mr. Takemoto disclaims beneficial ownership of such shares held by Hitachi
Metals.
(4) Includes 11,625 shares that are subject to a right of repurchase in favor
of the Company that expires on January 1997 and 34,875 shares that are
subject to a right of repurchase in favor of the Company which expires
ratably beginning January 1997 through January 2000.
(5) Includes 11,625 shares that are subject to a right of repurchase in favor
of the Company that expires on January 1997 and 34,875 shares that are
subject to a right of repurchase in favor of the Company which expires
ratably beginning January 1997 through January 2000.
(6) Represents 3,441,000 shares held by The Schauer Living Trust under
agreement dated March 15, 1996 ("Schauer Living Trust"). Mr. Schauer is
co-trustee of the Schauer Living Trust. Includes 1,638,221 shares that are
subject to a right of repurchase in favor of the Company which expires
ratably through November 1999 and 342,426 shares that are subject to a
right of repurchase in favor of the Company which expires upon the earlier
of the Company achieving certain performance goals or ratably beginning
December 2000 through December 2004.
(7) Includes 451,825 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through November 1999 and 94,426
shares that are subject to a right of repurchase in favor of the Company
which expires upon the earlier of the Company achieving certain performance
goals or ratably beginning December 2000 through December 2004.
(8) Represents 781,200 shares held by The George J. Hall Family Trust ("Hall
Family Trust"). Mr. Hall is a co-trustee of the Hall Family Trust. Includes
355,812 shares that are subject to a right of repurchase in favor of the
Company that expires ratably through November 1999 and 94,426 shares that
are subject to a right of repurchase which expires upon the earlier of the
Company achieving certain performance goals or ratably beginning December
2000 through December 2004.
(9) Includes 31,000 shares held by Mary Lynn Russak 1996 Irrevocable Trust
("Mary Lynn Russak Trust") and 635 shares held by Dr. Russak's spouse. Mary
Lynn Russak, the beneficiary of the Mary Lynn Russak Trust, is a daughter
of Dr. Russak. Dr. Russak disclaims beneficial ownership of the shares held
in the Mary Lynn Russak Trust. Includes 409,466 shares that are subject to
a right of repurchase in favor of the Company that expires ratably through
November 1999 and 94,426 shares that are subject to a right of repurchase
which expires upon the earlier of the Company achieving certain performance
goals or ratably beginning December 2000 through December 2004.
(10) Includes 3,666,387 shares that are subject to a right of repurchase in
favor of the Company that expires ratably through November 1999 and 678,776
shares that are subject to a right of repurchase which expires upon the
earlier of the Company achieving certain performance goals or ratably
beginning December 2000 through December 2004.
Certain of the Company's securityholders may sell shares of Common Stock in
the Common Stock Offering pursuant to the Underwriters' over-allotment options.
57
<PAGE> 60
DESCRIPTION OF NOTES
The Notes are to be issued under an indenture to be dated as of
, 1996 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
terms of the Notes will include those stated in the Indenture and those made a
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"), as in effect on the date of the Indenture. The Notes will
be subject to all such terms, and holders of the Notes are referred to the
Indenture and the TIA for a statement of such terms. The following is a summary
of important terms of the Notes and does not purport to be complete. Reference
should be made to all provisions of the Indenture, including the definitions
therein of certain terms and all terms made a part of the Indenture by reference
to the TIA. As used in this Description of Notes, the "Company" refers only to
HMT Technology Corporation and does not, unless the context otherwise indicates,
include any of its subsidiaries.
GENERAL
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to certain other obligations of the Company as described
under "-- Subordination," and convertible into Common Stock as described under
"-- Conversion." The Notes will be limited to $150.0 million in aggregate
principal amount ($172.5 million if the over-allotment option is exercised in
full), will be issued in fully registered form only in denominations of $1,000
or any integral multiple thereof and will mature on , 2003, unless
earlier converted by the holder thereof, redeemed at the option of the Company
or repurchased by the Company at the option of the holder upon a Designated
Event (as defined).
The Notes will bear interest from , 1996 at the annual rate set
forth on the cover page hereof, payable semiannually on and
, commencing on , 1996, to holders of record at the
close of business on the preceding and ,
respectively (subject to certain exceptions in the case of conversion,
redemption or repurchase of such Notes prior to the applicable interest payment
date). Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of and premium, if any, and interest on the Notes will be
payable, and the transfer of Notes will be registrable, and the Notes may be
presented for conversion, at the office or agency of the Company maintained for
such purposes in the Borough of Manhattan, State of New York, which shall
initially be the Corporate Trust Office of the Trustee. In addition, payment of
interest may, at the option of the Company, be made by check mailed to the
address of the person entitled thereto as it appears in the Note register.
No service charge will be made for any registration or transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. The Company is
not required to exchange or register the transfer of (i) any Note for a period
of 15 days next preceding any selection of Notes to be redeemed, (ii) any Note
or portion thereof selected for redemption, (iii) any Note or portion thereof
surrendered for conversion, or (iv) any Note or portion thereof surrendered for
repurchase (and not withdrawn) in connection with a Designated Event.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of Senior Indebtedness. The Indenture contains no covenants or other
provisions to afford protection to holders of Notes in the event of a highly
leveraged transaction or a change in control of the Company except to the
limited extent described under "-- Repurchase at Option of Holders Upon a
Designated Event" below.
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<PAGE> 61
CONVERSION
The holders of Notes will be entitled at any time through the close of
business on the final maturity date of the Notes, subject to prior redemption or
repurchase, to convert any Notes or portions thereof (in denominations of $1,000
or integral multiples thereof) into Common Stock of the Company, at the
conversion price set forth on the cover page of this Prospectus, subject to
adjustment as described below. Except as described below, no adjustment will be
made on conversion of any Notes for interest accrued thereon or for dividends on
any Common Stock issued. If Notes are converted after a record date for the
payment of interest and prior to (but excluding) the next succeeding interest
payment date, such Notes, other than Notes called for redemption during such
period, when submitted for conversion by the holder, must be accompanied by
funds equal to the interest payable on such succeeding interest payment date on
the principal amount so converted. No such payment will be required if the
Company exercises its right to redeem such Notes on a redemption date that is an
interest payment date. The Company is not required to issue fractional shares of
Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock on the last business
day prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the business day
preceding the date fixed for redemption, unless the Company defaults in payment
of the redemption price.
The right of conversion attaching to any Note may be exercised by the
holder by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issue or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issue or delivery of the Common Stock in a name other than the
holder of the Note. Certificates representing shares of Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the holder
have been paid.
The conversion price set forth on the cover page of this Prospectus is
subject to adjustment in certain events, including: (i) the issuance of Common
Stock as a dividend or distribution on Common Stock of the Company; (ii) certain
subdivisions and combinations of the Common Stock; (iii) the issuance to all
holders of Common Stock of certain rights or warrants to purchase Common Stock
at less than the current market price of the Common Stock; (iv) the dividend or
other distribution to all holders of Common Stock of shares of capital stock of
the Company (other than Common Stock) or evidence of indebtedness of the Company
or assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above or paid exclusively in cash); (v) dividends
or other distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in clause (iv)) to all holders of Common
Stock to the extent that such distributions, combined together with (A) all
other such all-cash distributions made within the preceding 12 months in respect
of which no adjustment has been made plus (B) any cash and the fair market value
of other consideration payable in respect of any tender offers by the Company or
any of its subsidiaries for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds 10% of the
Company's market capitalization (being the product of the then current market
price of the Common Stock times the number of shares of Common Stock then
outstanding) on the record date for such distribution; (vi) the purchase of
Common Stock pursuant to a tender offer made by the Company or any of its
subsidiaries to the extent that the same involves an aggregate consideration
that, together with (X) any cash and the fair market value of any other
consideration payable in any other tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all
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<PAGE> 62
holders of Common Stock within the 12 months preceding the expiration of such
tender offer in respect of which no adjustments have been made, exceeds 10% of
the Company's market capitalization on the expiration of such tender offer; and
(vii) payment in respect of a tender offer or exchange offer by a person other
than the Company or any subsidiary of the Company in which, as of the closing of
the offer, the Board of Directors is not recommending rejection of the offer.
The adjustment referred to in clause (vii) above will only be made if the tender
offer or exchange offer is for an amount which increases that person's ownership
of Common Stock to more than 25% of the total shares of Common Stock
outstanding, and only if the cash and value of any other consideration included
in such payment per share of Common Stock exceeds the current market price per
share of Common Stock on the business day next succeeding the last date on which
tenders or exchanges may be made pursuant to such tender or exchange. The
adjustment referred to in clause (vii) above will not be made, however, if, as
of the closing of the offer, the offering documents with respect to such offer
disclose a plan or an intention to cause the Company to engage in a
consolidation or merger of the Company or a sale of all or substantially all of
the Company's assets.
The Indenture will provide that if the Company implements a stockholders'
rights plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or resulting from a subdivision or combination)
or (ii) a consolidation, merger, or combination involving the Company or (iii) a
sale or conveyance to another corporation of the property and assets of the
Company, in each case as a result of which holders of Common Stock shall be
entitled to receive stock, other securities, other property or assets (including
cash) with respect to or in exchange for such Common Stock, the holders of the
Notes then outstanding will be entitled thereafter to convert such Notes into
the kind and amount of shares of stock, other securities or other property or
assets which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had such Notes been converted into Common Stock immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
(assuming, in a case in which the Company's stockholders may exercise rights of
election, that a holder of Notes would not have exercised any rights of election
as to the stock, other securities or other property or assets receivable in
connection therewith and received per share the kind and amount received per
share by a plurality of nonelecting shares).
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may to the extent permitted by law, reduce
the conversion price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. The Company may at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"Certain Federal Income Tax Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect, provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of
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<PAGE> 63
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to
, 1998. At any time on or after that date the Notes may be redeemed
at the Company's option on at least 20 but not more than 60 days' notice, as a
whole or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption; provided, however, that the Company
may not redeem the Notes prior to , 1999 unless the closing price of
the Common Stock on the principal stock exchange or market on which the Common
Stock is then quoted or admitted to trading equals or exceeds 150% of the
conversion price for at least 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date the notice of
redemption is first mailed to the holders of the Notes, provided, further that
if a redemption date is an interest payment date, the semi-annual payment of
interest becoming due on such date shall be payable to the holder of record as
of the relevant record date.
If redeemed during the 12-month period beginning :
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
--------------------------------------------------------- ----------------
<S> <C>
1998.....................................................
1999.....................................................
2000.....................................................
2001.....................................................
2002.....................................................
</TABLE>
and 100% at , 2003.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot
or, in its sole discretion, on a pro rata basis. If any Note is to be redeemed
in part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be issued. If a portion of a holder's Notes is
selected for partial redemption and such holder converts a portion of such
Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT
The Indenture provides that if a Designated Event (as defined) occurs, each
holder of Notes shall have the right, at the holder's option, to require the
Company to repurchase all of such holder's Notes, or any portion thereof that is
an integral multiple of $1,000, on the date (the "repurchase date") that is 40
calendar days after the date of the Company Notice (as defined below), for cash
at a price equal to 100% of the principal amount of the Notes, together with
accrued interest, if any, to (but excluding) the repurchase date (the
"repurchase price"), provided, however, that if a repurchase date is an interest
payment date, the semi-annual payment of interest becoming due on such date
shall be payable to the holder of record as of the relevant record date.
Within 15 days after the occurrence of a Designated Event, the Company is
obligated to mail to all holders of record of the Notes a notice (the "Company
Notice") of the occurrence of such Designated Event and of the repurchase right
arising as a result thereof. The Company must deliver a copy of the Company
Notice to the Trustee and cause a copy or a summary of such notice to be
published in a newspaper of general circulation in The City of New York. To
exercise the repurchase right, a holder of such Notes must deliver, on or before
the 35th day after the Company Notice, written notice to the Company (or an
agent designated by the Company for such purpose) and the Trustee of the
holder's
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<PAGE> 64
exercise of such right, together with the Notes with respect to which the right
is being exercised, duly endorsed for transfer.
"Designated Event" means a Change in Control (as defined) or a Termination
of Trading (as defined).
"Change in Control" means an event or series of events as a result of which
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of
the combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"); (ii) the
stockholders of the Company approve any plan or proposal for the liquidation,
dissolution or winding up of the Company, (iii) the Company consolidates with or
merges into any other corporation, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other corporation merges
into the Company, and in the case of any such transaction, the outstanding
Common Stock of the Company is changed or exchanged into or for other assets or
securities as a result, unless the stockholders of the Company immediately
before such transaction own, directly or indirectly immediately following such
transaction, at least 51% of the combined voting power of the outstanding voting
securities of the corporation resulting from such transaction in substantially
the same proportion as their ownership of the Voting Stock immediately before
such transaction; or (iv) the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided that a Change in
Control shall not be deemed to have occurred if either (x) the last sale price
of the Common Stock for any five trading days during the ten trading days
immediately preceding the Change in Control is at least equal to 105% of the
conversion price in effect on such day or (y) in the case of a merger or
consolidation, at least 90% of the consideration (excluding cash payments for
fractional shares) in such merger or consolidation constituting the Change in
Control consists of common stock traded on a United States national securities
exchange or quoted on the Nasdaq National Market (or which will be so traded or
quoted when issued or exchanged in connection with such Change in Control) and
as a result of such transaction or transactions such Notes become convertible
solely into such common stock.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board at the time of issuance of the
Notes or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was recommended
or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election. (Under this definition, if
the current Board of Directors of the Company were to approve a new director or
directors and then resign, no Change in Control would occur even though the
current Board of Directors would thereafter cease to be in office.)
A "Termination of Trading" shall have occurred if the Common Stock (or
other common stock into which the Notes are then convertible) is neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.
No quantitative or other established meaning has been given to the phrase
"all or substantially all" (which appears in the definition of Change in
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts, among other things, make a subjective
determination as to the portion of assets conveyed, considering such factors as
the value of assets conveyed, the proportion of an entity's income derived from
the assets conveyed and the significance of those assets to the ongoing business
of the entity. To the extent the meaning of such phrase is uncertain,
uncertainty will exist as to whether or not a Change in Control may have
occurred (and, accordingly, as to whether or not the holders of Notes will have
the right to require the Company to repurchase their Notes).
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The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, a change in control
of the Company or other transactions involving the Company that may adversely
affect holders.
No Notes may be repurchased at the option of holders upon a Designated
Event if there has occurred and is continuing an Event of Default described
under "-- Events of Default and Remedies" below (other than a default in the
payment of the repurchase price with respect to such Notes on the repurchase
date). If a Designated Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all Notes tendered by holders
thereof. In addition, the Company's credit agreement with respect to its senior
bank revolving credit facility prohibits the Company from repurchasing any Notes
and also identifies certain events that would constitute Designated Events, as
well as certain other change in control events with respect to the Company or
certain of its subsidiaries, which would constitute an event of default under
such credit agreement. Any future credit agreements or other agreements relating
to other indebtedness (including other Senior Indebtedness) to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Designated Event occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to the
repurchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company would remain prohibited from repurchasing Notes.
Any failure by the Company to repurchase the Notes when required following a
Designated Event would result in an Event of Default under the Indenture whether
or not such repurchase is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Designated Event may
cause an event of default under Senior Indebtedness of the Company. As a result,
in each case, any repurchase of the Notes would, absent a waiver, be prohibited
under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "-- Subordination" below and "Risk
Factors -- Subordination and Absence of Financial Covenants."
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the repurchase right. The Indenture does not provide the Company's Board
of Directors with the right to limit or waive the repurchase right in the event
of any such leveraged transaction. Conversely, the Company could, in the future,
enter into certain transactions, including certain recapitalizations of the
Company, that would not constitute a Change in Control but that would increase
the amount of Senior Indebtedness (or other indebtedness) outstanding at such
time. There are no restrictions in the Indenture or the Notes on the creation of
additional Senior Indebtedness (or any other indebtedness) of the Company or any
of its subsidiaries and the incurrence of significant amounts of additional
indebtedness could have an adverse impact on the Company's ability to service
its debt, including the Notes. The Notes are subordinate in right of payment to
all existing and future Senior Indebtedness as described under
"-- Subordination" below.
The right to require the Company to repurchase Notes as a result of a
Designated Event could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all of the Notes
at the repurchase date. Consequently, the right may render more difficult or
discourage a merger, consolidation or tender offer (even if such transaction is
supported by the Company's Board of Directors or is favorable to the
stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
No modification of the Indenture regarding the provisions on repurchase at
the option of any holder of a Note is permissible without the consent of the
holder of the Note so affected.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that
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the repurchase option becomes available to holders of the Notes. The Company
will comply with this rule to the extent applicable at that time.
SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full of all Senior Indebtedness
(as defined). Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, the
payment of the principal of, or premium, if any, and interest on the Notes is to
be subordinated to the extent provided in the Indenture in right of payment to
the prior payment in full of all Senior Indebtedness. Moreover, in the event of
any acceleration of the Notes because of an Event of Default, the holders of any
Senior Indebtedness then outstanding would be entitled to payment in full of all
obligations in respect of such Senior Indebtedness before the holders of the
Notes are entitled to receive any payment or distribution in respect thereof.
The Company may not make any payment upon or in respect of the Notes if (i)
a default in the payment of principal of, premium, if any, interest, or other
payment due on Designated Senior Indebtedness occurs and is continuing beyond
any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated Senior Indebtedness (as defined below)
that permits holders of the Designated Senior Indebtedness as to which such
default related to accelerate its maturity and the Trustee and the Company
receive a notice of such default (a "Payment Blockage Notice") from holders of
at least $5 million in outstanding principal amount of Designated Senior
Indebtedness. Payments on the Notes shall be resumed (a) in case of payment
default, on the date on which such default is cured or waived and (b) in case of
a nonpayment default, on the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received. No new period of payment blockage may be
commenced pursuant to a Payment Blockage Notice unless (i) 365 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium, if any, and interest on the
Notes that have become due have been paid in full in cash or the Trustee or the
Noteholders shall not have instituted proceedings to enforce the Noteholders'
right to receive such payments. No default (whether or not such default is on
the same issue of Designated Senior Indebtedness) that existed or was continuing
on the date of delivery of any Payment Blockage Notice shall be, or be made, the
basis for a subsequent Payment Blockage Notice. The payment of cash, property or
securities (other than Common Stock and other securities that are junior to the
Senior Indebtedness) upon conversion of a Note will constitute payment on a Note
and therefore will be subject to the subordinate provisions in the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created: (a) all indebtedness of
the Company for money borrowed or evidenced by notes, debentures, bonds or other
debt securities (including, but not limited to, those which are convertible or
exchangeable for securities of the Company); (b) all indebtedness of the Company
due and owing with respect to letters of credit (including, but not limited to,
reimbursement obligations with respect thereto); (c) all indebtedness or other
obligations of the Company due and owing with respect to interest rate and
currency swap agreements, cap, floor and collar agreements, currency spot and
forward contracts and other similar agreements and arrangements; (d) all
indebtedness consisting of commitment or standby fees due and payable to lending
institutions with respect to credit facilities or letters of credit available to
the Company; (e) all obligations of the Company under leases required or
permitted to be capitalized under generally accepted accounting principles; (f)
all indebtedness or obligations of others of the kinds described in any of the
preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed in any
manner by the Company or in effect guaranteed (directly or indirectly) by the
Company through an agreement to purchase, contingent or otherwise,
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and all obligations of the Company under any such guarantee or other
arrangements; and (g) all renewals, extensions, refundings, deferrals,
amendments or modifications of indebtedness or obligations of the kinds
described in any of the preceding clauses (a), (b), (c), (d), (e) or (f); unless
in the case of any particular indebtedness, obligation, renewal, extension,
refunding, amendment, modification or supplement, the instrument or other
document creating or evidencing the same or the assumption or guarantee of the
same expressly provides that such indebtedness, obligation, renewal, extension,
refunding, amendment, modification or supplement is subordinate to, or is not
superior to, or is pari passu with, the Notes; provided that Senior Indebtedness
shall not include (i) any indebtedness of any kind of the Company to any
subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company or (ii) indebtedness for trade payables
or constituting the deferred purchase price of assets or services incurred in
the ordinary course of business.
The term "Designated Senior Indebtedness" means any Senior Indebtedness if
the instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party)
expressly provides that such Indebtedness shall be "Designated Senior
Indebtedness" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right of
holders of such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness).
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of the holders of Senior Indebtedness of the Company, and will
be immediately paid over or delivered to the holders of Senior Indebtedness of
the Company or their representative or representatives to the extent necessary
to make payment in full of all Senior Indebtedness of the Company remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of Senior Indebtedness of the Company.
The Notes are obligations exclusively of the Company. Although the Company
does not currently have any operating subsidiaries, to the extent the Company
were to commence conducting certain operations or increase the level of existing
operations through subsidiaries, the cash flow and the consequent ability to
service debt, including the Notes, of the Company would be partially dependent
upon ,the earnings of any such subsidiaries and the distribution of those
earnings, or upon loans or other payments of funds by those subsidiaries, to the
Company. Such subsidiaries would be separate and distinct legal entities, and
would have no obligations, contingent or otherwise, to pay any amounts due
pursuant to the Notes or to make any funds available therefor, whether by
dividends, distributions, loans or other payments. In addition, the payment of
dividends or distributions and the making of loans and advances to the Company
by any such subsidiaries could be subject to statutory or contractual
restrictions, and could be contingent upon the earnings of those subsidiaries
and subject to various business considerations. Any right of the Company to
receive assets of subsidiaries upon their liquidation or reorganization (and the
consequent right of the holders of the Notes to participate in these assets)
would be effectively subordinated to the claims of that subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interests in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
As of March 31, 1996, the Company had outstanding approximately $8.5
million of indebtedness that would have constituted Senior Indebtedness. The
Indenture will not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor will
the Indenture limit the amount of indebtedness which any subsidiary of the
Company can create, incur, assume or guarantee.
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No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, interest on, the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of any
default or Event of Default or limit the rights of any holder of Notes, subject
to the preceding paragraphs to pursue any other rights or remedies with respect
to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings or an assignment for the benefit of the creditors of the Company or
a marshaling of assets or liabilities of the Company and its subsidiaries,
holders of the Notes may receive ratably less than other creditors.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: (i) a default in
payment of the principal of, or premium, if any, on the Notes (whether or not
such payment is prohibited by the subordination provisions of the Indenture);
(ii) default for 30 days in payment of any installment of interest on the Notes
(whether or not such payment is prohibited by the subordination provisions of
the Indenture); (iii) default by the Company for 60 days after notice given in
accordance with the Indenture in the observance or performance of any other
covenants in the Indenture; (iv) default in the payment of the repurchase price
in respect of any Note on the repurchase date therefor (whether or not such
payment is prohibited by the subordination provisions of the Indenture); (v)
failure to provide timely notice of a Designated Event; (vi) failure of the
Company or any Significant Subsidiary (as defined) to make any payment at
maturity, including any applicable grace period, in respect of Indebtedness
(which term as used in the Indenture means obligations (other than non-recourse
obligations) of, or guaranteed or assumed by, the Company or any Significant
Subsidiary for borrowed money or evidenced by bonds, notes or similar
instruments) in an amount in excess of $5,000,000 and continuance of such
failure for 30 days after notice given in accordance with the Indenture; (vii)
default by the Company or any Significant Subsidiary with respect to any
Indebtedness, which default results in the acceleration of indebtedness in an
amount in excess of $5,000,000 without such Indebtedness having been discharged
or such acceleration having been rescinded or annulled for 30 days after notice
given in accordance with the Indenture; or (viii) certain events involving
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Notes notice of
all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, on the Notes to be due and payable immediately, but if the Company shall
cure all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) and certain
other conditions are met, such declaration may be canceled and past defaults may
be waived by the holders of a majority in principal amount of Notes then
outstanding. If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization were to occur, all unpaid principal of and accrued
interest on the outstanding Notes will become due and payable immediately
without any declaration or other act on the part of the Trustee or any holders
of Notes, subject to certain limitations.
The Indenture provides that the holders of a majority in principal amount
of the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, subject to certain limitations specified in the
Indenture. Before proceeding to exercise any right or power under the Indenture
at
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the direction of such holders, the Trustee shall be entitled to receive from
such holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The right of a holder to institute a proceeding with respect to the Indenture is
subject to certain conditions precedent, including the written notice by such
holder of an Event of Default and an offer to indemnify to the Trustee, along
with the written request by the holders of not less than 25% in principal amount
of the outstanding Notes that such a proceeding be instituted, but the holder
has an absolute right to institute suit for the enforcement of payment of the
principal of, and premium, if any, and interest on, such holder's Notes when due
and to enforce such holder's right to convert such Notes.
The holders of not less than a majority in principal amount of the
outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except (i) a default in payment of the principal of, or premium, if
any, or interest on, any Note when due, (ii) a failure by the Company to convert
any Notes into Common Stock or (iii) in respect of certain provisions of the
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually a statement of
certain officers of the Company stating whether or not to the best of their
knowledge the Company is in default in the performance and observation of
certain terms of the Indenture and, if they have knowledge that the Company is
in default, specifying such default and its status.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons, unless (i) either (a) the Company
is the surviving entity or (b) the resulting, surviving or transferee entity is
a corporation organized under the laws of the United States, any state thereof
or the District of Columbia and expressly assumes by written agreement all of
the obligations of the Company in connection with the Notes and the Indenture;
(ii) no default or Event of Default shall exist or shall occur immediately after
giving effect to such transaction; and (iii) certain other conditions are
satisfied.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named therein as the
Company, and the Company will be released from its obligations under the
Indenture and the Notes, except as to any obligations that arise from or as a
result of such transaction.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time or payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption or repurchase thereof, impair or change in any respect adverse to the
holders of Notes the obligation of the Company to make repurchase of any Note
upon the happening of a Designated Event, impair or adversely affect the right
of a holder to institute suit for the payment thereof, change the currency in
which the Notes are payable, or impair or change in any respect adverse to the
holder of the Notes, the right to convert the Notes into Common Stock subject to
the terms set forth in the Indenture or modify the provisions of the Indenture
with respect to the subordination of the Notes in a manner adverse to the
holders of the Notes, without the consent
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of the holder of each Note so affected, or (ii) reduce the aforesaid percentage
of Notes, without the consent of the holders of all of the Notes then
outstanding.
TAXATION OF NOTES
See "Certain Federal Income Tax Considerations" for a discussion of certain
federal tax aspects which will apply to holders of Notes.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption.
GOVERNING LAW
The Indenture and Notes will be governed by and construed in accordance
with the laws of the State of New York.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed by the Company as the initial paying agent, conversion agent,
registrar and custodian with regard to the Notes. The Company may maintain
deposit accounts and conduct other banking transactions with the Trustee or its
affiliates in the ordinary course of business, and the Trustee and its
affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business. The First
National Bank of Boston, an affiliate of the Trustee, is a co-agent and lender
under the Company's revolving credit facility.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture
contains limitations of the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim or otherwise.
The Indenture and the TIA will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect of
any such claim as security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions, provided, however, that if it
acquires any conflicting interest (as described in the TIA), it must eliminate
such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $0.001 par value, and 15,000,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of March 31, 1996, there were 38,719,178 shares of Common Stock
outstanding held of record by approximately 74 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive conversion rights or other
subscription rights. There are no redemption or sinking funds provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
completion of the Offerings will be fully paid and non-assessable.
PREFERRED STOCK
The Company currently has outstanding an aggregate of 5,900,000 shares of
Series A Preferred Stock. Commencing in 1998, the holders are entitled to
receive cumulative dividends at the annual rate of $1.00 per share. Dividends
for 1998 are payable on December 31, 1998 and are thereafter payable quarterly.
No dividends may be paid on the Common Stock of the Company while any shares of
Series A Preferred Stock are outstanding.
Upon any liquidation, dissolution or winding up of the Company (a
"Liquidation Event"), the holders of the Series A Preferred Stock are entitled
to receive, prior to payment of any liquidation proceeds to the holders of any
other capital stock, including the Common Stock, an amount equal to $10.00 plus
all accrued and unpaid dividends per share of Series A Preferred Stock. A sale
of all or substantially all of the Company's assets or any consolidation or
merger of the Company in which holders of the Company's voting securities prior
to such merger or consolidation hold less than 50% of the voting power of the
surviving entity will also be regarded as a Liquidation Event and entitle the
holders of the Series A Preferred Stock to receive the liquidation preference.
The Series A Preferred Stock may be redeemed by the Company at any time at
a redemption price of $10.00 per share plus all accrued and unpaid dividends
thereon. The Company must redeem all outstanding shares of Series A Preferred
Stock on January 1, 2006. In addition, after the Company's Subordinated Notes
have been retired, the Company is obligated to redeem shares of Series A
Preferred Stock from the proceeds of certain financings after December 31, 1997.
The Company intends to redeem the Series A Preferred Stock in full upon
completion of the Offerings.
The consent of the holders of at least two-thirds of the then outstanding
shares of the Series A Preferred Stock is required in order: (i) to redeem or
purchase any shares of the Company's Common Stock, other than the repurchase of
shares from directors, officers, consultants or employees upon the termination
of their relationship with the Company or from stockholders pursuant to rights
of first refusal, (ii) to authorize or issue any equity security senior to, or
on a parity with, the Series A Preferred Stock with respect to liquidation
preferences, dividend preferences or redemption rights or (iii) to effect any
sale of all or substantially all of the Company's assets or any consolidation or
merger (other than a consolidation or merger in which the holders of the voting
securities of the Company retain at least 50% of the voting power of the
surviving entity) or any reclassification of shares or any recapitalization or
any dissolution, liquidation or winding up of the Company. The consent of the
holders of 95% of the Series A Preferred Stock is required for the amendment of
the Company's Certificate of Incorporation if such amendment changes the rights,
preferences or privileges of the
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Series A Preferred Stock or would increase the designated number of shares of
Series A Preferred Stock. The Series A Preferred Stock does not have the right
to vote in the election of directors and has no other voting rights except as
described herein or required by law.
The Board of Directors is authorized, without further action by the
Company's stockholders, to issue up to 9,100,000 shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon such Preferred Stock, including dividend
rights, conversion rights, terms of redemption, liquidation preference, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders, provided
that the rights, preferences and privileges of the Preferred Stock must be
subordinate to the Series A Preferred Stock as to dividend rights, rights upon
redemption and rights upon liquidation, except as the holders of at least 95% of
the Series A Preferred Stock may otherwise agree. The Board of Directors,
without stockholder approval, can issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any additional shares of Preferred Stock.
WARRANTS
In connection with the Leveraged Recapitalization, pursuant to a warrant
purchase agreement dated November 30, 1995, the Company issued to certain senior
lenders (the "Warrantholders") warrants to purchase an aggregate of 701,344
shares of Common Stock at a price of $0.0003 per share. The warrants terminate
on November 30, 2002. Upon any reorganization or reclassification, consolidation
or merger or any sale or other transfer of substantially all of its assets the
warrants may be repurchased by the Company with the consent of the
Warrantholder. In the event the Warrantholders do not consent to such
repurchase, the warrants must be exercised prior to the consummation of such
transaction and will be converted into the right to receive a comparable number
of securities or property of the surviving corporation. The warrants include a
net exercise provision, and the Warrantholders have the right to cause the
Company to repurchase the warrants and any shares issued upon exercise thereof
under certain circumstances. Upon payment of the outstanding balance of the
senior bank term loan in March 1996, the Company redeemed the warrants for
280,550 shares of Common Stock at the Warrantholders' cost ($0.02), leaving a
balance of 420,794 shares subject to the remaining warrants. In addition, the
Warrantholders have certain registration rights with respect to the shares of
Common Stock issuable upon exercise of such warrants.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) of approximately 29,656,057 shares of Common Stock
("Holders"), the Holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"). If the Company proposes to register its Common Stock, subject
to certain exceptions, under the Securities Act, the Holders are entitled to
notice of the registration and are entitled to include, at the Company's
expense, such shares therein, provided that the managing underwriters have the
right to limit the number of such shares included in the registration. The
Company has requested that the Holders waive their registration rights with
respect to the Offerings, and certain of the Holders may sell shares of Common
Stock pursuant to the Underwriters' over-allotment options in the Common Stock
Offering. In addition, certain of the Holders may require the Company at its
expense on no more than two occasions within six months to file a registration
statement under the Securities Act with respect to their shares of Common Stock.
Such rights may not be exercised until September 1996. Further, certain Holders
may require the Company at its expense to register their shares on Form S-3 when
such form becomes available to the Company, subject to certain conditions and
limitations. Such right expires in March 2001.
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<PAGE> 73
The Warrantholders also have certain registration rights with respect to
the shares of Common Stock issuable upon exercise of the warrants pursuant to
the Warrant Purchase Agreement. If the Company proposes to register Common
Stock, the Warrantholders are entitled at the Company's expense, to include such
shares therein, provided that the maximum number of shares to be offered, as
determined by the managing underwriters, exceeds the number of shares that the
Company intends to offer. Certain of the Warrantholders may sell shares of
Common Stock pursuant to the Underwriters' over-allotment options in the Common
Stock Offering. Pursuant to the Warrant Purchase Agreement, the Company has
exercised its right to sell for its own account all of the Common Stock shares
offered hereby. In addition, the Warrantholders holding at least 25% of the
outstanding warrants may require the Company at its expense on one occasion to
file a registration statement under the Securities Act with respect to the
Common Stock issuable upon the exercise of the warrants. Such rights may not be
exercised until September 1996. The Company will also make efforts in good faith
to ensure the availability of sales pursuant Form S-3 and Rule 144.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could have the effect of delaying, deferring or
preventing a change in control of the Company.
The Company's Certificate of Incorporation and Bylaws also require that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer of the Company or by any
person or persons holding shares representing at least 20% of the outstanding
capital stock. The Company's Certificate of Incorporation also specifies that
the authorized number of directors may be changed only by resolution of the
Board of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The
First National Bank of Boston. Its telephone number is (617) 575-2000.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations and non-United
States persons, may be subject to special rules. In addition, this discussion is
limited to persons that purchase the Notes in the Note Offering and hold the
Notes as a "capital asset" within the meaning of Section 1221 of the Code.
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<PAGE> 74
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
INTEREST INCOME
A holder of a Note will generally be required to report as income for
federal income tax purposes interest earned on the Note in accordance with the
holder's method of tax accounting. A holder of a Note using the accrual method
of accounting for tax purposes is required to include interest in ordinary
income as such interest accrues, while a cash basis holder must include interest
in income when payments are received (or made available for receipt).
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Notes into shares of Common Stock. However, cash
paid in lieu of a fractional share of Common Stock will likely result in taxable
gain (or loss), which will be capital gain or loss, to the extent that the
amount of such cash exceeds (or is exceeded by) the portion of the adjusted
basis of the Note allocable to such fractional share. The adjusted basis of
shares of Common Stock received on conversion will equal the adjusted basis of
the Note converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The holding period of an
investor in the Common Stock received on conversion will include the period
during which the converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's then current and/or
accumulated earnings and profits, if and to the extent that certain adjustments
in the conversion price that may occur in limited circumstances (particularly an
adjustment to reflect a taxable dividend to holders of Common Stock) increase
the proportionate interest of a holder of Notes in the fully diluted Common
Stock, whether or not such holder ever exercises its conversion privilege.
Moreover, if there is not a full adjustment to the conversion price of the Notes
to reflect a stock dividend or other event increasing the proportionate interest
of the holders of outstanding Common Stock in the assets or earnings and profits
of the Company, then such increase in the proportionate interest of the holders
of the Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income (subject to a possible dividends received deduction
in the case of corporate holders) to the extent of the Company's then current
and/or accumulated earnings.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market discount
rules, if a holder of a Note purchases it at market discount (i.e., at a price
below its stated redemption at maturity) in excess of a statutorily-defined de
minimis amount and thereafter recognizes gain upon a disposition or retirement
of the Note, then the lesser of the gain recognized or the portion of the market
discount that accrued on a ratable basis (or, if elected, on a constant interest
rate basis) generally will be treated as ordinary income at the time of the
disposition. Moreover, any market discount on a Note may be taxable to an
investor to the extent of appreciation at the time of certain otherwise
non-taxable transactions (e.g., gifts). Any accrued market discount not
previously taken into income prior to a conversion of a Note, however, should
carry over to the Common Stock received on conversion and be treated as ordinary
income upon a subsequent disposition of such Common Stock to the extent of any
gain recognized on such disposition. In
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<PAGE> 75
addition, absent an election to include market discount in income as it accrues,
a holder of a market discount debt instrument may be required to defer a portion
of any interest expense that otherwise may be deductible on any indebtedness
incurred or maintained to purchase or carry such debt instrument until the
holder disposes of the debt instrument in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of those Notes
measured by the difference (if any) between (i) the amount of cash and the fair
market value of any property received (except to the extent that such cash or
other property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the holder's adjusted tax basis in those Notes (including any market discount
previously included in income by the holder). Each holder of Common Stock into
which the Notes are converted, in general, will recognize gain or loss upon the
sale, exchange, redemption, or other disposition of the Common Stock measured
under rules similar to those described in the preceding sentence for the Notes.
Special rules may apply to redemptions of Common Stock which may result in
different treatment. Any such gain or loss recognized on the sale, exchange,
redemption, repurchase, retirement or other disposition of a Note or share of
Common Stock should be capital gain or loss (except as discussed under
"-- Market Discount" above), and would be long-term capital gain or loss if the
Note or the Common Stock had been held for more than one year at the time of the
sale or exchange. An investor's initial basis in a Note will be the cash price
paid therefor.
BACK-UP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding"
at a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances, principal
payments on the Notes. These back-up withholding rules apply if the holder,
among other things, (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") certified under penalties of perjury
within a reasonable time after the request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that holder is not
subject to back-up withholding. A holder who does not provide the Company with
its correct TIN also may be subject to penalties imposed by the IRS. Any amount
withheld from a payment to a holder under the back-up withholding rules is
creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. Back-up withholding will not
apply, however, with respect to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
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<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future at a time
and place which it deems appropriate.
Upon completion of the Offerings, the Company will have 43,979,178 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment options, no conversion of the Notes, no exercise of outstanding
options and no exercise of outstanding warrants after March 31, 1996. Of these
shares, 13,660,000 shares of Common Stock (including the 4,000,000 shares sold
in the Common Stock Offering) will be freely tradeable without restriction or
registration under the Securities Act, except for any shares purchased by
affiliates of the Company. 30,719,178 of the shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" shares within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"), or were sold under written
compensation plans under Rule 701 adopted under the Securities Act. 30,121,057
of such Restricted Shares are subject to lockup agreements with the Underwriters
(the "Lockup Agreements") pursuant to which such shares may not be offered,
sold, or otherwise disposed of without the prior written consent of Robertson,
Stephens & Company LLC. Such Lockup Agreements expire four days after the
announcement by the Company of its operating results for the three months ending
September 30, 1996 as to 8,153,000 Restricted Shares. Of these 8,153,000
Restricted Shares, 3,883,206 will be available for immediate sale pursuant to
Rule 144 and Rule 701, 73,190 may be available for immediate sale pursuant to
Rule 144 and Rule 701 based upon achievement of certain performance goals, and
the remaining 4,196,604 will be subject to rights of repurchase in favor of the
Company that expire at various dates through December 2004 pursuant to monthly
vesting, or earlier upon the achievement of certain performance goals, and may
not be resold until such rights expire. Such Lockup Agreements expire on March
13, 1997 as to the remaining 21,968,057 Restricted Shares. The holders of such
21,968,057 shares will be eligible to sell such shares pursuant to Rule 144 upon
the expiration of a two-year holding period from the date such shares were
acquired (in most cases November 30, 1995), subject to certain volume
limitations under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed "affiliates,"
who has beneficially owned Restricted Shares for at least two years (as computed
under Rule 144) is entitled to sell in "broker's transactions" or to market
makers, within any three-month period commencing 90 days after the date of
Prospectus, a number of shares that does not exceed greater of (i) one percent
of the then outstanding shares of the Company's Common Stock (approximately
439,792 shares immediately after completion of the Offerings) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain requirements as to manner of sale, the filing of
a notice, and the availability of public information concerning the Company. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the three-month period preceding a sale and who has beneficially
owned the Restricted Shares proposed to be sold for at least three years
(including the continuous holding period of any prior owner except an
affiliate), would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations and certain other requirements described above.
Restricted Shares and options to purchase Common Stock sold by the Company to,
among others, its employees, officers and directors pursuant to written
compensation plans or contracts and in reliance on Rule 701 under the Act, may
be resold in reliance on Rule 144 by such persons who are not affiliates subject
only to the provisions of Rule 144 regarding manner of sale, and by such persons
who are affiliates without complying with the Rule's holding period
requirements.
The Company has filed a registration statement under the Securities Act to
register 8,212,000 shares of Common Stock reserved for issuance under the 1995
Management Plan, the 1995 Plan, the Incentive Plan, the Directors' Plan and the
Purchase Plan, thus permitting the sale of such shares by
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<PAGE> 77
non-affiliates in the public market without restriction under the Securities
Act. Such registration statement became effective immediately upon filing. The
shares to be registered include shares issuable upon exercise of options to
purchase 3,917,723 shares that were issued and outstanding at March 31, 1996. As
of May 30, 1996, options to purchase approximately 3,848,411 of such shares will
be exercisable and immediately saleable. The remainder of these shares will
become exercisable and saleable at various dates through December 1999 pursuant
to monthly vesting.
The Company has also agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock for a period ending four
days after the announcement by the Company of its operating results for the
three months ending September 30, 1996, subject to certain exceptions.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC, Alex. Brown & Sons
Incorporated, Salomon Brothers Inc and Hambrecht & Quist LLC (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the applicable Underwriting Agreements, to purchase from the
Company the numbers of shares of Common Stock and the principal amount of Notes
set forth opposite their respective names below. The Underwriters are committed
to purchase and pay for all of such shares if any shares are purchased and all
such Notes if any Notes are purchased provided that neither the closing of the
Common Stock Offering nor the closing of the Note Offering is conditioned upon
the closing of the other offering.
<TABLE>
<CAPTION>
PRINCIPAL
NUMBER AMOUNT
UNDERWRITER OF SHARES OF NOTES
-------------------------------------------------------------- --------- ---------
<S> <C> <C>
Robertson, Stephens & Company LLC.............................
Alex. Brown & Sons Incorporated...............................
Salomon Brothers Inc .........................................
Hambrecht & Quist LLC ........................................
--------
Total...............................................
========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock and the Notes to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers and of not more than % of the
principal amount of the Notes. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Selling Stockholders have granted to the Underwriters options,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 600,000 shares of Common Stock at the same price per share as the
Company receives for the 4,000,000 shares of Common Stock that the Underwriters
have agreed to purchase from the Company. The Company also has granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to $22.5 million principal amount of Notes, at
the same price per Note as the Company receives for the first $150.0 million
principal amount of Notes that the Underwriters have agreed to purchase from the
Company. To the extent that the Underwriters exercise such options, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional Common Stock and Notes as the Common Stock and
principal amount of Notes to be purchased by it shown in the above table
represents as a percentage of 4,000,000 shares and the $150.0 million principal
amount of Notes offered hereby, respectively. If purchased, such additional
shares and Notes will be sold by the Underwriters on the same terms as those on
which the 4,000,000 shares of Common Stock and the $150.0 million principal
amount of Notes are being sold.
The respective Underwriting Agreements contain covenants of indemnity among
the Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
Pursuant to the terms of Lockup Agreements, certain officers and directors
holding an aggregate of 7,688,000 shares of Common Stock and certain
stockholders holding an aggregate of 21,968,057 shares of Common Stock have
agreed with the Representatives that, for a period ending four days after the
announcement by the Company of its operating results for the three months ending
September 30, 1996 and March 13, 1997, respectively, they will not offer to
sell, contract to sell or otherwise sell,
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dispose of or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock now owned or
hereinafter acquired directly by such holders or with respect to which they have
the power of disposition, otherwise than with the prior written consent of
Robertson, Stephens & Company LLC. Robertson, Stephens & Company LLC may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to Lockup Agreements. The Company has also agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, or any options or warrants to purchase Common Stock other than shares or
options issued under the Company's stock and option plans and stock issued upon
the exercise of presently outstanding warrants for a period ending four days
after the announcement by the Company of its operating results for the three
months ending September 30, 1996, except with the prior written consent of
Robertson, Stephens & Company LLC.
The Representatives have advised the Company that the Underwriters do not
intend to confirm any sales to accounts over which they exercise discretionary
authority.
The offering price of the Common Stock will be determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted an exemption from these rules
that permits passive market making under certain conditions. These rules permit
an Underwriter or other member of the selling group to continue to make a market
in the Company's Common Stock subject to the conditions, among others, that its
bid not exceed the highest bid by a market maker not connected with the offering
and that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Company's Common
Stock during such period.
Prior to the Note Offering, there has been no trading market for the Notes.
The Company expects that the Notes will trade on the over-the-counter market.
However, there can be no assurance that an active trading market for the Notes
will develop or, if such market develops, as to the liquidity or sustainability
of such market. The Underwriters named on the cover page of this Prospectus have
advised the Company that they currently intend to make a market in the Notes,
but they are not obligated to do so and may discontinue such market making at
any time. There can be no assurance that an active market for the Notes will
develop and continue upon completion of the Note Offering or that the market
price of the Notes will not decline. Various factors such as changes in
prevailing interest rates or changes in perceptions of the Company's
creditworthiness could cause the market price of the Notes to fluctuate
significantly. The trading price of the Notes could also be significantly
affected by the market price of the Common Stock, which could be subject to wide
fluctuations in response to a variety of factors, including quarterly variations
in operating results, announcements of technological innovations or new products
by the Company, its customers or its competitors, developments in patents or
other intellectual property rights, general conditions in the computer or disk
drive industry and general economic and market conditions. Factors creating
volatility in the trading price of the Common Stock could have a significant
impact on the trading price of the Notes.
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LEGAL MATTERS
The validity of the Common Stock and the Notes offered hereby will be
passed upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo
Alto, California ("Cooley Godward"). Certain legal matters related to the
Offerings will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. As of the date of this
Prospectus, Cooley Godward beneficially owns 93,000 shares of the Common Stock,
subject to the Company's right of repurchase. In addition, James C. Kitch, a
partner of Cooley Godward, is the Secretary of the Company.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1995
and 1996 and for each of the three years in the period ended March 31, 1996
included in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement of which this Prospectus is a
part, have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of those firms as
experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock and Notes offered hereby has been filed by the
Company with the Securities and Exchange Commission. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock and Notes offered hereby, reference is made to such
Registration Statement and the exhibits and schedules filed as a part thereof. A
copy of the Registration Statement, including exhibits and schedules thereto,
may be inspected by anyone without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission.
In December 1995, the Company decided to retain Coopers & Lybrand L.L.P. as
the independent accountants for the Company and dismissed Ernst & Young LLP, the
Company's former accountants. The decision to change independent accountants was
approved by the Company's Board of Directors and was made in connection with the
Leveraged Recapitalization. There were no disagreements with the former
accountants regarding any matters with respect to accounting principles or
practices, financial statement disclosure or auditing scope or procedure through
December 1995, or with respect to the Company's financial statements for the
fiscal years ended March 31, 1994 and 1995. The former accountants' reports for
the fiscal years ended March 31, 1994 and 1995 are not a part of the financial
statements of the Company included in this Prospectus and the related financial
statement schedules included elsewhere in the Registration Statement. Such
reports did not contain an adverse opinion or disclaimer of an opinion or
qualifications as to uncertainty, audit scope or accounting principles. Prior to
retaining Coopers & Lybrand L.L.P., the Company had not consulted with Coopers &
Lybrand L.L.P. regarding accounting principles. However, Hitachi Metals and
certain stockholders of HMT had consulted Coopers & Lybrand L.L.P. for the
limited purpose of determining appropriate accounting treatment of the Leveraged
Recapitalization.
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HMT TECHNOLOGY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)........................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders
HMT Technology Corporation
We have audited the accompanying consolidated balance sheets of HMT
Technology Corporation and its subsidiary as of March 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HMT
Technology Corporation and its subsidiary at March 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
April 25, 1996, except for
Note 11, as to which the
date is May 28, 1996
F-2
<PAGE> 83
HMT TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 878 $ 35,843
Receivables -- trade, net of allowance for doubtful accounts of
$137 and $612 at March 31, 1995 and 1996, respectively........ 7,531 31,070
Other receivables................................................ 386 357
Inventories...................................................... 10,814 7,129
Deposits, prepaid expenses and other assets...................... 1,719 879
Deferred income taxes............................................ -- 5,028
-------- --------
Total current assets..................................... 21,328 80,306
Property, plant and equipment, net................................. 54,176 79,128
Other assets....................................................... 432 1,415
Deferred income taxes.............................................. -- 4,937
-------- --------
Total assets............................................. $ 75,936 $165,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 6,971 $ 13,911
Accrued liabilities.............................................. 3,109 16,682
Short-term borrowings............................................ 86,700 --
Obligations under capital leases -- current portion.............. 4,813 3,814
Long-term notes payable -- current portion....................... 2,450 --
-------- --------
Total current liabilities................................ 104,043 34,407
Subordinated promissory notes payable to stockholders.............. -- 47,000
Obligations under capital leases, net of current portion........... 13,693 4,698
Long-term notes payable, net of current portion.................... 9,750 --
-------- --------
Total liabilities........................................ 127,486 86,105
Commitments (Note 6)
Mandatorily Redeemable Series A Preferred Stock, $0.001 par value
with a redemption value of $10.00 per share; issued and
outstanding: 5,900,000 shares; Preferred Stock authorized:
15,000,000 shares................................................ -- 60,157
Common Stock, at amounts paid in at March 31, 1995, $0.001 par
value at March 31, 1996; authorized: 6,200 shares at March 31,
1995 and 100,000,000 shares at March 31, 1996: issued and
outstanding: 4,650 and 38,719,178 shares at March 31, 1995 and
1996, respectively............................................... 15,000 39
Additional paid-in capital......................................... 3,484 77,913
Retained earnings (accumulated deficit)............................ (70,034) 18,221
Distribution in excess of basis (Note 1)........................... -- (76,649)
-------- --------
Total stockholders' equity (deficit).......................... (51,550) 19,524
-------- --------
Total liabilities and stockholders' equity (deficit)..... $ 75,936 $165,786
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 84
HMT TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................... $ 64,242 $ 72,893 $194,401
Cost of sales................................................ 67,648 67,539 119,803
-------- -------- --------
Gross profit (loss)........................................ (3,406) 5,354 74,598
Operating expenses:
Research and development................................... 2,781 3,130 3,803
Selling, general and administrative........................ 5,115 4,230 7,774
Recapitalization expenses.................................. -- -- 4,347
-------- -------- --------
Total operating expenses................................ 7,896 7,360 15,924
-------- -------- --------
Operating income (loss)............................ (11,302) (2,006) 58,674
Interest expense and other, net.............................. 6,001 6,915 8,578
-------- -------- --------
Income (loss) before income tax provision (benefit) and
extraordinary debt extinguishment costs............... (17,303) (8,921) 50,096
Income tax provision, net.................................... 22 20 2,590
-------- -------- --------
Net income (loss) before extraordinary debt extinguishment
costs...................................................... (17,325) (8,941) 47,506
Extraordinary debt extinguishment costs, net of income taxes
of $692.................................................... -- -- 1,127
-------- -------- --------
Net income (loss)....................................... $(17,325) $ (8,941) $ 46,379
Accretion for dividends on Mandatorily Redeemable Series A
Preferred Stock............................................ -- -- (1,157)
-------- -------- --------
Net income (loss) available for common stockholders.......... $(17,325) $ (8,941) $ 45,222
======== ======== ========
Net income (loss) available for common stockholders per share
before extraordinary debt extinguishment costs............. $ (0.50) $ (0.26) $ 1.31
Extraordinary debt extinguishment costs, net of income taxes
per share.................................................. -- -- 0.03
======== ======== ========
Net income (loss) available for common stockholders per
share...................................................... $ (0.50) $ (0.26) $ 1.28
======== ======== ========
Shares used in computing per share amounts................... 34,822 34,822 35,224
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 85
HMT TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
DISTRIBUTIONS RETAINED TOTAL
COMMON STOCK ADDITIONAL IN EXCESS EARNINGS STOCKHOLDERS'
--------------------- PAID-IN OF NET BOOK (ACCUMULATED) EQUITY
SHARES AMOUNT CAPITAL VALUE DEFICIT (DEFICIT)
---------- -------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1993........ 4650 $ 15,000 -- -- $ (43,768) $(28,768)
Net loss..................... -- -- -- -- (17,325) (17,325)
---------- -------- ---------- ------------- ------------- --------------
Balances, March 31, 1994....... 4,650 15,000 -- -- (61,093) (46,093)
Capital contribution......... -- -- $ 3,484 -- -- 3,484
Net loss..................... -- -- -- -- (8,941) (8,941)
---------- -------- ---------- ------------- ------------- --------------
Balances, March 31, 1995....... 4,650 15,000 3,484 -- (70,034) (51,550)
Net income for the period
from April 1, 1995 through
November 30, 1995.......... -- -- -- -- 27,001 27,001
Distribution to
stockholders............... (4,650) (15,000) (3,484) $ (76,649) 43,033 (52,100)
Common Stock issued upon the
Leveraged
Recapitalization........... 29,656,057 30 927 -- -- 957
Initial Public Offering of
$0.001 par value Common
Stock, net of offering
expenses................... 8,400,000 8 76,924 -- -- 76,932
Common Stock issued under Stock
Option Plans................. 663,121 1 62 -- -- 63
Net income for the period
from December 1, 1995
through March 31, 1996... -- -- -- -- 19,378 19,378
Accretion for dividends on
Mandatorily Redeemable Series
A Preferred Stock............ -- -- -- -- (1,157) (1,157)
---------- -------- ---------- ------------- ------------- --------------
Balances, March 31, 1996....... 38,719,178 $ 39 $ 77,913 $ (76,649) $ 18,221 $ 19,524
========== ========= ========== ============ ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 86
HMT TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(17,325) $ (8,941) $ 46,379
Adjustments to reconcile net income (loss) to net
cash used in operations:
Depreciation and amortization..................... 12,342 11,492 12,291
Provision for loss on inventories................. 90 2,536 (2,938)
Accrued interest on capital lease obligation...... 1,013 -- --
Loss (gain) on sale of assets..................... 21 (16) 181
Deferred income taxes............................. -- -- (9,965)
Changes in operating assets and liabilities:
Receivables -- trade............................ (4,138) 4,361 (23,539)
Other receivables............................... 727 188 29
Inventories..................................... 4,019 (2,327) 6,623
Deposits, prepaid expenses and other assets..... (1,484) 90 840
Accounts payable................................ (1,044) 1,776 6,940
Accrued liabilities............................. (848) (452) 13,573
-------- -------- --------
Net cash provided by (used in) operating
activities................................. (6,627) 8,707 50,414
-------- -------- --------
Cash flows from investing activities:
Expenditures for property, plant and equipment....... (3,057) (7,317) (39,629)
Proceeds from sale of equipment...................... 19,594 18 2,205
Decrease (increase) in other assets.................. (366) 12 1,961
-------- -------- --------
Net cash provided by (used in) investing
activities................................. 16,171 (7,287) (35,463)
-------- -------- --------
Cash flows from financing activities:
Principal payments on obligations under capital
leases............................................ (1,964) (4,701) (9,994)
Net proceeds from (repayments on) short-term
borrowings........................................ 4,800 26,600 (86,700)
Repayment of long-term notes payable................. (12,450) (22,450) (12,200)
Proceeds from issuance of senior bank term loan...... -- -- 60,000
Repayments on senior bank term loan.................. -- -- (60,000)
Financing costs...................................... -- -- (2,944)
Proceeds from subordinated promissory notes.......... -- -- 47,000
Distribution to stockholders......................... -- -- (52,100)
Proceeds from issuance of Common Stock............... -- -- 77,952
Proceeds from issuance of Mandatorily Redeemable
Series A Preferred Stock.......................... -- -- 59,000
-------- -------- --------
Net cash provided by (used in) financing
activities................................. (9,614) (551) 20,014
-------- -------- --------
Net increase (decrease) in cash and cash equivalents... (70) 869 34,965
Cash and cash equivalents at beginning of period....... 79 9 878
-------- -------- --------
Cash and cash equivalents at end of period............. $ 9 $ 878 $ 35,843
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period............. $ 4,820 $ 5,698 $ 8,776
Cash paid for income taxes during the period......... $ -- $ -- $ 3,522
Supplemental disclosure of noncash investing and
financing activities:
Machinery and equipment acquired pursuant to a
capital lease..................................... $ 19,492 $ -- $ --
Refinancing of existing capital lease obligations.... $ -- $ 14,930 $ 13,105
Accretion for dividends on mandatorily redeemable
Series A Preferred Stock.......................... $ -- $ -- $ 1,157
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 87
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
HMT Technology Corporation (the "Company"), operates in a single industry
segment, and designs, manufactures and markets thin film magnetic disks for use
in computer hard drives. The Company was incorporated in Delaware on December
28, 1988.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, HMT Foreign Sales Corporation (incorporated on
February 14, 1996). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Fiscal Year
The Company uses a 52-week fiscal year ending on March 31 and thirteen- to
fourteen-week quarters that end on the Sunday closest to the calendar quarter
end.
Recapitalization
On November 30, 1995, the Company effected a leveraged recapitalization
(the "Leveraged Recapitalization") pursuant to which the Company repurchased
from Hitachi Metals, Ltd. ("Hitachi Metals"), then the sole stockholder of the
Company, all of the outstanding shares of Common Stock of the Company, and
certain investment funds, members of management and Hitachi Metals purchased
newly issued Common Stock, Mandatorily Redeemable Series A Preferred Stock
("Series A Preferred Stock") and subordinated promissory notes ("Subordinated
Notes") of the Company. As of November 30, 1995 (immediately prior to the
Leveraged Recapitalization), the Company had approximately $98.5 million in
assets (unaudited) and approximately $122.7 million in liabilities (unaudited).
Immediately following the Leveraged Recapitalization, the Company had $110.9
million in assets (unaudited), and $132.1 million in liabilities (unaudited)
(including $60.0 million of senior bank term loan and $47.0 million of
Subordinated Notes to stockholders) and $59.0 million of Series A Preferred
Stock.
The Leveraged Recapitalization has been accounted for as a
recapitalization, and accordingly, no change in the accounting basis of the
Company's assets has been made in the accompanying financial statements. The
amount of cash paid and securities issued to the stockholders of the Company
exceeded the Company's net assets on the date of the transaction and has been
recorded in the equity section as distributions in excess of net book value.
Stock Split
The Company's Board of Directors effected a 31-for-1 stock split on March
13, 1996. All shares and per share data in the accompanying financial statements
have been retroactively restated to reflect the stock split.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase and money market
funds to be cash equivalents. The Company maintains deposits with several
financial institutions in the United States and invests its excess cash in
short-term, interest bearing, investment grade securities. Deposits in banks may
exceed the amount of
F-7
<PAGE> 88
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance provided on such deposits. The Company has not experienced any losses
on its deposits of cash and cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization is provided using the straight-line method over estimated useful
lives of ten to 35 years for the building and improvements; five to ten years or
the lease term, whichever is shorter, for leasehold improvements; and three to
five years for the machinery, equipment and furniture and fixtures. The
Company's policy is to regularly review the carrying amount of specialized
assets and to evaluate the remaining life and recoverability of such equipment
in light of current market conditions. Upon disposal, the assets and related
accumulated depreciation are removed from the Company's accounts, and resulting
gains or losses are reflected in operations.
Warranties
The Company's products are generally warranted for a period of 60 days from
customer receipt. Estimated future costs of repair, replacement, or customer
accommodations are reflected in the accompanying financial statements.
Income Taxes
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, the liability method is used for accounting for income taxes. There
was no material effect from adoption. The realization of deferred tax assets is
based on historical tax positions and expectations about future taxable income.
Revenue Recognition
Revenue is recognized upon shipment of product to the customer. Sales
figures are reported net of a provision for estimated product returns and
warranty reserves.
Research and Development
Research and development expenditures are charged to operations as
incurred.
Foreign Currency Accounting
Substantially all of the Company's sales are denominated in U.S. dollars.
Foreign currency transactions during the period are immaterial and are included
in operations.
Concentration of Risks
During fiscal 1995 and 1996, the Company shipped most of its thin film
disks to four customers. These four customers represented 73.7%, 5.9%, 11.2% and
1.0%, respectively and 40.5%, 35.8%, 9.1% and 6.4%, respectively, of net sales
in fiscal 1995 and 1996.
F-8
<PAGE> 89
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sells substantially all of its production to Asian subsidiaries
of U.S. companies. The Company performs ongoing credit evaluations of its
customers. The Company does not require collateral for its receivables and
maintains an allowance for potential credit losses.
The Company's Fremont facility currently accounts for all of its
production. Disruption of operations at the Company's production facility could
cause delays in, or an interruption of, production and shipment of products,
which could materially adversely affect the Company's business, operating
results and financial condition.
Public Offering
During March 1996, the Company sold 8,400,000 shares of Common Stock at
$10.00 per share through its initial public offering ("IPO"), all of which were
sold by the Company. The net proceeds (after underwriter's discounts and
commissions and other costs associated with the IPO) totaled $76.9 million.
Computation of Net Income Per Share
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common shares consist of stock options and warrants as if exercised for
all periods presented. Accretion of the Series A Preferred Stock dividend
reduces earnings available for holders of Common Stock in the computation of
earnings per share.
The Company has computed common and dilutive common share equivalents in
determining the number of shares used in calculating earnings per share pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No.
83. SAB 83 requires the Company to include all common share equivalents issued
during the 12 months preceding the filing date of an initial public offering in
its calculation of the number of shares used to determine earnings per share as
if shares used to determine earnings per share had been outstanding for all
periods presented.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, other receivables and
accrued liabilities are a reasonable estimate of their fair value due to their
short term nature. The estimated value of the Company's long term debt and
mandatory redemption preferred stock is based on interest rates at March 31,
1996 for issues with similar remaining maturities.
The estimated fair value amounts of the Company's financial instruments
have been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, thus, the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The Company calculates the fair value of financial instruments and includes
this additional information in the notes to financial statements when the fair
value is different than the book value of those financial instruments. When the
fair value is equal to the book value no additional disclosure is made. The
Company uses quoted market prices whenever available to calculate these fair
values. When quoted market prices are not available, the Company uses standard
pricing models for various types of financial instruments which take into
account the present value of estimated future cash flows. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amounts.
F-9
<PAGE> 90
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Pronouncements
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS No. 121)," which requires the Company
to review for the impairment of long-lived assets and intangibles whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In certain situations, an impairment loss would be
recognized. SFAS No. 121 will become effective for the Company's 1997 fiscal
year. The Company has studied the implications of the Statement, and based on
its initial evaluation, does not expect it to have a material impact on the
Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation (SFAS No. 123),"
which establishes a fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. While the Company studies the
impact of the pronouncement, it continues to account for employees' stock
options under Accounting Principles Board(APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123 will be effective for the Company's
1997 fiscal year.
2. BALANCE SHEET DETAIL
INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------
1995 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials..................................................... $ 2,570 $1,284
Work-in-process................................................... 5,340 5,123
Finished goods.................................................... 2,904 722
------- ------
$10,814 $7,129
======= ======
</TABLE>
Inventories reflect reserves of approximately $4.5 million and $1.5 million
as of March 31, 1995 and 1996, respectively. The reserve at March 13, 1995
reflects the impact of disks contaminated during the fourth quarter of
fiscal 1995. The decrease in inventory reserve from March 31, 1995 to March
31, 1996 is a result of the complete disposition and change to the reserve
for the contaminated disks during fiscal 1996.
F-10
<PAGE> 91
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 4,636 $ 4,636
Building and improvements...................................... 13,440 13,814
Leasehold improvements......................................... 12,770 15,501
Machinery, equipment and furniture and fixtures................ 57,188 71,742
------- -------
88,034 105,693
Less accumulated depreciation and amortization................. 39,991 42,310
Projects in progress........................................... 6,133 15,745
------- -------
$54,176 $79,128
======= =======
</TABLE>
Additions to property, plant and equipment include capitalized interest of
approximately $58,000, $8,000 and $278,000 during fiscal 1994, 1995 and
1996, respectively.
<TABLE>
<CAPTION>
MARCH 31,
------------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
ACCRUED LIABILITIES
Interest payable.............................................. $ 695 $ 2,088
Income taxes payable.......................................... -- 8,620
Other......................................................... 2,414 5,974
------ -------
$3,109 $16,682
====== =======
</TABLE>
3. RELATED PARTY TRANSACTIONS
The Company had the following transactions with a certain shareholder and
its affiliates:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Hitachi Metals Trading
Purchases of raw materials............................. $ 3,548 $ 3,044 $ 8,755
Sales.................................................. 23 12 19
Hitachi Metals America
Purchases of raw materials............................. 1,487 1,038 2,274
Hitachi Metals Research Ltd.
Contract research and development services............. 150 202 514
Hitachi Metals Limited
Purchases of raw materials............................. 826 14 --
Interest under capital lease obligations............... 1,013 737 --
Hitachi Kizoku Shoji
Sales.................................................. 4,659 1,522 --
</TABLE>
4. OBLIGATIONS UNDER CAPITAL LEASES
In November 1995, in connection with the Leveraged Recapitalization, the
Company entered into an agreement to refinance an existing capital lease under
which the majority of assets under the existing lease plus assets with a net
book value of approximately $5.0 million were conveyed to the new
F-11
<PAGE> 92
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lessor. The appraised value of the assets conveyed to the new lessor exceeded
their net book value on the date transferred. The new lease agreement,
classified as a capital lease, required an initial payment of $6.1 million and
36 monthly payments of $0.2 million. Upon maturity, the Company has the option
to renew the lease or purchase the equipment at fair market value, otherwise the
lease requires a restocking fee of $1.0 million.
Assets under capital lease obligations as of March 31, 1996 consist of
machinery and equipment with a cost of $26.9 million and accumulated
amortization of $10.4 million ($29.8 million and $13.9 million, respectively, at
March 31, 1995). Minimum future lease payments under capital lease obligations,
together with the present value of the net minimum lease payments, are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31,
----------------------------------------------------------------------- MARCH 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
1997................................................................... $4,539
1998................................................................... 2,609
1999................................................................... 2,662
Minimum lease payments................................................. 9,810
Less amount representing interest...................................... 1,298
Present value of minimum lease payments................................ 8,512
Less current portion................................................... 3,814
Total capital lease obligation, net of current portion................. 4,698
</TABLE>
5. DEBT
On November 30, 1995, in connection with the Leveraged Recapitalization,
the Company paid off the entire balance of short-term borrowings and long-term
notes. The Company partially financed the Leveraged Recapitalization through a
$60.0 million senior bank term loan and $47.0 million in Subordinated Notes sold
to stockholders. The Subordinated Notes bear interest at 12.0% a year
(increasing by 1.0% a year commencing January 1, 1999). Interest on the
Subordinated Notes accrues through the earlier of July 31, 1996 or the payment
in full of the senior bank term loan. The Subordinated Notes are due in three
equal installments of principal on December 1, 2003, 2004 and 2005. While the
Subordinated Notes may be prepaid in whole or in part at the election of the
Company, the Company is obligated to prepay the Subordinated Notes from the
proceeds of certain financings after December 31, 1997.
Extraordinary debt extinguishment costs, net of income taxes. Pursuant to
the credit agreement, the Company repaid the balance of a senior bank term loan
on March 14, 1996, after completion of the IPO. As a result, the Company
recorded a one-time non-cash charge of $1.1 million (or $0.03 per share), net of
income taxes, for the write-off of the portion of unamortized debt issue costs
related to the senior bank term loan.
On November 30, 1995, the Company entered into a revolving credit agreement
which provides for borrowings of up to $30.0 million. At March 31, 1996 the
Company had not drawn on this facility.
The revolving credit facility is collateralized by all of the Company's
assets. The various debt agreements covering the Company's debt contain
covenants relating to quarterly profitability, minimum levels of tangible net
worth, limitations on additional debt, minimum levels of liquidity and dividend
limitations.
The Company had unsecured lines of credit available which provided for
borrowings of up to $95.0 million at March 31, 1995. These unsecured lines of
credit were guaranteed by Hitachi Metals. At March 31, 1995 short term
borrowings under these agreements aggregated $86.7 million and had an interest
rate of approximately 6.5% a year.
F-12
<PAGE> 93
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS
The Company leases office and manufacturing facilities under an operating
lease agreement which expires in December 1999. Future minimum payments under
these noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31, (IN THOUSANDS)
------------------------------------------------------------ --------------
<S> <C>
1997........................................................ $ 638
1998........................................................ 548
1999........................................................ 410
-------
$1,596
===========
</TABLE>
Rent expense was approximately $0.8 million, $0.9 million and $0.8 million
for the years ended March 31, 1994, 1995 and 1996, respectively.
7. MANDATORILY REDEEMABLE PREFERRED STOCK
Preferred Stock
In connection with the Leveraged Recapitalization, the Company issued
5,900,000 shares of Series A Preferred Stock. The holders of the Series A
Preferred Stock are entitled to receive dividends at the annual rate of $1.00
per share before any dividend or other distribution may be paid to the holders
of Common Stock. Beginning on January 1, 1998 the shares of Series A Preferred
Stock will begin to accrue cumulative dividends at an annual rate of 10%. Such
dividends are senior in right of payment to any dividends declared on any shares
of the Company's capital stock, including the Common Stock. The dividends will
accrete based on the effective interest method.
Upon any liquidation, dissolution or winding up of the Company (a
"Liquidation Event"), the holders of the Series A Preferred Stock are entitled
to receive, prior to payment of any liquidation proceeds to the holders of the
Company's capital stock, including the Common Stock, an amount equal to $10.00
plus all accrued and unpaid dividends per share of Series A Preferred Stock (the
"Preferential Amount"). A sale of all or substantially all of the Company's
assets or any consolidation or merger of the Company in which holders of the
Company's voting securities prior to such merger or consolidation hold less than
50% of the voting power of the surviving entity (a "Change in Control
Transaction") will also be regarded as a Liquidation Event and entitle the
holders of the Series A Preferred Stock to the Preferential Amount.
The consent of the holders of at least two-thirds of the then outstanding
shares of the Series A Preferred Stock is required in order: (i) to redeem or
purchase any shares of the Company's Common Stock, other than repurchases of
shares from directors, officers, consultants or employees upon termination of
their relationship with the Company or from stockholders or pursuant to rights
of first refusal for the benefit of the Company, (ii) to authorize or issue any
equity security senior to, or on a parity with, the Series A Preferred Stock
with respect to dividends, liquidation preference, voting rights or otherwise or
(iii) to effect any sale of all or substantially all of the Company's assets or
any consolidation or merger or any reclassification of shares or any
recapitalization or any dissolution, liquidation or winding up of the Company.
The consent of the holders of 95% of the Series A Preferred Stock is required
for the amendment of the Company's Certificate of Incorporation if such
amendment changes the rights, preferences or privileges of the Series A
Preferred Stock or would increase the designated number of shares of Series A
Preferred Stock. The Series A Preferred Stock does not have the right to vote in
the election of directors and has no other voting rights except as described
above or required by law.
F-13
<PAGE> 94
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series A Preferred Stock may be redeemed by the Company at any time, at
a redemption price equal to the Preferential Amount. The Company must redeem the
outstanding shares of Series A Preferred Stock on January 1, 2006 for $10.00 per
share. In addition, after the Company's Subordinated Notes have been retired,
the Company is obligated to redeem shares of Series A Preferred Stock, by paying
the Preferential Amount from the proceeds of certain financing after December
31, 1997.
In addition, the Board of Directors is authorized without further action by
the Company's stockholders, to issue 9,100,000 shares of Preferred Stock,
subject to the rights of the Series A Preferred Stock, in one or more series and
to fix the rights, preferences and privileges thereof.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The Series A Preferred Stock agreement
restricts dividend payments made to Common Stock holders. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Series A Preferred Stock, if
any, then outstanding. The Common Stock has no preemptive rights or other
subscription rights. All outstanding shares of Common Stock are fully paid and
nonassessable.
The Company has not declared or paid cash dividends as of March 31, 1996.
Under the terms of the Company's Series A Preferred Stock, no dividends may be
paid on the Common Stock unless accumulated and unpaid dividends on the Series A
Preferred Stock have been paid in full. In addition, the Company's senior bank
credit agreement prohibits the payments of cash dividends on the Common Stock
without prior approval from certain senior lenders.
On April 12, 1996, the Company sold an additional 1,260,000 shares of
common stock at $10.00 per share pursuant to the underwriter's over-allotment
option, resulting in net proceeds of approximately $11.7 million.
Warrants
In connection with the Leveraged Recapitalization, the Company issued to
the Banks warrants to purchase 701,344 shares of Common Stock. During the fourth
quarter of fiscal 1996, pursuant to the terms of the warrant agreement, the
Company exercised its right to repurchase 40% of the outstanding warrants,
leaving a balance of warrants to purchase 420,794 shares of common stock. The
warrants are exercisable at a purchase price of $0.0003 per share at any time
prior to November 30, 2002.
Stock Option Plans
In November 1995, the Board of Directors authorized and reserved an
aggregate of 12,400,000 shares of Common Stock for issuance under the 1995
Management Stock Option Plan and the 1995 Stock Option Plan.
In January 1996, the Board of Directors adopted the Directors' Stock Option
Plan (the "Director's Plan") to provide for the automatic grant of options to
purchase shares of Common Stock to nonemployee directors of the Company (other
than employees or affiliates of Summit Partners, L.P. or Hitachi Metals).
In the event of a merger, consolidation, reverse merger or reorganization,
options outstanding under the Directors' Plan will automatically become fully
vested and will terminate if not exercised prior to such event.
F-14
<PAGE> 95
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. The exercise price of
options under the Directors' Plan will equal the fair market value of the Common
Stock on the date of grant. The Directors' Plan will terminate in January 2006,
unless earlier terminated by the Board of Directors.
In January 1996 the Board of Directors adopted the 1996 Equity Incentive
Plan (the "Incentive Plan"). The Incentive Plan provides for grants of incentive
stock option to employees (including officers and employee directors) and of
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees (including officers and directors) and
consultants of the Company.
The combined maximum number of shares of Common Stock authorized to be
issued pursuant to options granted under the Directors' Plan and the Incentive
Plan is 3,000,000 shares and as of March 31, 1996 no options had been granted
under these plans.
A summary of activity under the Stock Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
SHARES SHARES PRICE
AVAILABLE UNDER PER
FOR GRANT OPTION SHARE
------------ ----------- -----------
<S> <C> <C> <C>
Authorized............................... 15,400,000 -- --
Granted.................................. (12,284,150) 12,284,150 $0.03-10.00
Cancellations............................ 15,306 (15,306) 0.03
Exercised................................ -- (8,351,121) 0.03- 0.10
------------ -----------
Balance at March 31, 1996................ 3,131,156 3,917,723 $0.03-10.00
</TABLE>
Upon grant, 1,550,000 options vested immediately and were exercised. An
additional 1,464,048 options vested upon completion of the IPO and certain other
performance goals. The majority of remaining outstanding options will vest
ratably over a four year period. Of the options to purchase 12,284,150 shares
granted to all optionees, options to purchase 8,339,000 shares were exercised
pursuant to early exercise provisions contained in the holders' stock option
agreements. As of March 31, 1996, 4,977,055 shares of Common Stock exercised
pursuant to early exercise provisions were subject to repurchase at prices
ranging from $0.03 to $0.10 per share upon termination of employment. The
options expire no later than ten years after the date of grant.
EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 500,000 shares of Common Stock. Under
the Purchase Plan substantially all employees may be granted the opportunity to
purchase shares of common stock at 85% of the lower of the fair market value of
the Common Stock on the commencement date of each offering period or the
specified purchase date (generally April 30 and October 31 of each year).
F-15
<PAGE> 96
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. -- -- $10,095
State............................................... $ 22 $ 20 2,460
Deferred:
Federal............................................. -- -- (9,291)
State............................................... -- -- (674)
------- ------- -------
$ 22 $ 20 $ 2,590
======= ======= =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate............ (34.0)% (34.0)% 35.0%
----- ----- -----
Net operating loss benefit.................................. 34.0 34.0 --
Benefit of foreign sales corporation........................ -- -- (1.0)
State income taxes.......................................... 0.1 0.2 2.6
Benefit of operating losses................................. -- -- (25.5)
Other....................................................... -- -- 7.4
Change in valuation allowance............................... -- -- (13.3)
----- ----- -----
Effective tax rate................................ 0.1% 0.2% 5.2%
===== ===== =====
</TABLE>
The components of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued vacation............................................... $ 216 $ 330
Inventory reserve.............................................. 1,828 953
Depreciation................................................... (451) 873
Allowances and other accrued liabilities....................... 898 3,650
Net operating loss carryforward................................ 21,309 4,159
------- -------
Total deferred tax assets.............................. 23,800 9,965
Less valuation allowance......................................... (23,800) --
------- -------
Net deferred tax assets................................ $ -- $ 9,965
======= =======
</TABLE>
Although realization of the deferred tax assets is not assured, the Company
believes that it is more likely than not that all of the deferred tax assets
will be realized. The amount of the deferred tax asset considered realizable
could be reduced if estimates of future taxable income decline significantly.
At March 31, 1996, the Company had federal net operating loss carryforwards
of approximately $12.2 million available to offset future taxable income. These
net operating loss carryforwards expire in the years 2008 to 2010. Because the
Leveraged Recapitalization caused an ownership change, as
F-16
<PAGE> 97
HMT TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
defined by tax law, the Company's ability to use its net operating loss
carryforwards from November 30, 1995 is limited to a specified dollar amount
each year.
Prior to the Leveraged Recapitalization, the Company was a member of a
combined group for California tax reporting purposes and began to report on a
single entity basis after the Leveraged Recapitalization. The combined group
elected the water's edge method (being that all taxable income from foreign
affiliates generated outside of the United States is excluded from the
calculation of California income tax) of reporting for California tax purposes.
The Company had a tax sharing agreement with the former combined group to pay a
share of the combined group's California tax liability through November 30,
1995. The Company's current state provision represents its share of the combined
group's California tax liability through November 30, 1995, plus its California
tax liability for the period from December 1, 1995 through March 31, 1996,
computed on a single entity basis.
10. 401(K) PLAN
The Company has a deferred tax savings 401(k) plan and generally matches
50% of employee contributions up to 4% of gross salaries. The employer
contributions do not vest until the employee's second year of service, at which
time the contributions vest 100%. All employees employed for at least six months
are eligible to participate under the plan. The Company contributed to the plan
approximately $0.2 million per year in fiscal 1994, 1995 and $0.3 million in
fiscal year 1996.
11. SUBSEQUENT EVENTS
Asset Purchase
In May 1996, the Company purchased an aluminum substrate manufacturing
facility and other related equipment in Eugene, Oregon for approximately $5.0
million. The acquisition will be accounted for as an asset purchase, and
acquisition related expenses are not expected to have a significant impact on
first quarter fiscal 1997 results.
Follow-on Offering
In May 1996, the Board of Directors approved the filing of a registration
statement with the Securities and Exchange Commission covering the proposed sale
of 4,000,000 shares of Common Stock and $150.0 million par value convertible
subordinated notes.
F-17
<PAGE> 98
LOGO
<PAGE> 99
APPENDIX -- DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Three pictures depicting a robot used for texturizing.
(Top Left)
Picture of a multi-chamber, single disk static sputtering machine.
(Top Middle)
Picture depicting a man operating glide and certification disk testers.
(Bottom Left)
Picture depicting a glide test module testing glide height specifications.
(Bottm Right)
PG. 32
Graphic of a hard disk drive with labelling of principal parts.
PG. 37
Flowchart and graphic of principal process steps of the thin film disk
production process.
INSIDE BACK COVER
Picture depicting a machine testing disks for match with specifications.
(Top Left)
Picture of an Atomic Force/Magnetic Force Microscope work area.
(Top Right)
Picture of HMT corporate headquarters.
(Middle)
Picture depicting a woman testing quality of incoming disk substrates.
(Bottom Left)
Picture of four hard disk drives undergoing testing.
(Bottom Right)
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................................... $101,215
NASD filing fee........................................................... 30,500
Blue sky qualification fee and expenses................................... 10,000
Printing and engraving expenses........................................... 100,000
Legal fees and expenses................................................... 100,000
Accounting fees and expenses.............................................. 30,000
Transfer agent and registrar fees (Common Stock).......................... 10,000
Trustee, transfer agent, conversion agent and transfer fees (Notes)....... 7,500
Miscellaneous............................................................. 110,785
--------
Total........................................................... $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not prohibited by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
II-1
<PAGE> 101
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In November 1995, the Registrant sold 21,968,057 shares of Common
Stock to a group of accredited investors for cash in the aggregate amount
of $708,647.
(2) In November 1995, the Registrant sold 5,900,000 shares of
Mandatorily Redeemable Series A Preferred Stock to a group of accredited
investors for cash in the aggregate of $59,000,000.
(3) In November 1995, the Registrant sold Subordinated Promissory
Notes in the principal amount of $46,999,995 to a group of accredited
investors for cash.
(4) Since January 1993, the Registrant has granted options to purchase
an aggregate of 12,172,150 shares of the Registrant's Common Stock to
employees, directors and consultants under its 1995 Management Stock Option
Plan and 1995 Stock Option Plan, at a weighted average exercise price of
$0.04 per share. Of such options, options to purchase 7,688,000 shares have
been exercised.
The sales and issuances of securities in the transactions described in
paragraphs (1), (2) and (3) were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and/or Regulation
D promulgated thereunder. With respect to the grant of stock options described
in paragraph (4), an exemption from registration under the Securities Act was
unnecessary in that none of such transactions involved a sale of securities as
such term is used in Section 2(3) of the Securities Act. Issuance of shares upon
exercise thereof was in reliance on Rule 701 promulgated under Section 3(b) of
the Securities Act as transactions by an issuer not involving a public offering
or transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed with any subsequent
sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement for Common Stock.
1.2 Form of Underwriting for Notes.
2.1+ Recapitalization Agreement by and among the Company and the Investors listed on
Exhibit A thereto dated October 31, 1995.
2.2+ Redemption Agreement by and between the Company and Hitachi Metals, dated November
30, 1995.
3.2+ Amended and Restated Certificate of Incorporation of the Registrant.
3.3+ Bylaws of the Registrant.
4.1+ Reference is made to Exhibits 3.2 through 3.3.
4.2+ Specimen stock certificate.
4.3 Form of Indenture.
4.4 Form of Note (included in and incorporated by reference from Exhibit 4.3).
5.1* Opinion of Cooley Godward Castro Huddleson & Tatum.
10.1+ Lease Agreement between the Company and Sun Life Assurance Company of Canada,
dated January 5, 1989, as amended.
10.2+ Sublease Agreement between the Company and McKenzie Socket Technology, dated
December 22, 1992, as amended.
</TABLE>
II-2
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
10.3+ Lease Agreement between the Company and Amorok/Wells Venture, dated August 15,
1990, as amended.
10.4+ Form of Indemnity Agreement entered into between the Registrant and its directors
and executive officers.
10.5+ Registrant's 1995 Stock Option Plan (the "1995 Plan").
10.6+ Form of Incentive Stock Option under the 1995 Plan.
10.7+ Form of Early Exercise Agreement under the 1995 Plan.
10.8+ Registrant's 1995 Management Stock Option Plan (the "Management Plan").
10.9+ Form of Incentive Stock Option under the Management Plan.
10.10+ Form of Early Exercise Agreement under the Management Plan.
10.11+ Registrant's 401(k) Profit Sharing Plan.
Revolving Credit and Term Loan Agreement by and among the Company, First National
10.12+ Bank of Boston and Banque Paribas, dated November 30, 1995 (the "Credit
Agreement").
10.12.1 First Amendment to the Credit Agreement dated February 22, 1996.
10.12.2 Second Amendment to the Credit Agreement dated March 31, 1996.
Warrant Purchase Agreement by and among the Company, First National Bank of Boston
10.14+ and Banque Paribas dated November 30, 1995.
10.15+ Example of Common Stock Purchase Warrant dated November 30, 1995.
10.16+ Example of Subordinated Promissory Note dated November 30, 1995.
Master Lease Agreement by and between the Company and Comdisco, dated November 30,
10.17+ 1995.
Investor Rights Agreement by and among the Company, certain of the Company's
10.18+ officers, and the Investors listed on Exhibit A of the Recapitalization Agreement,
dated November 30, 1995.
10.20+ Registrant's 1996 Equity Incentive Plan (the "Incentive Plan").
10.21+ Form of Incentive Stock Option under the Incentive Plan.
10.22+ Form of Non-statutory Stock Option under the Incentive Plan.
10.23+ Registrant's Employee Stock Purchase Plan.
10.24+ Registrant's Non-Employee Directors' Stock Option Plan (the "Directors' Plan").
10.25+ Form of Non-Statutory Stock Option under the Directors' Plan.
10.26+ Registrant's Executive Severance Plan.
11.1 Statement Regarding Calculation of Net Income (loss) per share.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Ratios.
16.1* Letter from Ernst & Young LLP regarding change in certifying accountant.
23.1 Consent of Coopers & Lybrand L.L.P. Reference is made to page II-7.
23.2* Consent of Cooley Godward Castro Huddleson & Tatum (included in Exhibit 5.1).
23.3 Consent of Willamette Management Associates. Reference is made to page II-8.
24.1 Power of Attorney. Reference is made to page II-5.
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed in Registration Statement No. 333-450.
(B) FINANCIAL STATEMENT SCHEDULES.
All other schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
II-3
<PAGE> 103
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 14 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be
part of the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offerings of such securities at that time shall be deemed to be the initial
bona fide offerings thereof.
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, County of
Alameda, State of California, on the 29th day of May 1996.
HMT TECHNOLOGY CORPORATION
By: /s/ RONALD L. SCHAUER
------------------------------------
Ronald L. Schauer
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Ronald L. Schauer and Peter S. Norris his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement on Form S-1, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- -------------------------- ------------------
<C> <S> <C>
/s/ RONALD L. SCHAUER President, Chief Executive May 29, 1996
- ----------------------------------------------- Officer and Chairman of
Ronald L. Schauer the Board (Principal
Executive Officer)
/s/ PETER S. NORRIS Vice President, Finance, May 29, 1996
- ----------------------------------------------- Chief Financial Officer
Peter S. Norris and Treasurer (Principal
Financial Officer)
/s/ BRUCE C. EDWARDS Director May 29, 1996
- -----------------------------------------------
Bruce C. Edwards
/s/ NEIL M. GARFINKEL Director May 29, 1996
- -----------------------------------------------
Neil M. Garfinkel
</TABLE>
II-5
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- -------------------------- ------------------
<C> <S> <C>
/s/ WALTER G. KORTSCHAK Director May 29, 1996
- -----------------------------------------------
Walter G. Kortschak
Director , 1996
- -----------------------------------------------
Shotaro Takemoto
/s/ ROBERT G. TEAL Director May 29, 1996
- -----------------------------------------------
Robert G. Teal
*By /s/ PETER S. NORRIS
- -----------------------------------------------
Peter S. Norris
Attorney-in-fact
</TABLE>
II-6
<PAGE> 106
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333- ) of our report dated April 25, 1996 except for Note 11, as to which
the date is May 28, 1996, on our audits of the consolidated financial statements
of HMT Technology Corporation and its subsidiary. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 29, 1996
II-7
<PAGE> 107
EXHIBIT 23.3
CONSENT OF WILLAMETTE MANAGEMENT ASSOCIATES
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-450) of our firm's name under the caption "Leveraged Recapitalization." Our
consent does not constitute admission that we are persons of the type required
to be named by Item 509 of Regulation S-K.
WILLAMETTE MANAGEMENT ASSOCIATES
By: /s/ ROBERT P. SCHWEISH
------------------------------------------
Robert P. Schweish
May 28, 1996
II-8
<PAGE> 108
SCHEDULE II
HMT TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
ACCOUNT DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1994
Provision for loss on
inventory.................... $2,010 $2,971 $ -- $ (3,061) $1,920
Allowance for doubtful accounts
receivable................... 81 (264) -- 303 120
Year ended March 31, 1995
Provision for loss on
inventory.................... $1,920 $5,045 $ -- $ (2,509) $4,456
Allowance for doubtful accounts
receivable................... 120 (135) -- (152) 137
Year ended March 31, 1996
Provision for loss on
inventory.................... $4,456 $ 635 $ -- $ 3,573 $1,518
Allowance for doubtful accounts
receivable................... 137 450 -- 25 612
</TABLE>
S-1
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement for Common Stock.
1.2 Form of Underwriting for Notes.
2.1+ Recapitalization Agreement by and among the Company and the Investors listed on
Exhibit A thereto dated October 31, 1995.
2.2+ Redemption Agreement by and between the Company and Hitachi Metals, dated November
30, 1995.
3.2+ Amended and Restated Certificate of Incorporation of the Registrant.
3.3+ Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.2 through 3.3.
4.2+ Specimen stock certificate.
4.3 Form of Indenture.
4.4 Form of Note (included in and incorporated by reference from Exhibit 4.3).
5.1* Opinion of Cooley Godward Castro Huddleson & Tatum.
10.1+ Lease Agreement between the Company and Sun Life Assurance Company of Canada,
dated January 5, 1989, as amended.
10.2+ Sublease Agreement between the Company and McKenzie Socket Technology, dated
December 22, 1992, as amended.
10.3+ Lease Agreement between the Company and Amorok/Wells Venture, dated August 15,
1990, as amended.
10.4+ Form of Indemnity Agreement entered into between the Registrant and its directors
and executive officers.
10.5+ Registrant's 1995 Stock Option Plan (the "1995 Plan").
10.6+ Form of Incentive Stock Option under the 1995 Plan.
10.7+ Form of Early Exercise Agreement under the 1995 Plan.
10.8+ Registrant's 1995 Management Stock Option Plan (the "Management Plan").
10.9+ Form of Incentive Stock Option under the Management Plan.
10.10+ Form of Early Exercise Agreement under the Management Plan.
10.11+ Registrant's 401(k) Profit Sharing Plan.
Revolving Credit and Term Loan Agreement by and among the Company, First National
10.12+ Bank of Boston and Banque Paribas, dated November 30, 1995 (the "Credit
Agreement").
10.12.1 First Amendment to the Credit Agreement dated February 22, 1996.
10.12.2 Second Amendment to the Credit Agreement dated March 31, 1996.
Warrant Purchase Agreement by and among the Company, First National Bank of Boston
10.14+ and Banque Paribas dated November 30, 1995.
10.15+ Example of Common Stock Purchase Warrant dated November 30, 1995.
10.16+ Example of Subordinated Promissory Note dated November 30, 1995.
Master Lease Agreement by and between the Company and Comdisco, dated November 30,
10.17+ 1995.
Investor Rights Agreement by and among the Company, certain of the Company's
10.18+ officers, and the Investors listed on Exhibit A of the Recapitalization Agreement,
dated November 30, 1995.
10.20+ Registrant's 1996 Equity Incentive Plan (the "Incentive Plan").
10.21+ Form of Incentive Stock Option under the Incentive Plan.
10.22+ Form of Non-statutory Stock Option under the Incentive Plan.
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------------------
<S> <C>
10.23+ Registrant's Employee Stock Purchase Plan.
10.24+ Registrant's Non-Employee Directors' Stock Option Plan (the "Directors' Plan").
10.25+ Form of Non-Statutory Stock Option under the Directors' Plan.
10.26+ Registrant's Executive Severance Plan.
11.1 Statement regarding calculation of net income (loss) per share.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Ratios.
16.1* Letter from Ernst & Young LLP regarding change in certifying accountant.
23.1 Consent of Coopers & Lybrand L.L.P. Reference is made to page II-7.
23.2* Consent of Cooley Godward Castro Huddleson & Tatum (included in Exhibit 5.1).
23.3 Consent of Willamette Management Associates. Reference is made to page II-8.
24.1 Power of Attorney. Reference is made to page II-5.
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
+ Previously filed in Registration Statement No. 333-450.
<PAGE> 1
EXHIBIT 1.1
______________SHARES(1)
HMT TECHNOLOGY CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
June _, 1996
ROBERTSON, STEPHENS & COMPANY LLC
ALEX. BROWN & SONS INCORPORATED
SALOMON BROTHERS INC
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
HMT Technology Corporation, a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. Description of Shares. The Company proposes to issue and sell
_________ shares of its authorized and unissued Common Stock, par value $0.001
per share (the "Firm Shares"), to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to _________
additional shares of the Company's Common Stock, par value $0.001 per share (the
"Company Option Shares"), and certain of the Selling Stockholders named in
Schedule C hereto (hereinafter called the "Selling Stockholders") propose to
grant, severally and not jointly, to the Underwriters an option to purchase up
to __________ additional shares of the Company's Common Stock, par value $0.001
per share (hereinafter called the "Selling Stockholder Option Shares") as
provided in Section 7 hereof. The Company Option Shares and the Selling
Stockholder Option Shares are collectively referred to herein as the "Option
Shares." As used in this Agreement, the term "Shares" shall include the Firm
Shares and the Option Shares. All shares of Common Stock, par value $0.001 per
share, of the Company to be outstanding after giving effect to the sales
contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
- ------------
(1) Plus an option to purchase up to __________ additional shares from the
Company and __________ additional shares from the Selling Stockholders
to cover over-allotments, if any.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No. __________)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations or, if an
abbreviated registration statement is filed pursuant to Rule 462(b) of the Rules
and Regulations, at the time such abbreviated registration statement becomes
effective); provided, however, that if in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the term "Prospectus" shall mean the "prospectus subject to completion" (as
defined in Rule 434(g) of the Rules and Regulations) last provided to the
Underwriters by the Company and circulated by the Underwriters to all
prospective purchasers of the Shares (including the information deemed to be a
part of the Registration Statement at the time it became effective pursuant to
Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if any
revised prospectus shall be provided to the Underwriters by the Company for use
in connection with the offering of the Shares that differs from the prospectus
-2-
<PAGE> 3
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will conform in
all material respects to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or the Prospectus, or
any amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full power and authority (corporate and other) to own, lease and
operate its properties and conduct its business as described in the Prospectus;
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; to the best of the
Company's knowledge, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification; the Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to its business as defined in the Registration
Statement and the Prospectus, all of which are valid and in full force and
effect; the Company is not in violation of its respective Certificate of
Incorporation or Bylaws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any material
bond, debenture, note or other evidence of indebtedness, or in any material
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which it or any of its properties may be bound; and the Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity, other than
a single wholly-owned subsidiary which is not a "Significant Subsidiary" (as
such term is defined in Regulation S-X of the Act).
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered
-3-
<PAGE> 4
by the Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
and contribution hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles or limitations on
availability of equitable remedies; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company is a party or by which it or its properties may be bound, (ii) the
Certificate of Incorporation or Bylaws of the Company or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or over its properties. No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act with respect to the Registration Statement
being declared effective which has been satisfied as of the date hereof or under
state or other securities or Blue Sky laws, or under the rules and regulations
of the National Association of Securities Dealers, Inc. ("NASD") with respect to
the clearance of the underwriting arrangements.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, or
any of its officers or any of its properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect its properties, assets
or rights, (ii) might prevent consummation of the transactions contemplated
hereby or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company was
as set forth in the Prospectus under the caption "Capitalization" as of the date
indicated and conforms in all material respects to the statements relating
thereto contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act, the Exchange Act or under state or other
securities or Blue Sky laws or rules and regulations of the NASD. Except as
disclosed in the Prospectus, and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus
-4-
<PAGE> 5
and other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus, accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) The Redemption Agreement between the Company and Hitachi
Metals, Ltd., dated October 31, 1995 (the "Redemption Agreement") and the
Recapitalization Agreement between the Company and each of the Investors listed
on Exhibit A thereto dated October 31, 1995 (the "Recapitalization Agreement")
and the consummation of the transactions contemplated thereby were duly and
validly authorized by all necessary corporate actions on the part of each of the
respective parties thereto, pursuant to the provisions of the applicable
Certificate of Incorporation, Bylaws and other organizational documents of each
party thereto that is a corporation and applicable law; and all necessary
consents and approvals to the Redemption Agreement and Recapitalization
Agreement have been obtained. The execution, delivery and performance of the
Redemption Agreement and Recapitalization Agreement and the consummation of the
transactions therein contemplated did not (i) violate any provisions of the
Certificate of Incorporation or Bylaws of the Company, (ii) conflict with,
result in the breach or violation of, or constitute, either by itself or upon
notice or passage of time, or both, a default under any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which the Company was a party or by which the Company or any of its
properties was bound or affected or (iii) conflict with or violate any statute
or any authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental body
applicable to the Company, or any of its properties, in any such case in a
manner that would have a material adverse effect on the Company.
(h) Coopers & Lybrand L.L.P., which has examined the financial
statements of the Company, together with the related schedules and notes, for
each of the years in the three (3) years ended March 31, 1994, 1995, and 1996
filed with the Commission as a part of the Registration Statement, which are
included in the Prospectus, are, to the best of the Company's knowledge,
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement.
(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock (except
issuances pursuant to the Company's presently authorized 1995 Management Stock
Option Plan, 1995 Stock Option Plan, Employee Stock Purchase Plan, 1996 Equity
Incentive Plan and 1996 Non-Employee Directors' Stock Option Plan (the "Company
Stock Plans")) or outstanding indebtedness of the Company that is material to
the Company, (v) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company, or (vi) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company.
(j) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than
-5-
<PAGE> 6
such as would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company,
(ii) the agreements to which the Company is a party described in the
Registration Statement and Prospectus are valid agreements, enforceable by the
Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements and (iii) the Company has valid and enforceable leases
for all properties described in the Registration Statement and Prospectus as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus,
the Company owns or leases all such properties as are necessary to its
operations as now conducted or as currently proposed to be conducted.
(k) The Company has timely filed all necessary federal, state
and foreign income and franchise tax returns and have paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; and all tax
liabilities are adequately provided for on the books of the Company.
(l) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(m) To the best of Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its principal suppliers or customers that might be expected to result in a
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(n) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its businesses
as described in the Registration Statement and Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company; the Company has not received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(o) The Common Stock is registered pursuant to Section 12(g)
of the Act and is quoted on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Act or delisting the Common Stock
from The Nasdaq
-6-
<PAGE> 7
National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, Inc. ("NASD") is
contemplating terminating such registration or listing.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(q) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(r) The Company has at no time during the last five (5) years
(i) made any unlawful contribution to any candidate for foreign office or failed
to disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(t) Each officer and director of the Company, each Selling
Stockholder and each of the beneficial owners of shares of Common Stock
identified on Schedule B attached hereto has agreed in writing that such person
will not, for the applicable period set forth on Schedule B (as applicable, the
"Lockup Period"), offer to sell, contract to sell or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to (collectively, a "Disposition")
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock (collectively, "Securities") now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) the sale of Option Shares
by the Selling Stockholder hereunder, (ii) as to any individual, during his or
her lifetime or upon death, by gift, will or intestacy, to his or her immediate
family or to a trust the beneficiaries of which are exclusively such person
and/or a member or members of his or her immediate family; provided any donee or
transferee thereof agree in writing to be bound by this restriction, (iii) as a
distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iv) pursuant to the exercise of registration rights under the
Company's Investor Rights Agreement dated November 30, 1995, for a firm
commitment underwritten public offering on or after the fourth (4th) day after
the public release of the Company's financials for the quarter ended September
30, 1996, or (v) with the prior written consent of Robertson, Stephens & Company
LLC. The foregoing restriction has been expressly agreed to preclude the holder
of the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lockup Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, each such person has also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the
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<PAGE> 8
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions (the "Lockup Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any Lockup
Agreements currently existing or hereafter effected without the prior written
consent of Robertson, Stephens & Company LLC.
(u) Except as set forth in the Registration Statement and
Prospectus , (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, except where the failure to be in
compliance would not have a material adverse effect on the condition (financial
or otherwise), earnings operations or business of the Company (ii) the Company
has received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be disclosed
in the Registration Statement and the Prospectus , (iii) the Company is not
aware of any facts which would require it to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(x) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on any date Option
Shares are to be sold by such Selling Stockholder hereunder will have valid,
marketable title to such of the Option Shares as are to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; such Selling
Stockholder has full right, power and authority to sell, assign, transfer and
deliver the Option Shares to be sold by such Selling Stockholder hereunder; and
upon delivery of such Option Shares hereunder and payment of the purchase price
as herein contemplated, each of the Underwriters will obtain valid, marketable
title to the Option Shares purchased by it from such Selling Stockholder, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, including any liability for estate or inheritance taxes, or
any liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, a Custody Agreement and an irrevocable Power of Attorney (the
"Custody Agreement and Power of Attorney") with ____________________, as
custodian (the "Custodian"), and appointing ____________________ and
____________________ (the "Attorneys") attorneys-in-fact with respect to the
sale of the Option Shares to be sold by such Selling Stockholder hereunder; each
of the Custody
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<PAGE> 9
Agreement and Power of Attorney constitutes a valid and binding agreement of
such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights and remedies generally, or by general equitable principles;
and each of the Attorneys, acting alone, is authorized to execute and deliver
this Agreement and the certificate referred to in Section 6(i) hereof on behalf
of such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Option Shares to be sold by such
Selling Stockholder under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Option Shares or a
stock power or powers with respect thereto, to accept payment therefor, and
otherwise to act on behalf of such Selling Stockholder in connection with this
Agreement.
(c) All authorizations, approvals, consents and orders
necessary for the execution and delivery by such Selling Stockholder of the
Custody Agreement and Power of Attorney, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and delivery
of the Option Shares to be sold by such Selling Stockholder under this Agreement
(other than, at the time of the execution hereof (if the Registration Statement
has not yet been declared effective by the Commission), the issuance of the
order of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Stockholder, if other than a natural person, has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Stockholder has full right, power and authority to enter into
and perform its obligations under this Agreement and such Custody Agreement and
Power of Attorney, and to sell, assign, transfer and deliver the Option Shares
to be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, for the Lockup Period,
directly or indirectly, offer to sell, contract to sell, sell short, or
otherwise sell or dispose of any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, owned by such Selling Stockholder or
with respect to which such Selling Stockholder has the power of disposition,
other than (i) the sale of Option Shares by such Selling Stockholder hereunder,
(ii) as a gift or gifts, provided the donee or donees thereof agree to be bound
by this restriction, (iii) the exercise of options outstanding as of the date
hereof or (iv) with the prior written consent of Robertson, Stephens & Company
LLC. Such Selling Stockholder agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such Selling Stockholder except in compliance with the
foregoing restrictions.
(e) The certificates in negotiable form for all Option Shares
to be sold by such Selling Stockholder under this Agreement, together with a
stock power or powers duly endorsed in blank by such Selling Stockholder, have
been placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) This Agreement has been duly authorized by such Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and, assuming due
execution and delivery by the other parties hereto, is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as the indemnification and contribution provisions hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights and remedies generally, or by general
equitable principles; and the performance of this Agreement and the consummation
of the transactions herein contemplated will not, with respect to the Selling
Stockholders, result in a breach of or default under any material bond,
debenture, note or other evidence of indebtedness, or any material contract,
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder or any Option Shares to be sold by such Selling Stockholder
hereunder may be bound or, to such Selling Stockholder's knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or decree of
any court or governmental agency or body or, if such Selling Stockholder is
other than a
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<PAGE> 10
natural person, result in any violation of any provisions of the charter, bylaws
or other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Option Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Option Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Options Shares to be
sold by such Selling Stockholder hereunder that is contained in the
representations and warranties of such Selling Stockholder in such Selling
Stockholder's Custody Agreement and Power of Attorney or set forth in the
Registration Statement and the Prospectus is, and on the Closing Date and on any
later date on which Option Shares are to be purchased hereunder, will be, true,
correct and complete, and does not, and on the Closing Date and on any later
date on which Option Shares are to be purchased hereunder, will not, contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the Closing
Date and any later date on which Option Shares are to be purchased hereunder and
will advise the Attorneys prior to the Closing Date and any later date on which
Option Shares are to be purchased hereunder if any statement to be made on
behalf of such Selling Stockholder in the certificate contemplated by Section
6(i) would be inaccurate if made as of such date.
(k) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Option Shares that are to
be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement; and such Selling Stockholder does not
own any warrants, options or similar rights to acquire, and does not have any
right or arrangement to acquire, any capital stock, rights, warrants, options or
other securities from the Company.
(l) In addition to the other representations and warranties
set forth in this Section 2.II, each Selling Stockholder, severally and not
jointly, further represents and warrants that, to its knowledge, (i) the
representations and warranties of the Company set forth in Section 2.I are true
and correct; and (ii) each Preliminary Prospectus, as of its date, has not
included any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective, on
the Closing Date and on any later date on which Option Shares are to be
purchased hereunder, neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, included or will include any untrue
statement of a material fact or omitted or will omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties contained in this
subparagraph (l) shall apply to information contained in or omitted from the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon, and in conformity with, information furnished to the Company by
any Underwriter through you specifically for inclusion therein.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $________ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares
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<PAGE> 11
which is set forth opposite the name of such Underwriter in Schedule A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer of same-day funds paid to an account designated by the Company at the
offices of Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, 4th
Floor, Palo Alto, California 94306 (or at such other place as may be agreed upon
among the Representatives and the Company), at 7:00 A.M., San Francisco time (a)
on the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company may determine (or at such time and date
to which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later than two (2) full business days following delivery
of copies of the Prospectus to the Representatives. The certificates for the
Firm Shares to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make a public offering (as such term is described
in Section 11 hereof) of the Firm Shares at a public offering price of $______
per share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the caption "Underwriting" in any Preliminary Prospectus
and in the Prospectus constitutes the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement and you, on behalf of the respective
Underwriters, represent and warrant to the Company that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
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<PAGE> 12
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission or as part of an abbreviated registration statement
filed pursuant to Rule 462(b) which is declared effective by the Commission; if
the Company files a term sheet pursuant to Rule 434 of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of Wilson Sonsini
Goodrich & Rosati, counsel for the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; in case any Underwriter is required to deliver a prospectus nine (9)
months or more after the effective date of the Registration Statement in
connection with the sale of the Shares, it will prepare promptly upon request,
but at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing, subject, however, to compliance with the Act and the Rules
and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term sheet
under Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule
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<PAGE> 13
434 of the Rules and Regulations, the Company shall provide to you copies of a
Preliminary Prospectus updated in all respects through the date specified by you
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder, upon
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company and balance sheets for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD, (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was generally released to stockholders or prepared by the
Company, and (vi) any additional information of a public nature concerning the
Company, or its business which you may reasonably request.
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating, or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lockup Period, the Company will not, until the
fourth (4th) day after the public release of the Company's financials for the
quarter ended September 30, 1996, without the prior written consent of
Robertson Stephens & Company LLC, effect the Disposition of, directly or
indirectly, any Securities other than the sale of the Firm Shares and the
Option Shares to be sold by the Company hereunder and the Company's grant
of options or
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<PAGE> 14
issuance of Common Stock under the Company Stock Plans and upon exercise of
warrants to purchase Common Stock described in the Registration Statement and
the Prospectus.
5. Expenses.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company and the Selling Stockholders will pay and bear
all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements,
schedules and exhibits), Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue
Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and
any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and
disbursements of counsel for the Company; all fees and other charges of
the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and
the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under
the laws of such jurisdictions as you may designate (including filing
fees and fees and disbursements of Underwriters' Counsel in connection
with such NASD filings and Blue Sky qualifications); and all other
expenses directly incurred by the Company and the Selling Stockholders
in connection with the performance of its obligations hereunder. Any
additional expenses incurred as a result of the sale of the Option
Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of
the expenses and costs which the Selling Stockholders and the Company
hereby agree to pay, but shall not affect any agreement which the
Selling Stockholders and the Company may make, or may have made, for
the sharing of any of such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Stockholders
hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal
which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are not
made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
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<PAGE> 15
(iii) In addition to its other obligations under Section 8(b)
hereof, each Selling Stockholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof relating to such
Selling Stockholder, it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Selling
Stockholder's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the
Selling Stockholders, together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each Selling Stockholder shall promptly return such
payment to the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement payments which
are not made to the Company and each such Selling Stockholder within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii),
5(a)(iii), and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii),
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b), and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder, or any
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<PAGE> 16
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) To the best of such counsel's knowledge, the
Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to
be so qualified or be in good standing would not have a material
adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company. To such
counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other
entity, other than a single wholly-owned subsidiary which is not
a "Significant Subsidiary" (as such term is defined in Regulation
S-X of the Act);
(iv) The authorized, issued and outstanding capital
stock of the Company was as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the
issued and outstanding shares of capital stock of the Company
(including the Selling Stockholder Option Shares) have been duly
and validly issued and are fully paid and nonassessable, and, to
such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, or to the best of such counsel's
knowledge, any co-sale right, registration right, right of first
refusal or other similar right contained in the Company's
Certificate of Incorporation, Bylaws or any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or
other instrument included in the list of documents reviewed by
such counsel;
(v) The Redemption Agreement between the Company and
Hitachi Metals, Ltd., dated October 31, 1995 (the "Redemption
Agreement") and the Recapitalization Agreement between the
Company and each of the Investors listed on Exhibit A thereto
dated
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<PAGE> 17
October 31, 1995 (the "Recapitalization Agreement") and the
consummation of the transactions contemplated thereby were duly
and validly authorized by all necessary corporate actions on the
part of the Company and all necessary consents to and approvals
of the stockholders and directors of the Company to the
Redemption Agreement and Recapitalization Agreement have been
obtained. The execution, delivery and performance of the
Redemption Agreement and Recapitalization Agreement and the
consummation of the transactions therein contemplated by the
Company did not (i) violate any provisions of the Certificate of
Incorporation or Bylaws of the Company, (ii) conflict with,
result in the breach or violation of, or constitute, either by
itself or upon notice or passage of time, or both, a default
under any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument included in the
list of documents reviewed by such counsel or (iii) conflict with
or violate any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to
the Company, or any of its properties, in any such case in a
manner that would have a material adverse effect on the Company;
(vi) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of
this Agreement will be, upon issuance and delivery against
payment therefor in accordance with the terms hereof, and the
Option Shares to be sold by the Selling Stockholders were, at the
time of their issuance, duly authorized and validly issued and
fully paid and nonassessable, and will not be or have not been
issued in violation of or subject to any preemptive right, or to
the best of such counsel's knowledge, any co-sale right,
registration right, right of first refusal or other similar
right;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by
it hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as enforceability of indemnification
and contribution provisions may be limited by applicable law and
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally or by general
equitable principles or limitations on the availability of
equitable remedies;
(ix) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus
(other than the financial statements (including supporting
schedules) and financial and statistical data contained therein
as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form
in all material respects with the requirements of the Act and the
applicable Rules and Regulations (the "Act and Rules");
(xi) The information in the Prospectus under the
caption "Description of Capital Stock" and "Shares Eligible for
Future Sale" to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions to the extent
required under the Act and Rules; and the form of
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<PAGE> 18
certificate evidencing the Common Stock and filed as an exhibit
to the Registration Statement complies with Delaware law;
(xii) The description in the Registration Statement
and the Prospectus of the Certificate of Incorporation and Bylaws
of the Company and of statutes under the caption "Description of
Capital Stock--Delaware Anti-takeover Law and Certain Charter
Provisions is accurate and fairly presents the information
required to be presented by the Act and Rules;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or
referred to therein or filed as required under the Act and Rules;
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification and contribution
obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's
Certificate of Incorporation or Bylaws or (b) to such counsel's
knowledge, result in a material breach or violation of any of the
terms and provisions of, or constitute a default under any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument included in the list of
documents reviewed by such counsel or (c) result in a breach or
violation of, any applicable statute, rule or regulation known to
such counsel, or to such counsel's knowledge, any order, writ or
decree of any court, government or governmental agency or body
having jurisdiction over the Company, or over any of its
properties or operations, the violation or contravention of which
would have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company;
provided, however, that no opinion need be rendered concerning
state securities or blue sky laws or clearance of underwriting
arrangements by the NASD;
(xv) No consent, approval, authorization or order of
or qualification with any court, government or governmental
agency or body having jurisdiction over the Company, or over any
of its properties or operations, is necessary in connection with
the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act
with respect to the Registration Statement being declared
effective or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and
the distribution of the Shares by the Underwriters or under the
rules and regulations of the NASD with respect to the clearance
of the underwriting arrangements;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
the Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules
and Regulations other than those described therein;
(xvii) To such counsel's knowledge, the Company is
not presently in material violation of its Certificate of
Incorporation or Bylaws;
(xviii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus , no holders
of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of
Common Stock or other securities, because of the filing of the
Registration Statement by the Company have, with
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<PAGE> 19
respect to the offering contemplated thereby, waived such rights
or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement;
(xix) The Custody Agreement and Power of Attorney of
each Selling Stockholder has been duly authorized by such Selling
Stockholder and duly executed and delivered by such Selling
Stockholder and constitutes the valid and binding agreement of
such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights and
remedies generally, or by general equitable principles;
(xx) Each of the Selling Stockholders has full
right, power, and authority to enter into and to perform its
obligations under this Agreement and to sell, transfer, assign
and deliver the Option Shares to be sold by such Selling
Stockholder hereunder;
(xxi) This Agreement has been duly authorized by
each Selling Stockholder and has been duly executed and delivered
by or on behalf of each Selling Stockholder; and
(xxii) Upon the delivery of and payment for the
Option Shares as contemplated in this Agreement, each of the
Underwriters will receive valid, marketable title to the Option
Shares purchased by it from each Selling Stockholder, free and
clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest. In rendering such opinion, such counsel
may assume that the Underwriters are without notice of any defect
in the title of any of such Selling Stockholders to the Option
Shares being purchased from such Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and on the Closing
Date and on any later date on which Option Shares are to be purchased, the
Registration Statement (other than the financial statements including supporting
schedules and other financial and statistical information contained therein, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus (other than the
financial statements including supporting schedules and other financial and
statistical information contained therein) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
California or the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company and of government officials, in which case their opinion is to state
that they are so relying. Copies of any opinion, representation or certificate
so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Wilson Sonsini Goodrich & Rosati, P.C., in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
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<PAGE> 20
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Coopers & Lybrand L.L.P. addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Coopers & Lybrand
L.L.P. shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth their opinion with respect to their examination
of the balance sheet of the Company as of March 31, 1994, 1995, and 1996 and the
related statements of operations, statements of stockholders' equity (deficit)
and cash flows for each of the three years in the period ended March 31, 1996,
(iii) state that Coopers & Lybrand L.L.P. has performed the procedures set out
in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of Coopers & Lybrand L.L.P. as
described in SAS 71 on the financial statements for each of the quarters in the
_____-quarter period ended __________, 1996 (the "Quarterly Financial
Statements"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications need
to be made to any of the Quarterly Financial Statements in order for them to be
in compliance with generally accepted accounting principles consistently applied
across the periods presented, and (v) address other matters agreed upon by
Coopers & Lybrand L.L.P. and you. In addition, you shall have received from
Coopers & Lybrand L.L.P. a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of __________, 1996, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
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<PAGE> 21
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery
of such certificate, the Registration Statement and the
Prospectus contained all material information required to be
included therein by the Act and the Rules and Regulations and in
all material respects conformed to the requirements of the Act
and the Rules and Regulations, the Registration Statement did not
and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus did not and does not include any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, and, since the effective
date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company that is material
to the Company, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or
(f) any loss or damage (whether or not insured) to the property
of the Company which has been sustained or will have been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company.
(h) You shall be reasonably satisfied that, and you
shall have received a certificate, dated the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, from the Attorney
for each Selling Stockholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties made by such
Selling Stockholder herein are not true or correct in any
material respect on the Closing Date, or on any later date on
which the Option Shares are to be purchased, as the case may be;
or
(ii) Such Selling Stockholder has not complied with
any obligation or satisfied any condition which is required to be
performed or satisfied on his or its part at or prior to the
Closing Date, or on any later date on which the Option Shares are
to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, each Selling
Stockholder and each beneficial owner of shares of Common Stock identified on
Schedule B in writing prior to the date hereof that such person will not, during
the applicable Lockup Period, effect the Disposition of any Securities now owned
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than (i)
the sale of Option Shares by the Selling Stockholders hereunder, (ii) as to any
individual, during his or her lifetime or upon death, by gift, will or
intestacy, to his or her immediate family or to a trust the beneficiaries of
which are exclusively such person and/or a member or members of his or her
immediate family; provided any donee or transferee thereof agree in writing to
be bound by this restriction, (iii) as a distribution to partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iv) pursuant to the
exercise of registration rights under the Company's Investor Rights Agreement
dated November 30, 1995 for a firm commitment underwritten public offering on or
after the fourth (4th) day
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<PAGE> 22
after the public release of the Company's financials for the quarter ended
September 30, 1996, or (v) with the prior written consent of Robertson, Stephens
& Company LLC. The foregoing restriction shall have been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lockup Period, even if such Securities
would be disposed of by someone other than the such holder. Such prohibited
hedging or other transactions would including, without limitation, any short
sale (whether or not against the box) or any purchase, sale or grant of any
right (including, without limitation, any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will have also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction.
(j) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders, or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person)) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Stockholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, (i) the Company hereby grants, severally and not jointly, to the several
Underwriters, for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of _____ Company Option Shares at the purchase price
per share for the Firm Shares set forth in Section 3 hereof and (ii) the Selling
Stockholders hereby grant, severally and not jointly, to the several
Underwriters, for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of _____ Selling Stockholder Option Shares at the
purchase price per share for the Firm Shares set forth in Section 3 hereof. Such
options may be exercised by the Representatives on behalf of the several
Underwriters on no more than two (2) occasions, in whole or in part, during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company and the Selling
Stockholders, respectively. The number of Option Shares to be purchased by each
Underwriter upon the exercise of such options shall be the same proportion of
the total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such options as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid fractional
shares.
The certificates in negotiable form for the Selling
Stockholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Stockholder agrees that the
certificates for the Selling Stockholder Shares of such Selling Stockholder so
held in custody are subject to the interests of the Underwriters hereunder, that
the arrangements made by such Selling Stockholder for such custody, including
the Power of Attorney is to that extent irrevocable and that the obligations of
such Selling Stockholder hereunder shall not be terminated by any act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of such Selling Stockholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Stockholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Selling Stockholder
Shares hereunder, the Selling Stockholder Shares to be sold by such Selling
Stockholder shall, except as specifically provided herein or in the
-22-
<PAGE> 23
Custody Agreement, be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other event had
not occurred, regardless of whether the Custodian shall have received notice of
such death or other event.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the options
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of same-day funds paid to
an account designated by the Company with regard to the Company Option Shares
being purchased, and to the order of the Attorneys for the respective accounts
of the Selling Stockholders with regard to the Selling Stockholder Option Shares
being purchased. Such delivery and payment shall take place at the offices of
Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, 4th Floor, Palo
Alto, California 94306 or at such other place as may be agreed upon among the
Representatives, the Company and the Attorneys (i) on the Closing Date, if
written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company receives written notice of the exercise of such option, if such
notice is received by the Company less than two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company and
officers of the Company and the Selling Stockholders made pursuant to the
provisions hereof, to the performance by the Company of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Stockholders or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the
-23-
<PAGE> 24
Prospectus, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, provided further, that
the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Subject to the limitations set forth in Section 8(f)
hereof, each Selling Stockholder, severally and not jointly, agrees to indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities related to negligence on the part of any
Underwriter, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained or any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished by such Selling
Stockholder to the Company or any Underwriter, directly or through such Selling
Stockholder's representatives, specifically for inclusion therein; and each
Selling Stockholder, severally and not jointly, further agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that such Selling Stockholder shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to the
Company by any Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 8(b) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, charges, liabilities or litigation based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected has not been sent or given to such person within the time
required by the Act and the Rules and Regulations thereunder, unless such
failure is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of each person,
if any, who controls any Underwriter within the meaning
-24-
<PAGE> 25
of the Act. This indemnity agreement shall be in addition to any liabilities
which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
each Selling Stockholder, and each person, if any, who controls the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b), or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party,
-25-
<PAGE> 26
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters, severally and not jointly, are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations and warranties contained herein and under the indemnity
agreements contained in the provisions of this Section 8 shall be limited to an
amount equal to the price paid by the Underwriters for the Option Shares to be
sold by such Selling Stockholder hereunder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders, and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Stockholder or any of their officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and shall survive the delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
-26-
<PAGE> 27
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, and the other
Underwriters for damages, if any, resulting from such default) be liable to the
Company or any Selling Stockholder (except to the extent provided in Sections 5
and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(j), 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change
-27-
<PAGE> 28
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse,
or (ii) if additional material governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established on
the New York Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall have been
suspended on either such exchange or in the over the counter market by the NASD,
or if a banking moratorium shall have been declared by federal, New York or
California authorities, or (iii) if the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
to interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company and the Selling
Stockholders shall remain obligated to pay costs and expenses pursuant to
Sections 4(j), 4(i), 5 and 8 hereof. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party to
any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to HMT Technology Corporation, 1055 Page
Avenue, Fremont, California 94538, telecopier number (510) 490-3100, Attention:
Peter S. Norris, Chief Financial Officer, with a copy to Cooley Godward Castro
Huddleson & Tatum, 5 Palo Alto Square, 3000 El Camino Real, Palo Alto,
California 94306, Telecopier Number (415) 857-0663, Attention: James C. Kitch;
if sent to one or more of the Selling Stockholders, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to ____________________________, as Attorney-in-Fact for the Selling
Stockholders at ____________________________.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company, and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Robertson, Stephens & Company LLC on behalf of you.
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<PAGE> 29
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 30
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders, and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Stockholders, and the several Underwriters.
Very truly yours,
HMT TECHNOLOGY CORPORATION
By:
----------------------
Its:
----------------------
[SELLING STOCKHOLDERS]
By:
----------------------
(Attorney-in-Fact)
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
ALEX. BROWN & SONS INCORPORATED
SALOMON BROTHERS INC
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP,
LLC
By:
----------------------
Its:
----------------------
UNDERWRITING AGREEMENT SIGNATURE PAGE
<PAGE> 31
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm-Shares
To Be
Underwriters Purchased
------------ ---------
<S> <C>
Robertson, Stephens & Company LLC...................
Alex. Brown & Sons Incorporated.....................
Salomon Brothers Inc................................
Hambrecht & Quist LLC...............................
Total..........................................
</TABLE>
<PAGE> 32
SCHEDULE B
<TABLE>
<CAPTION>
NAME OR GROUP PERIOD
------------- ------
<S> <C>
Officers and Directors The fourth (4th) day after the public release of the Company's financials
for the quarter ended September 30, 1996.
Kamran Honardoost The fourth (4th) day after the public release of the Company's financials
for the quarter ended September 30, 1996.
Joseph Haefele The fourth (4th) day after the public release of the Company's financials
for the quarter ended September 30, 1996.
Phyllis Ziakis The fourth (4th) day after the public release of the Company's financials
for the quarter ended September 30, 1996.
Richard Wilkerson The fourth (4th) day after the public release of the Company's financials
for the quarter ended September 30, 1996.
Summit Ventures III, L.P. March 13, 1997
Summit Ventures IV, L.P. March 13, 1997
Summit Investors II, L.P. March 13, 1997
Summit Subordinated Debt Fund, L.P. March 13, 1997
Crossroads DPT Limited Partnership March 13, 1997
Crossroads SF Limited Partnership March 13, 1997
Crossroads Capital II Limited Partnership March 13, 1997
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
Mellon Bank, N.A., custodian for Chancellor March 13, 1997
Capital Management, Inc. under agreement
dated November 23, 1982 with Chancellor
Venture Capital II, L.P.
Northpass & Co., custodian for KME Venture March 13, 1997
III, L.P., at the direction of
Chancellor Capital Management, Inc.,
Investment Manager
Drake & Co. for the account of Citiventure III March 13, 1997
Michael A. Wall March 13, 1997
Evermore Corporation March 13, 1997
Wong Chiu Yee, Carol March 13, 1997
Wong Shun Yee, Shirley March 13, 1997
Wong Wai Yee, Sophia March 13, 1997
Wong Yuk Yee, Claire March 13, 1997
Paribas North America, Inc. March 13, 1997
BancBoston Investment Inc. March 13, 1997
Hitachi Metals, Ltd. March 13, 1997
</TABLE>
<PAGE> 34
SCHEDULE C
<TABLE>
Number of
Company Shares
Company To Be Sold
------- ----------
<S> <C>
TOTAL:.........................................
Number of
Option Shares
[Names of Selling Stockholders] To Be Sold
------------------------------- ----------
<S> <C>
TOTAL:.........................................
</TABLE>
<PAGE> 1
EXHIBIT 1.2
$150,000,000(1)
HMT TECHNOLOGY CORPORATION
___% CONVERTIBLE SUBORDINATED NOTES DUE 2003
UNDERWRITING AGREEMENT
June _, 1996
ROBERTSON, STEPHENS & COMPANY LLC
ALEX. BROWN & SONS INCORPORATED
SALOMON BROTHERS INC
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
HMT Technology Corporation, a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. Description of Notes. The Company proposes to issue and sell
to the several Underwriters an aggregate of $150,000,000 principal amount of
___% Convertible Subordinated Notes due 2003 (the "Firm Notes"). The Company
also proposes to grant to the Underwriters an option to purchase up to an
aggregate of an additional $22,500,000 principal amount of ___% Convertible
Subordinated Notes due 2003 (the "Option Notes"), as provided in Section 7
hereof. As used in this Agreement, the term "Notes" shall include the Firm
Notes and the Option Notes. The Notes are to be issued under an Indenture to
be dated as of June __, 1996, by and between the Company and _____________, as
Trustee (the "Indenture"), pursuant to which the Notes will be convertible at
the option of the holders, into the Company's Common Stock, par value $0.001
per share (the "Common Stock"). The Notes and the shares of Common Stock into
which the Notes are convertible are herein collectively called the
"Securities."
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No.
__________) with respect to the Securities, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and
__________________________________
(1) Plus an option to purchase up to an aggregate of an additional
$22,500,000 principal amount of ___% Convertible Subordinated Notes due
2003 from the Company to cover over-allotments, if any.
<PAGE> 2
Exchange Commission (the "Commission") under the Act and has been filed with
the Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and
such abbreviated registration statements as may hereafter be required. Copies
of such registration statement and amendments, of each related prospectus
subject to completion (the "Preliminary Prospectuses") and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
have been delivered to you.
If the registration statement relating to the
Securities has been declared effective under the Act by the Commission, the
Company will prepare and promptly file with the Commission the information
omitted from the registration statement pursuant to Rule 430A(a) pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final form
of prospectus). If the registration statement relating to the Securities has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus, or, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term
sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits (other than in the Statement of Eligibility and Qualification of the
Trustee on Form T-1), in the form in which it became or becomes, as the case
may be, effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) or files a term sheet pursuant
to Rule 434 of the Rules and Regulations, the information deemed to be a part
of the registration statement at the time it became effective pursuant to Rule
430A(b) or Rule 434(d) of the Rules and Regulations) and, in the event of any
amendment thereto or the filing of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the
effective date of such registration statement, shall also mean (from and after
the effectiveness of such amendment or the filing of such abbreviated
registration statement) such registration statement as so amended, together
with any such abbreviated registration statement. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Securities as
included in such Registration Statement at the time it becomes effective
(including, if the Company omitted information from the Registration Statement
pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed
to be a part of the Registration Statement at the time it became effective
pursuant to Rule 430A(b) of the Rules and Regulations or, if an abbreviated
registration statement is filed pursuant to Rule 462(b) of the Rules and
Regulations, at the time such abbreviated registration statement becomes
effective); provided, however, that if in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject
to completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Securities (including the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Securities that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. If
in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under
-2-
<PAGE> 3
which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Notes are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will conform in all
material respects to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or the Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof. The Indenture
complies as to form in all material respects with the requirements of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules
and regulations thereunder, and, on the effective date of the Registration
Statement, will be duly qualified under the Trust Indenture Act.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full power and authority (corporate and other) to own, lease and
operate its properties and conduct its business as described in the Prospectus;
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; to the best of the
Company's knowledge, no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to its business as defined in the
Registration Statement and the Prospectus, all of which are valid and in full
force and effect; the Company is not in violation of its respective Certificate
of Incorporation or Bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or any of its properties may be bound; and the Company is not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity, other
than a single wholly-owned subsidiary which is not a "Significant Subsidiary"
(as such term is defined in Regulation S-X of the Act).
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or
by general equitable principles or limitations on availability of equitable
remedies; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which it or its properties may be bound, (ii) the Certificate of Incorporation
or Bylaws of the Company or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Act with respect to the Registration Statement being declared effective which
has been satisfied as of the date hereof or under state or other securities
-3-
<PAGE> 4
or Blue Sky laws, or under the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") with respect to the clearance
of the underwriting arrangements, or under the Trust Indenture Act.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or
properties or otherwise which (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or might materially and adversely affect its
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations which have not been accurately described in
all material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company was as set forth in the
Prospectus under the caption "Capitalization" as of the date indicated and
conforms in all material respects to the statements relating thereto contained
in the Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the shares of Common Stock issuable upon conversion of the Notes have
been duly authorized and reserved for issuance upon conversion of the Notes
and, when issued and delivered by the Company upon such conversion, will be
duly and validly issued and fully paid and nonassessable; and no preemptive
right, co-sale right, registration right, right of first refusal or other
similar right of stockholders exists with respect to any of such shares of
Common Stock or the issuance and sale thereof. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Securities
except as may be required under the Act, the Exchange Act or under state or
other securities or Blue Sky laws or rules and regulations of the NASD. Except
as disclosed in the Prospectus, and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus, accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) The Indenture has been duly authorized by all
necessary corporate action on the part of the Company and, when executed and
delivered by the Company in accordance with its terms (assuming the due
execution and delivery thereof by the Trustee), will be a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that a waiver of rights under any usury
laws may be unenforceable and except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar laws, now or hereafter in effect, relating to or affecting creditors'
rights and remedies generally, or by general equitable principles. The Notes
have been duly authorized by all necessary corporate action on the part of the
Company and on the Closing Date, the Indenture and the Notes will have been
duly executed by the Company and will conform in all material respects to the
descriptions thereof in the Prospectus. When the Notes are issued, executed
and authenticated in accordance with the Indenture and paid for in accordance
with the terms of this Agreement, the Notes will be legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms and entitled to the benefits of the Indenture, except to the extent
that a waiver of rights under any usury laws may be unenforceable and except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies generally, or by
general equitable principles.
(h) The Redemption Agreement between the Company and
Hitachi Metals, Ltd., dated October 31, 1995 (the "Redemption Agreement") and
the Recapitalization Agreement between the Company and each of the Investors
listed on Exhibit A thereto dated October 31, 1995 (the "Recapitalization
Agreement") and the consummation of the transactions contemplated thereby were
duly and validly authorized by all necessary corporate actions on the part of
each of the respective
-4-
<PAGE> 5
parties thereto, pursuant to the provisions of the applicable Certificate of
Incorporation, Bylaws and other organizational documents of each party thereto
that is a corporation and applicable law; and all necessary consents and
approvals to the Redemption Agreement and Recapitalization Agreement have been
obtained. The execution, delivery and performance of the Redemption Agreement
and Recapitalization Agreement and the consummation of the transactions therein
contemplated did not (i) violate any provisions of the Certificate of
Incorporation or Bylaws of the Company, (ii) conflict with, result in the
breach or violation of, or constitute, either by itself or upon notice or
passage of time, or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to
which the Company was a party or by which the Company or any of its properties
was bound or affected or (iii) conflict with or violate any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company, or any of its properties, in any such case in a manner that would
have a material adverse effect on the Company.
(i) Coopers & Lybrand L.L.P., which has examined the
financial statements of the Company, together with the related schedules and
notes, for each of the years in the three (3) years ended March 31, 1994, 1995,
and 1996 filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are, to the best of the Company's
knowledge, independent accountants within the meaning of the Act and the Rules
and Regulations; the audited financial statements of the Company, together with
the related schedules and notes, and the unaudited financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and all
audited financial statements of the Company, together with the related
schedules and notes, and the unaudited financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to
be included in the Registration Statement.
(j) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (ii) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock (except issuances pursuant to the
Company's presently authorized 1995 Management Stock Option Plan, 1995 Stock
Option Plan, Employee Stock Purchase Plan, 1996 Equity Incentive Plan and 1996
Non-Employee Directors' Stock Option Plan (the "Company Stock Plans")) or
outstanding indebtedness of the Company that is material to the Company, (v)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company, or (vi) any loss or damage (whether or not insured) to
the property of the Company which has been sustained or will have been
sustained which has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(k) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is
a party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements and (iii) the Company has valid
and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration
Statement and Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as currently proposed to be
conducted.
(l) The Company has timely filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
shown thereon as due, and there is no tax deficiency that has been or, to the
best of the Company's
-5-
<PAGE> 6
knowledge, might be asserted against the Company that might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; and all tax liabilities are
adequately provided for on the books of the Company.
(m) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(n) To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or customers that might be expected
to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(o) The Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company; the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights
of the Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights;
and the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(p) The Common Stock is registered pursuant to Section
12(g) of the Act and is quoted on The Nasdaq National Market, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Act or delisting the Common
Stock from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(q) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(r) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Notes are to be purchased, as the case may be, and (ii) completion of
the distribution of the Securities, any offering material in connection with
the offering and sale of the Securities other than any Preliminary
Prospectuses, the Prospectus, the Registration Statement and other materials,
if any, permitted by the Act.
(s) The Company has at no time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
-6-
<PAGE> 7
(t) Each officer and director of the Company and each of
the beneficial owners of shares of Common Stock identified on Schedule B
attached hereto has agreed in writing that such person will not, for the
applicable period set forth on Schedule B (as applicable, the "Lockup Period"),
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common Stock
(collectively, "Lockup Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) the sale of up to _______ shares of
Common Stock by certain stockholders of the Company contemplated by the
Prospectus, (ii) as to any individual, during his or her lifetime or upon
death, by gift, will or intestacy, to his or her immediate family or to a trust
the beneficiaries of which are exclusively such person and/or a member or
members of his or her immediate family; provided any donee or transferee
thereof agree in writing to be bound by this restriction, (iii) as a
distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iv) pursuant to the exercise of registration rights under the
Company's Investor Rights Agreement dated November 30, 1995 for a firm
commitment underwritten public offering on or after the fourth (4th) day after
the public release of the Company's financials for the quarter ended September
30, 1996, or (v) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction has been expressly agreed to preclude
the holder of the Lockup Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Lockup Securities during the Lockup Period, even if such
Lockup Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Lockup Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Lockup Securities. Furthermore, each such
person has also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Lockup Securities
held by such person except in compliance with this restriction. The Company
has provided to counsel for the Underwriters a complete and accurate list of
all securityholders of the Company and the number and type of securities held
by each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions (the "Lockup Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any Lockup
Agreements currently existing or hereafter effected without the prior written
consent of Robertson, Stephens & Company LLC.
(u) Except as set forth in the Registration Statement and
Prospectus , (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, except where the failure to be in
compliance would not have a material adverse effect on the condition (financial
or otherwise), earnings operations or business of the Company (ii) the Company
has received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus , (iii) the Company
is not aware of any facts which would require it to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local
law.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
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<PAGE> 8
(x) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Firm Notes. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to the Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of ___% of the principal amount
thereof, Firm Notes in the respective principal amount as hereinafter set
forth. The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of Firm Notes which is set forth opposite the name
of such Underwriter in Schedule A hereto (subject to adjustment as provided in
Section 10).
Delivery of the Firm Notes to be purchased by the Underwriters
pursuant to this Section 3 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of same-day funds paid to
an account designated by the Company at the offices of Cooley Godward Castro
Huddleson & Tatum, Five Palo Alto Square, 4th Floor, Palo Alto, California
94306 (or at such other place as may be agreed upon among the Representatives
and the Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that Securities are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is
executed and delivered or (c) at such other time and date not later than seven
(7) full business days following the first day that Securities are traded as
the Representatives and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available
to the Representatives copies of the Prospectus within the time provided in
Section 4(d) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives. The
Firm Notes to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the
Closing Date. If the Representatives so elect, delivery of the Firm Notes may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Notes to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make a public offering (as such term is
described in Section 11 hereof) of the Firm Notes as set forth in the
Prospectus. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus,
the Prospectus or the Registration Statement and you, on behalf of the
respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the
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<PAGE> 9
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission or as part of an abbreviated registration statement
filed pursuant to Rule 462(b) which is declared effective by the Commission; if
the Company files a term sheet pursuant to Rule 434 of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the
time period prescribed; it will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of Wilson Sonsini
Goodrich & Rosati, counsel for the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution of
the Securities by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other prospectus
relating to the Securities as then in effect would include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; in case any Underwriter is required to deliver a prospectus
nine (9) months or more after the effective date of the Registration Statement
in connection with the sale of the Securities, it will prepare promptly upon
request, but at the expense of such Underwriter, such amendment or amendments
to the Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act; and it will file no amendment or supplement to the Registration Statement
or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement or
of the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Securities, except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction in which it
is not otherwise required to be so qualified or to so execute a general consent
to service of process. In each jurisdiction in which the Securities shall have
been qualified as above provided, the Company will make and file such
statements and reports in each year as are or may be required by the laws of
such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Securities are traded, copies of the
Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
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<PAGE> 10
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company and balance sheets for
each of the first three (3) quarters in the form furnished to the Company's
stockholders, (ii) concurrently with furnishing to its stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or
report thereon of independent certified public accountants, (iii) as soon as
they are available, copies of all reports (financial or other) mailed to
stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by the Company, and (vi) any additional
information of a public nature concerning the Company, or its business which
you may reasonably request.
(g) The Company will apply the net proceeds from the sale
of the Notes being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i),
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred
by the Underwriters in investigating, or preparing to market or marketing the
Securities.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lockup Period, the Company will not, until
the fourth (4th) day after the public release of the Company's financials for
the quarter ended September 30, 1996, without theprior written consent of
Robertson Stephens & Company LLC, effect the Disposition of, directly or
indirectly, any Lockup Securities other than the issuance of shares of
Common Stock upon conversion of the Notes, the sale of certain shares of
Common Stock by the Company contemplated by the Registration Statement
and the Prospectus, the Company's grant of options or issuance of
Common Stock under the Company Stock Plans and upon exercise of warrants to
purchase Common Stock described in the Registration Statement and the
Prospectus.
5. Expenses.
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<PAGE> 11
(a) The Company agrees with each Underwriter that the
Company will pay and bear all costs and expenses in connection with the
preparation, printing and filing of the Registration Statement (including
financial statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Notes hereunder to
the several Underwriters, including transfer taxes, if any, the cost of
printing and engraving the Notes and Trustee's fees, note registrar's fees and
similar fees; the fees and disbursements of counsel for the Company; all fees
and other charges of the Company's independent certified public accountants;
the cost of furnishing to the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and the
Prospectus, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Securities under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder.
(b) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(c) In addition to their other obligations under Section
8(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof, they will
reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(d) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 5(b)
and 5(c) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections 5(b)
and 5(c) hereof and will not resolve the ultimate propriety or enforceability
of the obligation to indemnify for expenses which is created by the provisions
of Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Notes as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on
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<PAGE> 12
which Option Notes are to be purchased, as the case may be, of the
representations and warranties of the Company herein, to the performance by the
Company of its respective obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the Indenture, the form of Registration
Statement and the Prospectus, and the registration, authorization, issue, sale
and delivery of the Securities, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Notes are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Notes as contemplated by
the Prospectus.
(d) You shall have received on the Closing Date and on
any later date on which Option Notes are to be purchased, as the case may be,
the following opinion of counsel for the Company, dated the Closing Date or
such later date on which Option Notes are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority
to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) To the best of such counsel's knowledge, the
Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if
any, in which the ownership or leasing of its properties or
the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any
corporation, association or other entity, other than a single
wholly-owned subsidiary which is not a "Significant
Subsidiary" (as such term is defined in Regulation S-X of the
Act);
(iv) The authorized, issued and outstanding capital
stock of the Company was as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein,
the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not
been issued in violation of or subject to any preemptive
right, or to the best of such counsel's knowledge, any co-sale
right, registration right, right of first refusal or other
similar right contained in the Company's Certificate of
Incorporation, Bylaws or any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other
instrument included in the list of documents reviewed by such
counsel;
(v) The Redemption Agreement between the Company and
Hitachi Metals, Ltd., dated October 31, 1995 (the "Redemption
Agreement") and the Recapitalization Agreement between the
Company and each of
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<PAGE> 13
the Investors listed on Exhibit A thereto dated October 31,
1995 (the "Recapitalization Agreement") and the consummation
of the transactions contemplated thereby were duly and validly
authorized by all necessary corporate actions on the part of
the Company and all necessary consents to and approvals of the
stockholders and directors of the Company to the Redemption
Agreement and Recapitalization Agreement have been obtained.
The execution, delivery and performance of the Redemption
Agreement and Recapitalization Agreement and the consummation
of the transactions therein contemplated by the Company did
not (i) violate any provisions of the Certificate of
Incorporation or Bylaws of the Company, (ii) conflict with,
result in the breach or violation of, or constitute, either by
itself or upon notice or passage of time, or both, a default
under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument
included in the list of documents reviewed by such counsel or
(iii) conflict with or violate any statute or any
authorization, judgment, decree, order, rule or regulation of
any court or any regulatory body, administrative agency or
other governmental body applicable to the Company, or any of
its properties, in any such case in a manner that would have a
material adverse effect on the Company;
(vi) The shares of Common Stock issuable upon
conversion of the Notes have been duly authorized and reserved
for issuance upon conversion of the Notes and will be, when
issued and delivered upon conversion, validly issued and fully
paid and nonassessable, and not subject to any preemptive or
other similar right;
(vii) The Company has the corporate power and authority
to enter into this Agreement and the Indenture and to issue,
sell and deliver to the Securities;
(viii) This Agreement and the Indenture have been duly
authorized by all necessary corporate action on the part of
the Company and have been duly executed and delivered by the
Company and, assuming due authorization, execution and
delivery by you, are valid and binding agreements of the
Company, enforceable in accordance with their terms, except
insofar as enforceability of indemnification and contribution
provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable
principles or limitations on the availability of equitable
remedies;
(ix) The Notes have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and,
when issued, executed and authenticated in accordance with the
terms of the Indenture and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement,
will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture, enforceable against
the Company in accordance with their terms, except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally, or by
general equitable principles;
(x) The Indenture complies as to form in all material
respects with the Trust Indenture Act and the rules and
regulations thereunder and, on the effective date of the
Registration Statement, will be duly qualified under the Trust
Indenture Act;
(xi) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(xii) The Registration Statement and the Prospectus
(other than the financial statements (including supporting
schedules) and financial and statistical data contained
therein as to which such counsel need express no opinion), as
of the effective date of the Registration Statement, complied
as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations (the "Act and
Rules");
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<PAGE> 14
(xiii) The terms and provisions of the capital stock of
the Company, the Notes, and the Indenture conform in all
material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus;
(xiv) The information in the Prospectus under the
captions "Description of Capital Stock," "Shares Eligible for
Future Sale," and "Description of the Notes" to the extent
that it constitutes matters of law or legal conclusions, has
been reviewed by such counsel and is a fair summary of such
matters and conclusions to the extent required under the Act
and Rules; and the form of certificate evidencing the Common
Stock and filed as an exhibit to the Registration Statement
complies with Delaware law;
(xv) The description in the Registration Statement and
the Prospectus of the Certificate of Incorporation and Bylaws
of the Company and of statutes under the caption "Description
of Capital Stock--Delaware Anti-takeover Law and Certain
Charter Provisions is accurate and fairly presents the
information required to be presented by the Act and Rules;
(xvi) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the
Company is a party of a character required to be described or
referred to in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which are
not described or referred to therein or filed as required
under the Act and Rules;
(xvii) The performance of this Agreement and the
Indenture and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed) will not (a)
result in any violation of the Company's Certificate of
Incorporation or Bylaws or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms
and provisions of, or constitute a default under any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument included in the list of
documents reviewed by such counsel or (c) result in a breach
or violation of, any applicable statute, rule or regulation
known to such counsel, or to such counsel's knowledge, any
order, writ or decree of any court, government or governmental
agency or body having jurisdiction over the Company, or over
any of its properties or operations, the violation or
contravention of which would have a material adverse effect on
the condition (financial or otherwise), earnings, operations
or business of the Company; provided, however, that no opinion
need be rendered concerning state securities or blue sky laws
or clearance of underwriting arrangements by the NASD;
(xviii) No consent, approval, authorization or order of
or qualification with any court, government or governmental
agency or body having jurisdiction over the Company, or over
any of its properties or operations, is necessary in
connection with the consummation by the Company of the
transactions herein contemplated, except such as have been
obtained under the Act with respect to the Registration
Statement being declared effective or such as may be required
under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Securities by
the Underwriters or under the rules and regulations of the
NASD with respect to the clearance of the underwriting
arrangements;
(xix) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the
Rules and Regulations other than those described therein;
(xx) To such counsel's knowledge, the Company is not
presently in material violation of its Certificate of
Incorporation or Bylaws; and
(xxi) To such counsel's knowledge, except as set forth
in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have
registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of
Common
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<PAGE> 15
Stock or other securities, because of the filing of the
Registration Statement by the Company have, with respect to
the offering contemplated thereby, waived such rights or such
rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and on the
Closing Date and on any later date on which Option Notes are to be purchased,
the Registration Statement (other than the financial statements including
supporting schedules and other financial and statistical information contained
therein, as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
at the Closing Date or any later date on which the Option Notes are to be
purchased, as the case may be, the Registration Statement, the Prospectus
(other than the financial statements including supporting schedules and other
financial and statistical information contained therein) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
______________ or the State of Delaware upon opinions of local counsel, and as
to questions of fact upon representations or certificates of officers of the
Company and of government officials, in which case their opinion is to state
that they are so relying. Copies of any opinion, representation or certificate
so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on
any later date on which Option Notes are to be purchased, as the case may be,
an opinion of Wilson Sonsini Goodrich & Rosati, P.C., in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on
any later date on which Option Notes are to be purchased, as the case may be, a
letter from Coopers & Lybrand L.L.P. addressed to the Underwriters, dated the
Closing Date or such later date on which Option Notes are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Notes are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date
on which Option Notes are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Securities as contemplated by the Prospectus. The Original Letter from Coopers
& Lybrand L.L.P. shall be addressed to or for the use of the Underwriters in
form and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the balance sheet of the Company as of March 31, 1994,
1995, and 1996 and the related statements of operations, statements of
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended March 31, 1996, (iii) state that Coopers & Lybrand L.L.P. has
performed the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and providing the
report of Coopers & Lybrand L.L.P. as described in SAS 71 on the financial
statements for each of the quarters in the_____-quarter period ended_________,
1996 (the "Quarterly Financial Statements"), (iv) state that in the course of
such review, nothing
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<PAGE> 16
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting
principles consistently applied across the periods presented, and (v) address
other matters agreed upon by Coopers & Lybrand L.L.P. and you. In addition,
you shall have received from Coopers & Lybrand L.L.P. a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as of __________, 1996, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on
any later date on which Option Notes are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Notes are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Notes
are to be purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option
Notes are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became effective
and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus
contained all material information required to be included
therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and
the Rules and Regulations, the Registration Statement did not
and does not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading,
the Prospectus did not and does not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended
or supplemented Prospectus which has not been so set forth;
and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change
in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (b)
any transaction that is material to the Company, except
transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to
the Company, incurred by the Company, except obligations
incurred in the ordinary course of business, (d) any change in
the capital stock or outstanding indebtedness of the Company
that is material to the Company, (e) any dividend or
distribution of any kind declared, paid or made on the capital
stock of the Company, or (f) any loss or damage (whether or
not insured) to the property of the Company which has been
sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the
Company.
(h) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, and each beneficial
owner of shares of Common Stock identified on Schedule B in writing prior to
the date hereof that such person will not, during the applicable Lockup Period,
effect the Disposition of any Lockup Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) the sale of up to
_________ shares of Common Stock by certain stockholders of the Company
contemplated by the Prospectus, (ii) as to any individual, during his or her
lifetime or upon death, by gift, will or intestacy, to his or her immediate
family or to a trust the beneficiaries of which are exclusively such person
and/or a member or members of his or her immediate family; provided any donee
or transferee thereof agree in writing to be bound by this restriction, (iii)
as a distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the
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<PAGE> 17
terms of this restriction, (iv) pursuant to the exercise of registration rights
under the Company's Investor Rights Agreement dated November 30, 1995 for a
firm commitment underwritten public offering on or after the fourth (4th) day
after the public release of the Company's financials for the quarter ended
September 30, 1996, or (v) with the prior written consent of Robertson,
Stephens & Company LLC. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Lockup Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Lockup Securities during the Lockup
Period, even if such Lockup Securities would be disposed of by someone other
than the such holder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Lockup Securities or with respect to
any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Lockup Securities.
Furthermore, such person will have also agreed and consented to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Lockup Securities held by such person except in compliance with
this restriction.
(i) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with such
number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. Option Notes.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Notes only, a nontransferable option to purchase, at the purchase price
per Note for the Firm Notes set forth in Section 3 hereof, $22,500,000
aggregate principal amount of Option Notes. Such option may be exercised by
the Representatives on behalf of the several Underwriters on no more than two
(2) occasions, in whole or in part, during the period of thirty (30) days after
the date on which the Firm Notes are initially offered to the public, by giving
written notice to the Company. The principal amount of Option Notes to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total principal amount of Option Notes to be purchased
by the several Underwriters pursuant to the exercise of such option as the
principal amount of Firm Notes purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total principal amount of Firm Notes purchased
by the several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid Notes of less than $1,000 in
principal amount.
Delivery of the Option Notes to be purchased by the several
Underwriters pursuant to the exercise of the option granted by this Section 7
shall be made against payment of the purchase price therefor by the several
Underwriters by wire transfer of same-day funds paid to an account designated
by the Company. Such delivery and payment shall take place at the offices of
Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, 4th Floor, Palo
Alto, California 94306 or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The Option Notes to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the date of payment and delivery and will be in such
names and denominations as you may request, such request to be made at least
two (2) full business days prior to such date of payment and delivery. If the
Representatives so elect, delivery of the Option Notes may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
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<PAGE> 18
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Notes to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such
Option Notes will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Notes) to the accuracy of and compliance
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Notes shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of
the representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of the Company herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
or the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, provided further,
that the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Notes,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, to which the Company may become subject under
the Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of such Underwriter herein contained, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus, or the
omission or alleged omission to state therein a material fact necessary to make
the statements therein,
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<PAGE> 19
in the light of the circumstances under which they were made, not misleading,
in the case of subparagraphs (ii) and (iii) of this Section 8(b) to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by such Underwriter, directly
or through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the Underwriters severally and not jointly are responsible
pro rata for the portion represented by the percentage that the underwriting
discount bears to the initial public offering price, and the Company is
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Notes purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter, the Company within the
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<PAGE> 20
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Notes to the several Underwriters hereunder or termination of
this Agreement.
10. Substitution of Underwriters. If any Underwriter or
Underwriters shall fail to take up and pay for the principal amount of Firm
Notes agreed by such Underwriter or Underwriters to be purchased hereunder upon
tender of such Firm Notes in accordance with the terms hereof, and if the
aggregate principal amount of Firm Notes which such defaulting Underwriter or
Underwriters so agreed but failed to purchase does not exceed 10% of the
aggregate principal amount of Firm Notes, the remaining Underwriters shall be
obligated, severally in proportion to their respective commitments hereunder,
to take up and pay for the Firm Notes of such defaulting Underwriter or
Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate principal amount of Firm Notes which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the
aggregate principal amount of Firm Notes, the remaining Underwriters shall have
the right, but shall not be obligated, to take up and pay for (in such
proportions as may be agreed upon among them) the Firm Notes which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If
such remaining Underwriters do not, at the Closing Date, take up and pay for
the Firm Notes which the defaulting Underwriter or Underwriters so agreed but
failed to purchase, the Closing Date shall be postponed for twenty-four (24)
hours to allow the several Underwriters the privilege of substituting within
twenty-four (24) hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24)
hours, if necessary, to allow the Company the privilege of finding another
underwriter or underwriters, satisfactory to you, to purchase the Firm Notes
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Notes of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the
Prospectus or other such documents which may thereby be made necessary, and
(ii) the respective principal amount of Firm Notes to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Notes so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm Notes
as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company shall be liable
to any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall
any Underwriter (other than an Underwriter who shall have failed, otherwise
than for some reason permitted under this Agreement, to purchase the principal
amount of Firm Notes agreed by such Underwriter to be purchased hereunder,
which Underwriter shall remain liable to the Company, and the other
Underwriters for damages, if any, resulting from such default) be liable to the
Company (except to the extent provided in Sections 5 and 8 hereof).
-20-
<PAGE> 21
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
public offering of any of the Securities by the Underwriters after the
Registration Statement becomes effective. The time of the public offering
shall mean the time of the release by you, for publication, of the first
newspaper advertisement relating to the Securities, or the time at which the
Securities are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement becomes
effective, you, as Representatives of the several Underwriters, or the Company,
may prevent this Agreement from becoming effective without liability of any
party to any other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Notes are to be purchased, as the case
may be, (i) if the Company shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse, or (ii) if additional
material governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on
either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes
it inadvisable or impracticable to proceed with the offering, sale and delivery
of the Securities, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Securities as contemplated by the Prospectus. In
the event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party except as
provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to HMT Technology Corporation, 1055
Page Avenue, Fremont, California 94538, telecopier number (510) 490-3100,
Attention: Peter S. Norris, Chief Financial Officer, with a copy to Cooley
Godward Castro Huddleson & Tatum, 5 Palo Alto Square, 3000 El Camino Real, Palo
Alto, California 94306, Telecopier Number (415) 857-0663, Attention: James C.
Kitch
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective
-21-
<PAGE> 22
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective
executors, administrators, successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
entity. No purchaser of any of the Securities from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you
shall act on behalf of each of the several Underwriters, and the Company shall
be entitled to act and rely upon any statement, request, notice or agreement
made or given by you jointly or by Robertson, Stephens & Company LLC on behalf
of you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
-22-
<PAGE> 23
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
HMT TECHNOLOGY CORPORATION
By:
-----------------------------------------
Its:
----------------------------------------
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
ALEX. BROWN & SONS INCORPORATED
SALOMON BROTHERS INC
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, LLC
By:
---------------------------------------
Its:
---------------------------------------
UNDERWRITING AGREEMENT SIGNATURE PAGE
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Notes To Be
Underwriters Purchased
--------------------- ------------
<S> <C>
Robertson, Stephens & Company LLC . . . . . . . . . . . . .
Alex. Brown & Sons Incorporated . . . . . . . . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . .
============
Total . . . . . . . . . . . . . . . . . . . . . . . . $150,000,000
</TABLE>
<PAGE> 25
SCHEDULE B
<TABLE>
<CAPTION>
NAME OR GROUP
-------------
PERIOD
------
<S> <C>
Officers and Directors The fourth (4th) day after the public
release of the Company's financials for
the quarter ended September 30, 1996.
Kamran Honardoost The fourth (4th) day after the public
release of the Company's financials for
the quarter ended September 30, 1996.
Joseph Haefele The fourth (4th) day after the public
release of the Company's financials for
the quarter ended September 30, 1996.
Phyllis Ziakis The fourth (4th) day after the public
release of the Company's financials for
the quarter ended September 30, 1996.
Richard Wilkerson The fourth (4th) day after the public
release of the Company's financials for
the quarter ended September 30, 1996.
Summit Ventures III, L.P. March 13, 1997
Summit Ventures IV, L.P. March 13, 1997
Summit Investors II, L.P. March 13, 1997
Summit Subordinated Debt Fund, L.P. March 13, 1997
Crossroads DPT Limited Partnership March 13, 1997
Crossroads SF Limited Partnership March 13, 1997
Crossroads Capital II Limited Partnership March 13, 1997
Mellon Bank, N.A., custodian for Chancellor March 13, 1997
Capital Management, Inc. under agreement
dated November 23, 1982 with Chancellor
Venture Capital II, L.P.
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
NAME OR GROUP
-------------
PERIOD
------
<S> <C>
Northpass & Co., custodian for KME Venture March 13, 1997
III, L.P., at the direction of Chancellor
Capital Management, Inc., Investment
Manager
Drake & Co. for the account of Citiventure III March 13, 1997
Michael A. Wall March 13, 1997
Evermore Corporation March 13, 1997
Wong Chiu Yee, Carol March 13, 1997
Wong Shun Yee, Shirley March 13, 1997
Wong Wai Yee, Sophia March 13, 1997
Wong Yuk Yee, Claire March 13, 1997
Paribas North America, Inc. March 13, 1997
BancBoston Investment Inc. March 13, 1997
Hitachi Metals, Ltd. March 13, 1997
</TABLE>
<PAGE> 1
EXHIBIT 4.3
================================================================================
HMT TECHNOLOGY CORPORATION
AND
[TRUSTEE]
TRUSTEE
INDENTURE
DATED AS OF [DATE], 1996
__% CONVERTIBLE SUBORDINATED NOTES DUE 2003
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS ..................................................................... 1
Section 1.1 Definitions ................................................... 1
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES ........................................................... 8
Section 2.1 Designation, Amount and Issue of Notes ........................ 8
Section 2.2 Form of Notes ................................................. 9
Section 2.3 Date and Denomination of Notes;
Payments of Interest ................................. 9
Section 2.4 Execution of Notes ............................................ 11
Section 2.5 Exchange and Registration of Transfer
of Notes ............................................. 12
Section 2.6 Mutilated, Destroyed, Lost or
Stolen Notes ......................................... 13
Section 2.7 Temporary Notes ............................................... 14
Section 2.8 Cancellation of Notes Paid, Etc ............................... 15
ARTICLE III
REDEMPTION OF NOTES ............................................................. 15
Section 3.1 Redemption Prices ............................................. 15
Section 3.2 Notice of Redemption; Selection
of Notes ............................................. 15
Section 3.3 Payment of Notes Called for
Redemption ........................................... 17
Section 3.4 Conversion Arrangement on Call
for Redemption ....................................... 18
ARTICLE IV
SUBORDINATION OF NOTES .......................................................... 19
Section 4.1 Agreement of Subordination .................................... 19
Section 4.2 Payments to Noteholders ....................................... 20
Section 4.3 Subrogation of Notes .......................................... 23
Section 4.4 Authorization by Noteholders .................................. 24
Section 4.5 Notice to Trustee ............................................. 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 4.6 Trustee's Relation to Senior
Indebtedness ......................................... 26
Section 4.7 No Impairment of Subordination ................................ 26
Section 4.8 Certain Conversions Deemed Payment ............................ 26
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY ............................................. 27
Section 5.1 Payment of Principal, Premium
and Interest ......................................... 27
Section 5.2 Maintenance of Office or Agency ............................... 27
Section 5.3 Appointments to Fill Vacancies
in Trustee's Office .................................. 28
Section 5.4 Provisions as to Paying Agent ................................. 28
Section 5.5 Existence ..................................................... 29
Section 5.6 Stay, Extension and Usury Laws ................................ 30
Section 5.7 Compliance Certificate ........................................ 30
Section 5.8 Further Instruments and Acts .................................. 30
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE ................... 30
Section 6.1 Noteholders' Lists ............................................ 30
Section 6.2 Preservation and Disclosure of Lists .......................... 31
Section 6.3 Reports by Trustee ............................................ 31
Section 6.4 Reports by Company ............................................ 32
ARTICLE VII
DEFAULTS AND REMEDIES ........................................................... 32
Section 7.1 Events of Default ............................................. 32
Section 7.2 Payments of Notes on Default;
Suit Therefor ........................................ 36
Section 7.3 Application of Monies Collected
by Trustee ........................................... 38
Section 7.4 Proceedings by Noteholder ..................................... 39
Section 7.5 Proceedings by Trustee ........................................ 40
Section 7.6 Remedies Cumulative and Continuing ............................ 40
Section 7.7 Direction of Proceedings and Waiver of
Defaults by Majority of Noteholders ................. 41
Section 7.8 Notice of Defaults ............................................ 41
Section 7.9 Undertaking to Pay Costs ...................................... 41
Section 7.10 Delay or Omission Not Waiver .................................. 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VIII
CONCERNING THE TRUSTEE .......................................................... 42
Section 8.1 Duties and Responsibilities of Trustee ........................ 42
Section 8.2 Reliance on Documents, Opinions, Etc .......................... 44
Section 8.3 No Responsibility for Recitals, Etc ........................... 45
Section 8.4 Trustee, Paying Agents, Conversion
Agents or Registrar May Own Notes .................... 45
Section 8.5 Monies to Be Held in Trust .................................... 45
Section 8.6 Compensation and Expenses of Trustee .......................... 45
Section 8.7 Officers' Certificate as Evidence ............................. 46
Section 8.8 Conflicting Interests of Trustee .............................. 46
Section 8.9 Eligibility of Trustee ........................................ 47
Section 8.10 Resignation or Removal of Trustee ............................. 47
Section 8.11 Acceptance by Successor Trustee ............................... 49
Section 8.12 Succession by Merger, Etc ..................................... 50
Section 8.13 Limitation on Rights of Trustee
as Creditor .......................................... 51
ARTICLE IX
CONCERNING THE NOTEHOLDERS ...................................................... 51
Section 9.1 Action by Noteholders ......................................... 51
Section 9.2 Proof of Execution by Noteholders ............................. 51
Section 9.3 Who Are Deemed Absolute Owners ................................ 52
Section 9.4 Company-Owned Notes Disregarded ............................... 52
Section 9.5 Revocation of Consents; Future
Holders Bound ........................................ 53
ARTICLE X
NOTEHOLDERS' MEETINGS ........................................................... 53
Section 10.1 Purpose of Meetings ........................................... 53
Section 10.2 Call of Meetings by Trustee ................................... 54
Section 10.3 Call of Meetings by Company
or Noteholders ....................................... 54
Section 10.4 Qualifications for Voting ..................................... 54
Section 10.5 Regulations ................................................... 55
Section 10.6 Voting ........................................................ 55
Section 10.7 No Delay of Rights by Meeting ................................. 56
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XI
SUPPLEMENTAL INDENTURES ......................................................... 56
Section 11.1 Supplemental Indentures Without
Consent of Noteholders ............................... 56
Section 11.2 Supplemental Indentures With
Consent of Noteholders ............................... 58
Section 11.3 Effect of Supplemental Indentures ............................. 58
Section 11.4 Notation on Notes ............................................. 59
Section 11.5 Evidence of Compliance of Supplemental
Indenture to Be Furnished Trustee ................... 59
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE ............................... 59
Section 12.1 Company May Consolidate, Etc. on
Certain Terms ........................................ 59
Section 12.2 Successor Corporation to Be Substituted ....................... 60
Section 12.3 Opinion of Counsel to Be Given Trustee ........................ 61
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE ......................................... 61
Section 13.1 Discharge of Indenture ........................................ 61
Section 13.2 Deposited Monies to Be Held in
Trust by Trustee ..................................... 62
Section 13.3 Paying Agent to Repay Monies Held ............................. 62
Section 13.4 Return of Unclaimed Monies .................................... 62
Section 13.5 Reinstatement ................................................. 62
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS .......................................................... 63
Section 14.1 Indenture and Notes Solely Corporate
Obligations .......................................... 63
ARTICLE XV
CONVERSION OF NOTES ............................................................. 63
Section 15.1 Right to Convert .............................................. 63
Section 15.2 Exercise of Conversion Privilege;
Issuance of Common Stock on Conversion;
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
<S> <C>
No Adjustment for Interest or Dividends .............. 64
Section 15.3 Cash Payments in Lieu of
Fractional Shares .................................... 65
Section 15.4 Conversion Price .............................................. 66
Section 15.5 Adjustment of Conversion Price ................................ 66
Section 15.6 Effect of Reclassification, Consolidation,
Merger or Sale ....................................... 78
Section 15.7 Taxes on Shares Issued ........................................ 80
Section 15.8 Reservation of Shares; Shares to Be Fully
Paid; Listing of Common Stock ........................ 80
Section 15.9 Responsibility of Trustee ..................................... 81
Section 15.10 Notice to Holders Prior to Certain
Actions .............................................. 82
ARTICLE XVI
REPURCHASE UPON A DESIGNATED EVENT .............................................. 83
Section 16.1 Repurchase Right .............................................. 83
Section 16.2 Notices; Method of Exercising
Repurchase Right, Etc ................................ 83
Section 16.3 Certain Definitions ........................................... 85
ARTICLE XVII
MISCELLANEOUS PROVISIONS ........................................................ 87
Section 17.1 Provisions Binding on Company's
Successors ........................................... 87
Section 17.2 Official Acts by Successor Corporation ........................ 87
Section 17.3 Addresses for Notices, Etc .................................... 87
Section 17.4 Governing Law ................................................. 88
Section 17.5 Evidence of Compliance with Conditions
Precedent; Certificates to Trustee ................... 88
Section 17.6 Legal Holidays ................................................ 88
Section 17.7 No Security Interest Created .................................. 88
Section 17.8 Trust Indenture Act ........................................... 88
Section 17.9 Benefits of Indenture ......................................... 89
Section 17.10 Table of Contents, Headings, Etc .............................. 89
Section 17.11 Authenticating Agent .......................................... 89
Section 17.12 Execution in Counterparts ..................................... 90
</TABLE>
v
<PAGE> 7
INDENTURE dated as of [Date], 1996 between HMT Technology Corporation,
a Delaware corporation (hereinafter sometimes called the "Company", as more
fully set forth in Section 1.1), and [Trustee], a ______________________
(hereinafter sometimes called the "Trustee", as more fully set forth in Section
1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its __% Convertible Subordinated Notes due 2003
(hereinafter sometimes called the "Notes"), in an aggregate principal amount not
to exceed $172,500,000 and, to provide the terms and conditions upon which the
Notes are to be authenticated, issued and delivered, the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by
the Notes, a form of assignment, a form of option to elect repayment upon a
Designated Event, a form of conversion notice and a certificate of transfer to
be borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when executed
by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture, which are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context otherwise requires) shall
have the meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture. The
words "herein," "hereof," "hereunder," and words of similar import refer to this
Indenture as a whole
1
<PAGE> 8
and not to any particular Article, Section or other Subdivision. The terms
defined in this Indenture include the plural as well as the singular.
Affiliate: The term "Affiliate" of any specified person means any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Board of Directors: The term "Board of Directors" means the Board of
Directors of the Company or a committee of such Board duly authorized to act for
it hereunder.
Board Resolution: The term "Board Resolution" means a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors, or duly authorized
committee thereof (to the extent permitted by applicable law), and to be in full
force and effect on the date of such certification.
Business Day: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
Commission: The term "Commission" means the Securities and Exchange
Commission.
Common Stock: The term "Common Stock" means any stock of any class of
the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the Company.
Subject to the provisions of Section 15.6, however, shares issuable on
conversion of Notes shall include only shares of the class designated as common
stock of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
Company: The term "Company" means HMT Technology Corporation, a
Delaware corporation, and subject to the provisions of Article XII, shall
include its successors and assigns.
2
<PAGE> 9
Corporate Trust Office: The term "Corporate Trust Office," or other
similar term, means the office of the Trustee at which at any particular time
its corporate trust business shall be principally administered, which office is,
at the date as of which this Indenture is dated, located at
______________________________, Attention: _______________________.
Default: The term "default" means any event that is, or after notice or
passage of time, or both, would be, an Event of Default.
Designated Senior Indebtedness: The term "Designated Senior
Indebtedness" means Senior Indebtedness with respect to which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Indebtedness shall be "Designated Senior Indebtedness" for
purposes of this Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Indebtedness).
Exchange Act: The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Event of Default: The term "Event of Default" means any event specified
in Section 7.1(a), (b), (c), (d), (e), (f), (g), (h) or (i), continued for the
period of time, if any, and after the giving of notice, if any, therein
designated.
Indebtedness: The term "Indebtedness" shall have the meaning specified
in Section 7.1(f).
Indenture: The term "Indenture" means this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
Note or Notes: The terms "Note" or "Notes" means any Note or Notes, as
the case may be, authenticated and delivered under this Indenture.
Noteholder or holder: The terms "Noteholder" or "holder" as applied to
any Note, or other similar terms (but excluding the term "beneficial holder"),
means any person in whose name at the time a particular Note is registered on
the Note register.
Officers' Certificate: The term "Officers' Certificate", when used with
respect to the Company, means a certificate signed by the Chief Executive
Officer, President, or any Vice President (whether or not designated by a number
or numbers or word added before or after the title "Vice President") and by the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company, which is delivered to the Trustee. Each such certificate shall
include the statements provided for in Section 17.5 if and to the extent
required by the provisions of such Section.
3
<PAGE> 10
Opinion of Counsel: The term "Opinion of Counsel" means an opinion in
writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee, which is delivered to the
Trustee. Each such opinion shall include the statements provided for in Section
17.5 if and to the extent required by the provisions of such Section.
outstanding: The term "outstanding," when used with reference to Notes,
means, subject to the provisions of Section 9.4, as of any particular time, all
Notes authenticated and delivered by the Trustee under this Indenture, except
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for the payment, redemption or
repurchase of which monies in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other
than the Company) or shall have been set aside and segregated in trust
by the Company (if the Company shall act as its own paying agent);
provided that if such Notes are to be redeemed or repurchased, as the
case may be, prior to the maturity thereof, notice of such redemption
or repurchase, as the case may be, shall have been given as provided in
Section 3.2 or Article XVI, respectively, or provision satisfactory to
the Trustee shall have been made for giving such notice; provided
further that if any Notes are not redeemed on a redemption date or
repurchased on a repurchase date, then such Notes shall be deemed
outstanding until all principal of and premium, if any, and accrued
interest on such Notes has been paid in full in accordance with the
terms of this Indenture;
(c) Notes in lieu of which, or in substitution for which,
other Notes shall have been authenticated and delivered pursuant to the
terms of Section 2.6 unless proof satisfactory to the Trustee is
presented that any such Notes are held by bona fide holders in due
course; and
(d) Notes converted into Common Stock pursuant to Article XV
and Notes deemed not outstanding pursuant to Section 3.2.
person: The term "person" means a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.
Predecessor Note: The term "Predecessor Note" of any particular Note
means every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purposes of this definition, any
Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note that it replaces.
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<PAGE> 11
Responsible Officer: The term "Responsible Officer", when used with
respect to the Trustee, means an officer of the Trustee assigned to the
Corporate Trust Office of the Trustee, and any other officer of the Trustee to
whom such matter is referred to because of his knowledge of and familiarity with
the particular subject.
Securities Act: The term "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
Senior Indebtedness: The term "Senior Indebtedness" means the principal
of, premium, if any, interest on, and any other payment due pursuant to, any of
the following, whether outstanding on the date of the Indenture or thereafter
incurred or created:
(a) All indebtedness of the Company for money borrowed or
evidenced by notes, debentures, bonds or other debt securities
(including but not limited to those which are convertible or
exchangeable for securities of the Company);
(b) All indebtedness of the Company due and owing with respect
to letters of credit and bank guarantees (including, but not limited
to, reimbursement obligations with respect thereto);
(c) All indebtedness or other obligations of the Company due
and owing with respect to interest rate and currency swap agreements,
cap, floor and collar agreements, currency spot and forward contracts
and other similar agreements and arrangements;
(d) All indebtedness consisting of commitment or standby fees
due and payable to lending institutions with respect to credit
facilities or letters of credit available to the Company;
(e) All obligations of the Company under leases required or
permitted to be capitalized under generally accepted accounting
principles;
(f) All indebtedness of others of the kinds described in any
of the preceding clauses (a), (b), (c), (d) or (e) assumed by or
guaranteed in any manner by the Company or in effect guaranteed
(directly or indirectly) by the Company through an agreement to
purchase, contingent or otherwise, and all obligations of the Company
under any such quantity or other agreement; and
(g) All renewals, extensions, refundings, deferrals,
amendments or modifications of indebtedness of the kinds described in
any of the preceding clauses (a), (b), (c), (d), (e) or (f);
unless in the case of any particular indebtedness, obligation, renewal,
extension, deferral, refunding, amendment, or modification, the instrument or
other document creating or evidencing the same or
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<PAGE> 12
the assumption or guarantee of the same expressly provides that such
indebtedness, obligation, renewal, extension, refunding, deferral, amendment or
modification is subordinate to, is pari passu with, or is not superior to, the
Notes. Notwithstanding the foregoing, Senior Indebtedness shall not include (i)
any indebtedness of any kind of the Company to any Subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company, and (ii) indebtedness for trade payables or constituting the deferred
purchase price of assets or services incurred in the ordinary course of
business.
Significant Subsidiary: The term "Significant Subsidiary" means, with
respect to any person, a Subsidiary of such person that would constitute a
significant subsidiary, as such term is defined under Rule 1-02 of Regulation
S-X of the Commission.
Subsidiary: The term "Subsidiary" means a corporation more than 50% of
the outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
Trust Indenture Act: The term "Trust Indenture Act" means the Trust
Indenture Act of 1939, as amended, as it was in force at the date of execution
of this Indenture, except as provided in Sections 11.3 and 15.6; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after the
date hereof, the term "Trust Indenture Act" shall mean, to the extent required
by such amendment, the Trust Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" means [Trustee], and its successors and any
corporation resulting from or surviving any consolidation or merger to which it
or its successors may be a party and any successor trustee at the time serving
as successor trustee hereunder.
In addition to the foregoing defined terms (except as herein otherwise
expressly provided or unless the context otherwise requires), the following
terms shall have the respective meanings specified in the following Sections and
any other terms defined herein shall have the meanings assigned thereto:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
beneficial owner 16.3
Change in Control 16.3
Closing Price 15.5(h)
Company Notice 16.2
Continuing Director 16.3
Conversion Price 15.4
Current Market Price 15.5(h)
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Defaulted Interest 2.3
Designated Event 16.3
"ex" date 15.5(h)
Expiration Time 15.5(f)
fair market value 15.5(h)
junior securities 4.8
non-electing share 15.6
Note register 2.5
Note registrar 2.5
Offer Expiration Time 15.5(g)
Payment Blockage Notice 4.2
Permitted Investor 16.3
person or group 16.3
Purchased Common Shares 15.5(g)
Purchased Shares 15.5(f)
record date 2.3
Record Date 15.5(h)
Removal Notice 8.10(b)
repurchase date 16.1
Repurchase Price 16.1
Securities 15.5(d)
Subordinated Indebtedness 4.1
Termination of Trading 16.3
Trading Day 15.5(h)
Trigger Event 15.5(d)
Voting Stock 16.3
</TABLE>
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be
designated as "__% Convertible Subordinated Notes due 2003". Notes not to exceed
the aggregate principal amount of $150,000,000 (or $172,500,000 if the
over-allotment option set forth in Section 7 of the Underwriting Agreement for
the Notes dated [Date], 1996 (as amended from time to time by the parties
thereto) by and between the Company and the several underwriters named therein
is exercised in full) (except pursuant to Sections 2.5, 2.6, 3.3, 15.2 and 16.2)
upon the execution of this Indenture, or from time to time thereafter, may be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall thereupon authenticate and deliver said Notes upon the written
order of the Company, signed by its (a) Chief Executive Officer, President or
any Vice President (whether or not designated by a number or numbers or word or
words added before or after the title
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<PAGE> 14
"Vice President") and (b) Treasurer or Assistant Treasurer or its Secretary or
any Assistant Secretary, without any further action by the Company hereunder.
Section 2.2 Form of Notes. The Notes and the Trustee's certificate of
authentication to be borne by such Notes shall be substantially in the form set
forth in Exhibit A, which is incorporated in and made a part of this Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, or to conform to usage.
The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of Interest. The
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication, shall bear interest from the applicable
date and accrued interest shall be payable semiannually on each ________ 1 and
________ 1, commencing ________ 1, 1996 as specified on the face of the form of
Note, attached as Exhibit A hereto.
The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and prior to such interest payment date; provided that any
Note surrendered for conversion during the period from a record date to (but
excluding) the next succeeding interest payment date, to the extent provided in
Section 15.2, shall be accompanied by a payment equal to the interest otherwise
payable on such next succeeding interest payment date; provided further that in
the event of any redemption or purchase of any Note after a record date and
prior to the next succeeding interest payment date, interest shall not be paid
to the person in whose name the Note is registered on the close of business on
such record date, but instead shall be payable to the holder of such Note
surrendering such Note for redemption or repurchase, as the case may be, as
required by Section 3.3 hereof and Article XVI hereof, respectively. Interest
may, at the option of the Company, be paid by check mailed to the address of
such person on the registry kept for such purposes; provided that, with respect
to any holder of Notes with an aggregate principal amount equal to or in excess
of $5,000,000, at the request of such holder in writing to the Company, interest
on such holder's Notes shall be paid by wire transfer in immediately available
funds
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<PAGE> 15
in accordance with the wire transfer instruction supplied by such holder to the
Trustee and paying agent (if different from Trustee). The term "record date"
with respect to any interest payment date shall mean the __________ 15
immediately preceding each __________ 1 interest payment date and the __________
15 immediately preceding each __________ 1 interest payment date.
Interest on the Notes shall be computed on the basis of a 36O-day year
comprised of twelve 30-day months compounded semi-annually.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any said __________ 1 or __________ 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Note and
the date of the payment (which shall be not less than twenty-five (25)
days after the receipt by the Trustee of such notice, unless the
Trustee shall consent to an earlier date), and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a special record date for the payment of such Defaulted
Interest which shall be not more than fifteen (15) days and not less
than ten (10) days prior to the date of the proposed payment and not
less than ten (10) days (or such shorter period to which the Trustee
consents) after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
special record date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the special record date therefor to be mailed, first-class postage
prepaid, to each Noteholder at his address as it appears in the Note
register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in whose names the Notes (or
their respective Predecessor Notes) were registered at the close of
business on such special record date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may
be required by such exchange or automated quotation system, if, after
notice
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<PAGE> 16
given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the
Trustee.
Section 2.4 Execution of Notes. The Notes shall be signed in the name
and on behalf of the Company by the signature of its Chief Executive Officer,
its President, or any of its Vice Presidents (whether or not designated by a
number or numbers or word or words added before or after the title "Vice
President") and attested by the signature of its Secretary or any of its
Assistant Secretaries. The signature of any of these officers on the Notes may
be manual or facsimile and may be printed, engraved or otherwise reproduced on
the Notes. Only such Notes as shall bear thereon a certificate of authentication
substantially in the form set forth on the form of Note attached as Exhibit A
hereto, manually executed by the Trustee (or an authenticating agent appointed
by the Trustee as provided by Section 17.11), shall be entitled to the benefits
of this Indenture or be valid or obligatory for any purpose. Such certificate by
the Trustee (or such an authenticating agent) upon any Note executed by the
Company shall be conclusive evidence that the Note so authenticated has been
duly authenticated and delivered hereunder and that the holder is entitled to
the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes. The Company
shall cause to be kept at the Corporate Trust Office of the Trustee a register
(the register maintained in such office and in any other office or agency of the
Company designated pursuant to Section 5.2 being herein sometimes collectively
referred to as the "Note register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. Such Note register shall be in written form
or in any form capable of being converted into written form within a reasonable
period of time. The Trustee is hereby appointed "Note registrar" for the purpose
of registering Notes and transfers of Notes as herein provided. The Company may
appoint one or more co-registrars in accordance with Section 5.2.
Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar, and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount.
Notes may be exchanged for other Notes of any authorized denominations
and of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or
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<PAGE> 17
agency. Whenever any Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Noteholder making the exchange is entitled to receive, bearing registration
numbers not contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee, the Note registrar
or any co-registrar) be duly endorsed, or be accompanied by a written instrument
or instruments of transfer in form satisfactory to the Company and duly executed
by the Noteholder thereof or his attorney duly authorized in writing.
No service charge shall be charged to the Noteholder for any exchange
or registration of transfer of Notes, but the Company may require payment of a
sum sufficient to cover any tax, assessments or other governmental charges that
may be imposed in connection therewith.
None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of (a) any
Notes for a period of fifteen (15) days next preceding any selection of Notes to
be redeemed or (b) any Notes called for redemption or, if a portion of any Note
is selected or called for redemption, such portion thereof selected or called
for redemption or (c) any Notes surrendered for conversion or, if a portion of
any Note is surrendered for conversion, such portion thereof surrendered for
conversion or (d) any Notes surrendered for repurchase pursuant to Article XVI
or, if a portion of any Note is surrendered for repurchase pursuant to Article
XVI, such portion thereof surrendered for repurchase pursuant to Article XVI.
All Notes issued upon any transfer or exchange of Notes in accordance
with this Indenture shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture as the
Notes surrendered upon such registration of transfer or exchange.
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its request the Trustee or an authenticating
agent appointed by the Trustee shall authenticate and deliver, a new Note,
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Note, or in lieu of and in substitution for the Note so
destroyed, lost or stolen. In every case the applicant for a substituted Note
shall furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent such security or indemnity as may be required by them to
save each of them harmless for any loss, liability, cost or expense caused by or
connected with such substitution, and, in every case of destruction, loss or
theft, the applicant shall also furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent evidence to their satisfaction of the
destruction, loss or theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any
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<PAGE> 18
Note which has matured or is about to mature or has been called for redemption
or submitted for repurchase or is about to be converted into Common Stock shall
become mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substitute Note, pay or authorize the payment of or convert or
authorize the conversion of the same (without surrender thereof except in the
case of a mutilated Note), as the case may be, if the applicant for such payment
or conversion shall furnish to the Company, to the Trustee and, if applicable,
to such authenticating agent such security or indemnity as may be required by
them to save each of them harmless for any loss, liability, cost or expense
caused by or connected with such substitution, and, in case of destruction, loss
or theft, evidence satisfactory to the Company, the Trustee and, if applicable,
any paying agent or conversion agent of the destruction, loss or theft of such
Note and of the ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section
2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
Section 2.7 Temporary Notes. Pending the preparation of definitive
Notes, the Company may execute and the Trustee or an authenticating agent
appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the definitive Notes but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Notes. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent definitive Notes and
thereupon any or all temporary Notes may be surrendered in exchange therefor, at
each office or agency maintained by the Company pursuant to Section 5.2 and the
Trustee or such authenticating agent shall authenticate and deliver in exchange
for such temporary Notes an equal aggregate principal amount of definitive
Notes. Such exchange shall be made by the Company at its own expense and without
any charge therefor. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits and subject to the same limitations
under this Indenture as definitive Notes authenticated and delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for
the purpose of payment, redemption, repurchase, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
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<PAGE> 19
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. Upon written
instructions of the Company, the Trustee shall destroy canceled Notes and, after
such destruction, shall deliver a certificate of such destruction to the
Company. If the Company shall acquire any of the Notes, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Notes unless and until the same are delivered to the Trustee for
cancellation.
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 Redemption Prices. The Company may, at its option, redeem
all or from time to time any part of the Notes on any date prior to maturity,
upon notice as set forth in Section 3.2, and at the optional redemption prices
set forth in the form of Note attached as Exhibit A hereto, together with
accrued interest, if any, to, but excluding, the date fixed for redemption,
provided, however, that no such redemption shall be effected before __________,
1998, provided further that the Company may not redeem the Notes prior to
__________, 1999 unless the Closing Price of the Common Stock on the principal
stock exchange market on which the Common Stock is then quoted or admitted to
trading equals or exceeds 150% of the Conversion Price for at least 20 Trading
Days within a period of 30 consecutive Trading Days ending on the fifth Trading
Day prior to the date the notice of redemption is first mailed to the holders of
the Notes.
Section 3.2 Notice of Redemption; Selection of Notes. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its request (which must be received by the Trustee at
least ten (10) Business Days prior to the date the Trustee is requested to give
notice as described below unless a shorter period is agreed to by the Trustee),
the Trustee in the name of and at the expense of the Company, shall mail or
cause to be mailed a notice of such redemption at least twenty (20) and not more
than sixty (60) days prior to the date fixed for redemption to the holders of
Notes so to be redeemed as a whole or in part at their last addresses as the
same appear on the Note register (provided that if the Company shall give such
notice, it shall also give such notice, and notice of the Notes to be redeemed,
to the Trustee). Such mailing shall be by first-class mail. The notice if mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, failure to
give such notice by mail or any defect in the notice to the holder of any Note
designated for redemption as a whole or in part shall not affect the validity of
the proceedings for the redemption of any other Note.
Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the date fixed for redemption, the redemption
price at which Notes are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Notes, that
interest accrued to, but excluding, the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon or
on the portion thereof to be
13
<PAGE> 20
redeemed will cease to accrue. Such notice shall also state the current
Conversion Price and that the right to convert such Notes or portions thereof
into Common Stock will expire at the close of business on the Trading Day next
preceding the date fixed for redemption (unless the Company fails to redeem such
Notes on such date). If fewer than all the Notes are to be redeemed, the notice
of redemption shall identify the Notes to be redeemed. In case any Note is to be
redeemed in part only, the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
5.4) an amount of money sufficient to redeem on the redemption date all the
Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption, provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Note called for redemption
is converted pursuant hereto, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its request, or, if then held by the Company shall
be discharged from such trust. If fewer than all the Notes are to be redeemed,
the Company will give the Trustee written notice in the form of an Officers'
Certificate not fewer than forty-five (45) days (or such shorter period of time
as may be acceptable to the Trustee) prior to the redemption date as to the
aggregate principal amount of Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$1,000 or integral multiples thereof), by lot or, in its sole discretion, on a
pro rata basis. If any Note selected for partial redemption is converted in part
after such selection, the converted portion of such Note shall be deemed (so far
as may be) to be the portion to be selected for redemption. The Notes (or
portions thereof) so selected shall be deemed duly selected for redemption for
all purposes hereof, notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption. Notes may be redeemed
in part only in denominations of $1,000 or any integral multiple thereof.
Upon any redemption of less than all Notes, the Company and the Trustee
shall treat as outstanding any Notes surrendered for conversion during the
period of fifteen (15) days next preceding the mailing of a notice of redemption
and shall treat as not outstanding any Note authenticated and delivered during
such period in exchange for the unconverted portion of any Note converted in
part during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and
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<PAGE> 21
payable on the date and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to, but excluding,
the date fixed for redemption. On and after said date (unless the Company shall
default in the payment of such Notes at the redemption price, together with
interest accrued to said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and such Notes shall cease, except
as provided in Sections 8.5 and 13.4, to be entitled to any benefit or security
under this Indenture, and the holders thereof shall have no right in respect of
such Notes except the right to receive the redemption price thereof and unpaid
interest to, but excluding, the date fixed for redemption. On and after the
close of business on the Trading Day next preceding the date fixed for
redemption (unless the Company shall default in the payment of such Notes at the
redemption price, together with accrued interest to the date fixed for
redemption) the Notes or portion of the Notes called for redemption shall also
cease to be convertible into Common Stock. On presentation and surrender of such
Notes at a place of payment in said notice specified, the said Notes or the
specified portions thereof to be redeemed shall be paid and redeemed by the
Company at the applicable redemption price, together with interest accrued
thereon to, but excluding, the date fixed for redemption; provided that, if the
applicable redemption date is an interest payment date, the semi-annual payment
of interest becoming due on such date shall be payable to the holders of such
Notes registered as such on the relevant record date subject to the terms and
provisions of Section 2.3 hereof.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of a default in
payment of interest or premium on the Notes or of any Event of Default of which,
in the case of any Event of Default other than under Section 7.1(a), (b) or (d),
a Responsible Officer of the Trustee has knowledge. If any Note called for
redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
Section 3.4 Conversion Arrangement on Call for Redemption. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other purchasers to purchase such Notes by paying to the Trustee in
trust for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued
to, but excluding, the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article III, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to, but excluding, the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, a copy of which will be filed
with the Trustee prior to the date fixed for redemption, any
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Notes not duly surrendered for conversion by the holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such holders and (notwithstanding anything to
the contrary contained in Article XV) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the date
fixed for redemption (and the right to convert any such Notes shall be deemed to
have been extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and dispose
of any such amount paid to it in the same manner as it would monies deposited
with it by the Company for the redemption of Notes. Without the Trustee's prior
written consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes shall increase or otherwise affect any of
the powers, duties, responsibilities or obligations of the Trustee as set forth
in this Indenture, and the Company agrees to indemnify the Trustee from, and
hold it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Notes between the Company and such purchasers to which the Trustee has not
consented in writing, including the costs and expenses incurred by the Trustee
in the defense or investigation of any claim or liability arising out of or in
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination. The Company covenants and
agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the Notes to be redeemed or repurchased, as provided in this
Indenture) issued hereunder and all other payments to Noteholders required
hereunder (the "Subordinated Indebtedness") shall, to the extent and in the
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred.
No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.
Section 4.2 Payments to Noteholders. No payment shall be made with
respect to Subordinated Indebtedness, except payments made pursuant to Article
XIII from monies deposited with the Trustee pursuant thereto prior to the
happening of the events specified in either of the following clauses (i) or
(ii), if:
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(i) a default in the payment of principal of or, premium, if
any, interest or other payment due on any Senior Indebtedness occurs
and is continuing (or, in the case of Senior Indebtedness for which
there is a period of grace, in the event of such a default that
continues beyond the period of grace, if any, specified in the
instrument evidencing such Senior Indebtedness); or
(ii) a default, other than a payment default, on any
Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate
its maturity and the Trustee and the Company receive a notice of the
default (a "Payment Blockage Notice") from a holder (or a trustee on
behalf of such holder) of at least $5,000,000 in outstanding principal
amount of such Designated Senior Indebtedness.
If the Trustee and the Company receive any Payment Blockage
Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice
shall be effective for purposes of this Section unless (A) at least 365 days
shall have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice, and (B) either (x) all scheduled payments of the principal of
and premium, if any, and interest on the Notes that have come due have been paid
in full in cash or (y) the Trustee or the Noteholders shall not have instituted
proceedings to enforce the Noteholders' right to receive such payments. No
default (whether or not such nonpayment default is on the same issue of
Designated Senior Indebtedness) that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee and the Company shall be,
or be made, the basis for a subsequent Payment Blockage Notice. If the Trustee
and the Company receive a Payment Blockage Notice pursuant to clause (ii) above
that is ineffective pursuant to this paragraph, the Trustee shall continue to
make payments pursuant to this Indenture.
The Company may and shall resume payments on and distributions
in respect of the Notes upon the earlier of:
(1) the date upon which the default referred to in clause (i)
or (ii) above, as applicable, is cured or waived, or
(2) in the case of a default referred to in clause (ii) above,
179 days pass after the Payment Blockage Notice is received unless the maturity
of such Designated Senior Indebtedness has been accelerated,
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
In the event of the acceleration of the Notes because of an Event of
Default, the Company may not make any payment or distribution to the Trustee or
any holder of Notes in respect of the amounts payable with respect to the Notes
and may not acquire or purchase from the Trustee or any holder of Notes any
Notes until all Senior Indebtedness has been paid in full or such acceleration
is rescinded in accordance with the terms of this Indenture.
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Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or to
become due upon all Senior Indebtedness shall first be paid in full, or payment
thereof provided for in money in accordance with its terms, before any payment
is made on account of Subordinated Indebtedness (except payments made pursuant
to Article XIII from monies deposited with the Trustee pursuant thereto prior to
the happening of such dissolution, winding-up, liquidation or reorganization or
bankruptcy, insolvency, receivership or other such proceedings); and upon any
such dissolution or winding-up or liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings, any payment by the Company,
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Notes or the Trustee
under this Indenture would be entitled, except for the provision of this Article
IV, shall (except as aforesaid) be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the holders of the Notes or by the Trustee under
this Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, or as otherwise required by law or a
court order) or their respective representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness, before any payment or distribution is made to
the holders of the Notes or to the Trustee under this Indenture.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee under
this Indenture or by any holders of the Notes before all Senior Indebtedness is
paid in full, or provision is made for such payment in accordance with its
terms, such payment or distribution shall be held by the recipient or recipients
in trust for the benefit of, and shall be paid over or delivered to, the holders
of Senior Indebtedness or their respective representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in accordance with its terms, after giving
effect to any concurrent payment or distribution (or provision therefor) to or
for the holders of such Senior Indebtedness; provided that the foregoing shall
apply to the Trustee only of the Trustee has actual knowledge (as determined in
accordance with Section 4.5) that such payment or distribution is prohibited by
this Indenture.
For purposes of this Article IV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of
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which is subordinated (at least to the extent provided in this Article IV with
respect to the Notes) to the payment of all Senior Indebtedness which may at the
time be outstanding; provided that (i) the Senior Indebtedness is assumed by the
new corporation, if any, resulting from such reorganization or adjustment, and
(ii) the rights of the holders of Senior Indebtedness (other than leases which
are not assumed by the Company or by the new corporation, as the case may be)
are not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to
the further provisions of Section 4.5.
Section 4.3 Subrogation of Notes. Subject to the payment in full of all
Senior Indebtedness, the rights of the holders of the Notes shall be subrogated
to the extent of the payments or distributions made to the holders of such
Senior Indebtedness pursuant to the provisions of this Article IV (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to other indebtedness of the Company to substantially the
same extent as the Notes are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal of (and premium, if
any) and interest on the Notes shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
IV, and no payment over pursuant to the provisions of this Article IV, to or for
the benefit of the holders of Senior Indebtedness by holders of the Notes or the
Trustee, shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness; and no payments or
distributions of cash, property or securities to or for the benefit of the
holders of the Notes pursuant to the subrogation provisions of this Article IV,
which would otherwise have been paid to the holders of Senior Indebtedness shall
be deemed to be a payment by the Company to or for the account of the Notes. It
is understood that the provisions of this Article IV are and are intended solely
for the purposes of defining the relative rights of the holders of the Notes, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of (and premium, if any) and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the
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holders of the Senior Indebtedness, nor shall anything herein or therein prevent
the Trustee or the holder of any Note from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article IV of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article IV, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article IV.
Section 4.4 Authorization by Noteholders. Each holder of a Note by his
acceptance thereof authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article IV and appoints the Trustee his attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, the holders of any Senior Indebtedness or their respective representative
or representatives are hereby authorized to file an appropriate claim for and on
behalf of the holders of the Notes.
Section 4.5 Notice to Trustee. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Notes pursuant to the provisions of this Article IV.
Notwithstanding the provisions of this Article IV or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any Senior Indebtedness (including Designated Senior Indebtedness) or of any
default or event of default with respect to any Senior Indebtedness (including
Designated Senior Indebtedness) or of any other facts which would prohibit the
making of any payment of monies to or by the Trustee in respect of the Notes
pursuant to the provisions of this Article IV, unless and until a Responsible
Officer of the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee from the Company (in the form of an
Officers' Certificate) or from a holder or holders of Senior Indebtedness or
Designated Senior Indebtedness or from any trustee thereof who shall have been
certified by the Company or otherwise established to the reasonable satisfaction
of the Trustee to be such holder or trustee; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 8.1, shall be
entitled in all respects to assume that no such facts exist; provided that if on
a date at least two (2) Business Days prior to the date upon which by the terms
hereof any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any,
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or interest on any Note), the Trustee shall not have received with respect to
such monies the notice provided for in this Section 4.5, then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such prior date.
Notwithstanding anything to the contrary hereinbefore set forth,
nothing shall prevent any payment by the Trustee to the Noteholders of monies
deposited with it pursuant to Section 13.1.
The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness or Designated Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior Indebtedness or Designated Senior
Indebtedness or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article IV, the
Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by such
person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article IV, and if such evidence is not furnished the Trustee
may defer any payment to such person pending judicial determination as to the
right of such person to receive such payment. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person as a holder of Designated Senior Indebtedness to deliver a
Payment Blockage Notice pursuant to this Article IV, the Trustee may request
such person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Designated Senior Indebtedness held by such person and any
other facts pertinent to determining the right of such person to deliver a
Payment Blockage Notice, and if such evidence is not furnished the Trustee may
defer taking action with respect to a Payment Blockage Notice pending judicial
determination as to the right of such person to give such notice.
Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee and
any agent of the Company or the Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article IV in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture
shall deprive the Trustee or any such agent of any of its rights as such holder.
Nothing in this Article IV shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 8.6.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to
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holders of Notes, the Company or any other person money or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article IV or
otherwise.
Section 4.7 No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
Section 4.8 Certain Conversions Deemed Payment. For the purposes of
this Article only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or premium,
if any) or interest on Notes or on account of the purchase or other acquisition
of Notes, and (2) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note. For the
purposes of this Section, the term "junior securities" means (a) shares of any
stock of any class of the Company and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article and the weighted average maturity of
which is no earlier than the maturity of the Notes. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, the right, which is absolute and
unconditional, of the Holder of any Note to convert such Note in accordance with
Article XV.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes. Each installment of interest on the Notes due on any semi-annual interest
payment date may be paid by mailing checks for the interest payable to or upon
the written order of the holders of Notes entitled thereto as they shall appear
on the registry books of the Company; provided that, with respect to any holder
of Notes with an aggregate principal amount equal to or in excess of $5,000,000,
at the request of such holder in writing to the Company, interest on such
holder's Notes shall be paid by wire transfer in immediately available funds in
accordance with the wire transfer instructions supplied by such holder to the
Trustee and paying agent (if different from Trustee).
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Section 5.2 Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, The City of New York, an office or agency where the
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion, redemption or repurchase and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee or the office of the Trustee in the Borough of Manhattan, the City of
New York.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Trustee as paying agent,
Note registrar and conversion agent and the Corporate Trust Office of the
Trustee and the office of the Trustee in the Borough of Manhattan, The City of
New York (which shall initially be the office of ___________________________,
[an Affiliate of the Trustee], located at ________________________, New York, NY
_____) as one such office or agency of the Company for each of the aforesaid
purposes.
So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notice set forth in Section 8.10(a).
Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 5.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee or if the Trustee shall appoint such a paying agent, it will
cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to
the provisions of this Section 5.4:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any,
or interest on the Notes (whether such sums have
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been paid to it by the Company or by any other obligor on the
Notes) in trust for the benefit of the holders of the Notes;
(2) that it will give the Trustee notice of any
failure by the Company (or by any other obligor on the Notes)
to make any payment of the principal of and premium, if any,
or interest on the Notes when the same shall be due and
payable; and
(3) that at any time during the continuance of an
Event of Default, upon request of the Trustee, it will
forthwith pay to the Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal
of, premium, if any, or interest on the Notes, deposit with the paying
agent a sum sufficient to pay such principal, premium, if any, or
interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action,
provided that if such deposit is made on the due date, such deposit
must be received by the paying agent by 10:00 a.m., New York City time,
on such date.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the
benefit of the holders of the Notes a sum sufficient to pay such
principal, premium, if any, or interest so becoming due and will notify
the Trustee of any failure to take such action and of any failure by
the Company (or any other obligor under the Notes) to make any payment
of the principal of, premium, if any, or interest on the Notes when the
same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge of this Indenture, or for any
other reason, pay or cause to be paid to the Trustee all sums held in
trust by the Company or any paying agent hereunder as required by this
Section 5.4, such sums to be held by the Trustee upon the trusts herein
contained and upon such payment by the Company or any paying agent to
the Trustee, the Company or such paying agent shall be released from
all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in
this Section 5.4 is subject to Sections 13.3 and 13.4.
Section 5.5 Existence. Subject to Article XII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such right or
franchise if it shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Noteholders.
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Section 5.6 Stay, Extension and Usury Laws. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
Section 5.7 Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on March 31, 1997) an Officers'
Certificate stating whether or not the signers know of any Event of Default that
occurred during such period. If they do, such Officers' Certificate shall
describe the Event of Default and its status.
Section 5.8 Further Instruments and Acts. Upon request of the Trustee,
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists. The Company covenants and agrees that
it will furnish or cause to be furnished to the Trustee, semi-annually, not more
than fifteen (15) days after each __________ 15 and __________ 15 in each year
beginning with __________ 15, 1996, and at such other times as the Trustee may
request in writing, within thirty (30) days after receipt by the Company of any
such request (or such lesser time as the Trustee may reasonably request in order
to enable it to timely provide any notice to be provided by it hereunder), a
list in such form as the Trustee may reasonably require of the names and
addresses of the holders of Notes as of a date not more than fifteen (15) days
(or such other date as the Trustee may reasonably request in order to so provide
any such notices) prior to the time such information is furnished, except that
no such list need be furnished so long as the Trustee is acting as Note
registrar.
Section 6.2 Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Note registrar,
if so acting. The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
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(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or under the
Notes and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Notes made
pursuant to the Trust Indenture Act.
Section 6.3 Reports by Trustee.
(a) Within sixty (60) days after May 15 of each year
commencing with the year 1996, the Trustee shall transmit to holders of Notes
such reports dated as of May 15 of the year in which such reports are made
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Notes are listed and with
the Company. The Company will notify the Trustee when the Notes are listed on
any stock exchange or automated quotation system and when any such listing is
discontinued.
Section 6.4 Reports by Company. The Company shall file with the Trustee
and the Commission, and transmit to holders of Notes, such information,
documents and other reports and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act shall be filed with the Trustee within fifteen (15) days after the
same is so required to be filed with the Commission.
The Company will deliver to the Trustee (a) as soon as available and in
any event within ninety (90) days after the end of each fiscal year of the
Company (i) a consolidated balance sheet of the Company and its subsidiaries as
of the end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis of
the financial condition and results of operations for such fiscal year and a
description of the business and properties of the Company and (b) as soon as
available and in any event within forty-five (45) days after the end of each of
the first three quarters of each fiscal year of the Company (i) an unaudited
consolidated balance sheet of the Company and its subsidiaries as of the end of
such fiscal quarter and the related unaudited consolidated statements of
operations, stockholders' equity and cash flows for such fiscal quarter and (ii)
a report containing a management's discussion and analysis of the financial
condition and results of operations of the
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Company for such quarter; provided that the foregoing statements and reports
shall not be required for any fiscal year or quarter, as the case may be, with
respect to which the Company files with the Trustee an annual report or
quarterly report, as the case may be, pursuant to the preceding paragraph of
this Section 6.4.
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.1 Events of Default. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of the principal of and premium, if
any, on any of the Notes as and when the same shall become due and
payable either at maturity or in connection with any redemption, by
declaration or otherwise, whether or not such payment is prohibited by
the provisions of Article IV; or
(b) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable, and
continuance of such default for a period of thirty (30) days, whether
or not such payment is prohibited by the provisions of Article IV; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with) continued for a period of
forty-five (45) days after the date on which written notice of such
failure, requiring the Company to remedy the same, shall have been
given to the Company by the Trustee, or to the Company and a
Responsible Officer of the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes at the time outstanding
determined in accordance with Section 9.4; or
(d) a default in the payment of the Repurchase Price in
respect of any Note on the repurchase date therefor in accordance with
the provisions of Article XVI, whether or not such payment is
prohibited by the provisions of Article IV; or
(e) failure on the part of the Company to provide notice of a
Designated Event in accordance with the provisions of Article XVI; or
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(f) failure by the Company or any Significant Subsidiary to
make any payment at maturity, including any applicable grace period, in
respect of indebtedness, which term as used herein means obligations
(other than the Notes or non-recourse obligations) of, or guaranteed or
assumed by, the Company, or any Significant Subsidiary, for borrowed
money or evidenced by bonds, debentures, notes or other similar
instruments ("Indebtedness") in an amount in excess of $5,000,000 or
the equivalent thereof in any other currency or composite currency and
such failure shall have continued for thirty (30) days after written
notice thereof shall have been given to the Company by the Trustee or
to the Company and a Responsible Officer of the Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding Notes
at the time outstanding determined in accordance with Section 9.4; or
(g) a default by the Company or any Significant Subsidiary
with respect to any Indebtedness, which default results in the
acceleration of Indebtedness in an amount in excess of $5,000,000 or
the equivalent thereof in any other currency or composite currency
without such Indebtedness having been discharged or such acceleration
having been cured, waived, rescinded or annulled for a period of thirty
(30) days after written notice thereof shall have been given to the
Company by the Trustee or to the Company and the Responsible Officer of
the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes at the time outstanding determined in
accordance with Section 9.4; or
(h) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due; or
(i) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90) consecutive
days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(h) or (i) with respect to the Company), unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the holders of not less than 25% in aggregate principal amount of the Notes
then outstanding hereunder determined in accordance with Section 9.4, by notice
in writing to the Company (and to the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the interest
accrued thereon to be due and payable immediately,
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and upon any such declaration the same shall become and shall be immediately due
and payable, anything in this Indenture or in the Notes contained to the
contrary notwithstanding. If an Event of Default specified in Section 7.1(h) or
(i) with respect to the Company occurs and is continuing, the principal of, and
premium, if any, on all the Notes and the interest accrued thereon shall be
immediately due and payable. This provision, however, is subject to the
conditions that if, at any time after the principal of the Notes shall have been
so declared due and payable, and before any judgment or decree for the payment
of the monies due shall have been obtained or entered as hereinafter provided,
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
all matured installments of interest upon all Notes and the principal of and
premium, if any, on any and all Notes which shall have become due otherwise than
by acceleration (with interest on overdue installments of interest (to the
extent that payment of such interest is enforceable under applicable law) and on
such principal and premium, if any, at the rate borne by the Notes, to the date
of such payment or deposit) and amounts due to the Trustee pursuant to Section
8.6, and if any and all defaults under this Indenture, other than the nonpayment
of principal of and premium, if any, and accrued interest on Notes which shall
have become due by acceleration, shall have been cured or waived pursuant to
Section 7.7, then and in every such case the holders of a majority in aggregate
principal amount of the Notes then outstanding, by written notice to the Company
and to the Trustee, may waive all defaults or Events of Default and rescind and
annul such declaration and its consequences; but no such waiver or rescission
and annulment shall extend to or shall affect any subsequent default or Event of
Default, or shall impair any right consequent thereon. The Company shall notify
a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of
any Event of Default.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been instituted.
Section 7.2 Payments of Notes on Default; Suit Therefor. The Company
covenants that (a) in case default shall be made in the payment by the Company
of any installment of interest upon any of the Notes as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty (30) days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Notes as and when the same shall
have become due and payable, whether at maturity of the Notes or in connection
with any redemption or repurchase, by declaration under this Indenture or
otherwise, then, upon demand of the Trustee, the Company will pay to the
Trustee, for the benefit of the holders of the Notes, the whole amount that then
shall have become due and payable on all such Notes for principal and premium,
if any, or interest, or both, as the case may be, with interest upon the overdue
principal and premium, if any, and (to the extent that payment of such interest
is enforceable under applicable law) upon the overdue installments of interest
at the rate borne by the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee, its
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agents, attorneys and counsel, and any expenses or liabilities incurred by the
Trustee hereunder other than through its negligence or bad faith. Until such
demand by the Trustee, the Company may pay the principal of and premium, if any,
and interest on the Notes to the registered holders, whether or not the Notes
are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obliger, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal, premium, if
any, and interest owing and unpaid in respect of the Notes, and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
of the Noteholders allowed in such judicial proceedings relative to the Company
or any other obligor on the Notes, its or their creditors, or its or their
property, and to collect and receive any monies or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of any amounts due the Trustee under Section 8.6; and any receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, custodian or similar
official is hereby authorized by each of the Noteholders to make such payments
to the Trustee, and, in the event that the Trustee shall consent to the making
of such payments directly to the Noteholders, to pay to the Trustee any amount
due it for reasonable compensation, expenses, advances and disbursements,
including counsel fees incurred by it up to the date of such distribution. To
the extent that such payment of reasonable compensation, expenses, advances and
disbursements out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, monies, securities and other property
which the holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or adopt on behalf of any Noteholder any plan of
reorganization or arrangement affecting the Notes or the rights of any
Noteholder, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding, provided, however, that the Trustee may, on
behalf of the Noteholders, vote for the election of a trustee in bankruptcy or
similar official and may be a member of the creditor's committee established
with respect to such bankruptcy.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.
Section 7.3 Application of Monies Collected by Trustee. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon the
payment, if only partially paid, and upon surrender thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
Second: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on the Notes in default in the order
of the maturity of the installments of such interest, with interest (to
the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the rate borne by the Notes,
such payments to be made ratably to the persons entitled thereto;
Third: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then owing and unpaid upon the Notes for principal and premium,
if any, and interest, with interest on the overdue principal and
premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate borne by the Notes; and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes, then
to the payment of such principal and premium, if any, and interest
without preference or priority of principal and premium, if any, over
interest, or of interest over principal and premium, if any, or of any
installment of interest
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over any other installment of interest, or of any Note over any other
Note, ratably to the aggregate of such principal and premium, if any,
and accrued and unpaid interest; and
Fourth: Subject to the provisions of Article IV, to the
payment of the remainder, if any, to the Company or any other person
lawfully entitled thereto.
Section 7.4 Proceedings by Noteholder. No holder of any Note shall have
any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for sixty (60) days after its
receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding and no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 7.7; it being understood and intended, and being expressly
covenanted by the taker and holder of every Note with every other taker and
holder and the Trustee, that no one or more holders of Notes shall have any
right in any manner whatever by virtue of or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other holder of
Notes, or to obtain or seek to obtain priority over or preference to any other
such holder, or to enforce any right under this Indenture, except in the manner
herein provided and for the equal, ratable and common benefit of all holders of
Notes (except as otherwise provided herein). For the protection and enforcement
of this Section 7.4, each and every Noteholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision
of any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, on his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 7.5 Proceedings by Trustee. In case of an Event of Default the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
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whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 7.6 Remedies Cumulative and Continuing. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee or
to the Noteholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any thereof or of any other powers and remedies available
to the Trustee or the holders of the Notes, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained in this Indenture, and no delay or omission of the Trustee
or of any holder of any of the Notes to exercise any right or power accruing
upon any default or Event of Default occurring and continuing as aforesaid shall
impair any such right or power, or shall be construed to be a waiver of any such
default or any acquiescence therein; and, subject to the provisions of Section
7.4, every power and remedy given by this Article VII or by law to the Trustee
or to the Noteholders may be exercised from time to time, and as often as shall
be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority
of Noteholders. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding determined in accordance with Section 9.4 shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (a) such direction shall
not be in conflict with any rule of law or with this Indenture, and (b) the
Trustee may, but shall have no obligation to, take any other action deemed
proper by the Trustee which is not inconsistent with such direction. The holders
of a majority in aggregate principal amount of the Notes at the time outstanding
determined in accordance with Section 9.4 may on behalf of the holders of all of
the Notes waive any past default or Event of Default hereunder and its
consequences except (i) a default in the payment of interest or premium, if any,
on, or the principal of, the Notes, (ii) a failure by the Company to convert any
Notes into Common Stock or (iii) a default in respect of a covenant or
provisions hereof which under Article XI cannot be modified or amended without
the consent of the holders of all Notes then outstanding. Upon any such waiver
the Company, the Trustee and the holders of the Notes shall be restored to their
former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 7.7, said default or Event of Default shall
for all purposes of the Notes and this Indenture be deemed to have been cured
and to be not continuing; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90)
days after the occurrence of a default, mail to all Noteholders, as the names
and addresses of such holders appear upon the Note register, notice of all
defaults known to a Responsible Officer, unless such defaults shall have been
cured or waived before the giving of such notice; and provided that, except in
the case of default in the payment of the principal of, or premium, if any, or
interest on any of the Notes, or in the payment of any redemption or repurchase
obligation, the Trustee shall be protected in
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withholding such notice if and so long as a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the best interest of the Noteholders.
Section 7.9 Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; provided that the provisions of this Section 7.9 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Noteholder, or
group of Noteholders, holding in the aggregate more than 10% in principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or premium, if any, or interest on any Note on or after the
due date expressed in such Note or to any suit for the enforcement of the right
to convert any Note in accordance with the provisions of Article XV.
Section 7.10 Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any holder of any Note to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or any acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the holders of Notes
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the holders of Notes, as the case may be.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior
to the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In case an Event of
Default has occurred (which has not been cured or waived) the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
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(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture and the Trust Indenture Act, and the Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the
Trustee; and
(2) in the absence of bad faith and willful
misconduct on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but, in the
case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless it shall be provided that the Trustee was negligent in
ascertaining the pertinent facts;
(c) the Trustee shall not be liable to any Noteholder with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the holders of not less than a
majority in principal amount of the Notes at the time outstanding
determined as provided in Section 9.4 relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions
of this Section.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
Section 8.2 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 8.1:
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(a) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, coupon or other paper or
document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Noteholders pursuant to the provisions
of this Indenture, unless such Noteholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; provided, however, that if
the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity from the
Noteholders against such expenses or liability as a condition to so
proceeding; the reasonable expenses of every such examination shall be
paid by the Company or, if paid by the Trustee or any predecessor
Trustee, shall be repaid by the Company upon demand; and
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder.
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Section 8.3 No Responsibility for Recitals, Etc. The recitals contained
herein and in the Notes (except in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May
Own Notes. The Trustee, any paying agent, any conversion agent or Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5 Monies to Be Held in Trust. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as may be
agreed from time to time by the Company and the Trustee.
Section 8.6 Compensation and Expenses of Trustee. The Company covenants
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
in any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Company also
covenants to indemnify the Trustee in any capacity under this Indenture and its
agents and any authenticating agent for, and to hold them harmless against, any
loss, liability or expense incurred without negligence, willful misconduct,
recklessness or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the costs and expenses of defending themselves against any
claim of liability in the premises. The obligations of the Company under this
Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall be secured by a lien upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the holders of particular Notes. The obligation
of the Company under this Section shall survive the satisfaction and discharge
of this Indenture.
When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(h) or (i) occurs, the expenses and the
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compensation for the services are intended to constitute expenses of
administration under any bankruptcy, insolvency or similar laws.
Section 8.7 Officers' Certificate as Evidence. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness
and bad faith on the part of the Trustee, be deemed to be conclusively proved
and established by an Officers' Certificate delivered to the Trustee, and such
Officers' Certificate, in the absence of negligence, willful misconduct,
recklessness and bad faith on the part of the Trustee, shall be full warrant to
the Trustee for any action taken or omitted by it under the provisions of this
Indenture upon the faith thereof.
Section 8.8 Conflicting Interests of Trustee. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
Section 8.9 Eligibility of Trustee. There shall at all times be a
Trustee hereunder which shall be a person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000. If such person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 8.10 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and by mailing notice thereof
to the holders of Notes at their addresses as they shall appear on the
Note register. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of
which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been
so appointed and have accepted appointment sixty (60) days after the
mailing of such notice of resignation to the Noteholders, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months may,
subject to the provisions of Section 7.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a successor trustee.
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(b) The Company may remove the Trustee and appoint a successor
trustee in accordance with and by complying with the procedures and
requirements set forth in this Section 8.10(b). In order to exercise
its right to remove the Trustee in accordance with this Section
8.10(b), the Company shall deliver to the Trustee and shall mail or
cause to be mailed to the holders of the Notes at their addresses as
they appear on the Note register written notice of the proposed removal
and appointment of a successor trustee (the "Removal Notice"). The
Removal Notice shall (i) state that the Company proposes to remove the
existing Trustee in accordance with Section 8.10(b) of the Indenture,
(ii) set forth the name of the proposed successor trustee, (iii)
include a certification by the Company that no default or Event of
Default has occurred and is continuing under the Indenture, (iv) state
that the proposed successor trustee shall succeed to the Trustee as
trustee under the Indenture on the thirty-fifth (35th) day (or, if such
day is not a Business Day, the next succeeding Business Day) unless
holders of not less that 20% in aggregate principal amount of the Notes
then outstanding object in writing to the removal of the existing
Trustee to the Company or the Trustee within thirty (30) days after the
date on which written notice of such proposed removal and appointment
is given to the holders of all of the Notes, and (v) include a
certification by the Company that, based on information provided by the
proposed successor trustee, such proposed successor trustee is eligible
to act as Trustee under the Indenture. The appointment of the proposed
successor trustee shall become effective on the thirty-fifth (35th) day
(or, if such day is not a Business Day, the next succeeding Business
Day) after the giving of the notice to holders of Notes as required by
the preceding sentence, by written instrument, in duplicate, executed
by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor
trustee, provided that neither such appointment nor such removal shall
be effective in the event that (A) a default or Event of Default under
the Indenture has occurred and is continuing as of such date, (B)
written objections shall have been received by the Company or the
Trustee by not less than 20% in aggregate principal amount of the Notes
as contemplated by clause (iv) of the preceding sentence, or (C) the
proposed successor trustee is not then eligible to act as Trustee under
the Indenture.
(c) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8
after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note or Notes
for at least six months, or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail
to resign after written request therefor by the Company or by
any such Noteholder, or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be
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appointed, or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint
a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor
trustee, or, subject to the provisions of Section 7.9, any Noteholder
who has been a bona fide holder of a Note or Notes for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(d) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee
and nominate a successor trustee which shall be deemed appointed as
successor trustee unless within ten (10) days after notice to the
Company of such nomination the Company objects thereto, in which case
the Trustee so removed or any Noteholder, upon the terms and conditions
and otherwise as in Section 8.10(a) provided, may petition any court of
competent jurisdiction for an appointment of a successor trustee.
(e) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this
Section 8.10 shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 8.11.
Section 8.11 Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property and funds held or collected by
such trustee as such, except for funds held in trust for the benefit of holders
of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
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Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company shall mail or cause to be mailed notice of the
succession of the former trustee hereunder to the holders of Notes at their
addresses as they shall appear on the Note register. If the Company fails to
mail such notice within ten (10) days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Company.
Section 8.12 Succession by Merger, Etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor to
the Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that in the case
of any corporation succeeding to all or substantially all of the trust business
of the Trustee such corporation shall be qualified under the provisions of
Section 8.8 and eligible under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 Limitation on Rights of Trustee as Creditor. If and when
the Trustee shall be or become a creditor of the Company (or any other obligor
upon the Notes), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 Action by Noteholders. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in
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writing, or (b) by the record of the holders of Notes voting in favor thereof at
any meeting of Noteholders duly called and held in accordance with the
provisions of Article X, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of Noteholders. Whenever the
Company or the Trustee solicits the taking of any action by the holders of the
Notes, the Company or the Trustee may fix in advance of such solicitation, a
date as the record date for determining holders entitled to take such action.
The record date shall be not more than fifteen (15) days prior to the date of
commencement of solicitation of such action.
Section 9.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the Note register or by a certificate of the
Note registrar.
The record of any Noteholders' meeting shall be proved in the manner
provided in Section 10.6.
Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee,
any paying agent, any conversion agent and any Note registrar may deem the
person in whose name such Note shall be registered upon the Note register to be,
and may treat him as, the absolute owner of such Note (whether or not such Note
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of, premium, if any, and interest on such Note, for conversion of such Note and
for all other purposes; and neither the Company nor the Trustee nor any paying
agent nor any conversion agent nor any Note registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for monies payable
upon any such Note.
Section 9.4 Company-Owned Notes Disregarded. In determining whether the
holders of the requisite aggregate principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes which
are owned by the Company or any other obligor on the Notes or by any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other
action only Notes which a Responsible Officer knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or a person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor. In
the case of a dispute as to such right, any decision by the Trustee taken upon
the advice of counsel shall be full protection to the Trustee. Upon request of
the Trustee, the Company shall furnish to the Trustee promptly an
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Officers' Certificate listing and identifying all Notes, if any, known by the
Company to be owned or held by or for the account of any of the above described
persons; and, subject to Section 8.1, the Trustee shall be entitled to accept
such Officers' Certificate as conclusive evidence of the facts therein set forth
and of the fact that all Notes not listed therein are outstanding for the
purpose of any such determination.
Section 9.5 Revocation of Consents; Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note which is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 9.2, revoke such action so far as concerns such
Note. Except as aforesaid, any such action taken by the holder of any Note shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Note and of any Notes issued in exchange or substitution
therefor, irrespective of whether any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.
ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 Purpose of Meetings. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee permitted under this Indenture, or
to consent to the waiving of any default or Event of Default hereunder
and its consequences, or to take any other action authorized to be
taken by Noteholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2;
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law; or
(5) to take any other action authorized by this Indenture or
under applicable law.
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Section 10.2 Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 10.1, to
be held at such time and at such place in the Borough of Manhattan, The City of
New York, or any other reasonably convenient city in the continental United
States, as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting and the establishment of
any record date pursuant to Section 9.1, shall be mailed to holders of Notes at
their addresses as they shall appear on the Note register. Such notice shall
also be mailed to the Company. Such notices shall be mailed not less than twenty
(20) nor more than ninety (90) days prior to the date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if the holders
of all Notes then outstanding are present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding, and
if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
Section 10.3 Call of Meetings by Company or Noteholders. In case at any
time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least 10% in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place for such meeting and
may call such meeting to take any action authorized in Section 10.1, by mailing
notice thereof as provided in Section 10.2.
Section 10.4 Qualifications for Voting. To be entitled to vote at any
meeting of Noteholders a person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a person appointed by an
instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.5 Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the
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meeting shall be elected by vote of the holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting.
Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders. Any meeting
of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3
may be adjourned from time to time by the holders of a majority of the aggregate
principal amount of Notes represented at the meeting, whether or not
constituting a quorum, and the meeting may be held as so adjourned without
further notice.
Section 10.6 Voting. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be subscribed
the signatures of the holders of Notes or of their representatives by proxy and
the principal amount of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Noteholders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any right
or rights conferred upon or reserved to the Trustee or to the Noteholders under
any of the provisions of this Indenture or of the Notes.
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ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of Noteholders.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provisions with respect to the conversion rights
of the holders of Notes pursuant to the requirements of Section 15.6;
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article XII;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be for the benefit of the holders of Notes,
and to make the occurrence, or the occurrence and continuance, of a
default in any such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any
of the several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Notes
in coupon form (including Notes registrable as to principal only) and
to provide for exchangeability of such Notes with the Notes issued
hereunder in fully registered form and to make all appropriate changes
for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture which shall
not materially adversely affect the interests of the holders of the
Notes;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
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(h) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualifications of this Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 11.2.
Section 11.2 Supplemental Indentures With Consent of Noteholders. With
the consent (evidenced as provided in Article IX) of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding (determined in accordance with Section 9.4), the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption or repurchase
thereof, change or impair the obligation of the Company to repurchase any Note
at the option of the holder upon the happening of a Designated Event, or impair
or affect the right of any Noteholder to institute suit for the payment thereof,
or make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, or change or impair
the right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, or modify the provisions of this Indenture with
respect to the subordination of the Notes in a manner adverse to the
Noteholders, without the consent of the holder of each Note so affected, or (ii)
reduce the aforesaid percentage of Notes, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holders
of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
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It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3 Effect of Supplemental Indentures. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article XI, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 11.4 Notation on Notes. Notes authenticated and delivered after
the execution of any supplemental indenture pursuant to the provisions of this
Article XI may (but need not) bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may (but need not), at the
Company's expense, be prepared and executed by the Company, authenticated by the
Trustee (or an authenticating agent duly appointed by the Trustee pursuant to
Section 17.11) and delivered in exchange for the Notes then outstanding, upon
surrender of such Notes then outstanding.
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and
8.2, shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any supplemental indenture executed pursuant
hereto complies with the requirements of this Article XI.
ARTICLE XII
MERGER, SALE OR CONSOLIDATION
Section 12.1 Limitation on Merger, Sale or Consolidation.
(a) The Company shall not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons, unless (i) either (A) in the case
of a merger or consolidation, the Company is the surviving entity or (B) the
resulting, surviving or transferee entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of the
Company in
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connection with the Securities and the Indenture; (ii) no Default or Event of
Default shall exist or shall occur immediately before or after giving effect on
a pro forma basis to such transaction; and (iii) the Company has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, lease, conveyance or transfer and, if a
supplemental indenture is required, such supplemental indenture comply with the
Indenture and that all conditions precedent relating to such transactions have
been satisfied.
(b) For purposes of clause (a) of this Section 12.1,
the sale, lease, conveyance, assignment, transfer, or other disposition of all
or substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Section 12.2 Successor Corporation to Be Substituted. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of HMT Technology Corporation any or all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee; and, upon the order of such successor
corporation instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver, or cause to be authenticated and delivered, any Notes which
previously shall have been signed and delivered by the officers of the Company
to the Trustee for authentication, and any Notes which such successor
corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the Notes so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Notes theretofore or thereafter
issued in accordance with the terms of this Indenture as though all of such
Notes had been issued at the date of the execution hereof. In the event of any
such consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture, or any successor which shall
thereafter have become such in the manner prescribed in this Article XII and
which shall have transferred its rights and obligations hereunder to another
successor in the manner prescribed in this Article XII, may be dissolved, wound
up and liquidated at any time thereafter and such person shall be released from
its liabilities as obligor and maker of the Notes and from its obligations under
this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.
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ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture. When (a) the Company shall deliver
to the Trustee for cancellation all Notes theretofore authenticated (other than
any Notes which have been destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
and not theretofore canceled, or (b) all the Notes not theretofore canceled or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and the Company shall deposit with the
Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all
of the Notes (other than any Notes which shall have been mutilated, destroyed,
lost or stolen and in lieu of or in substitution for which other Notes shall
have been authenticated and delivered) not theretofore canceled or delivered to
the Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to such date of maturity or redemption date, as
the case may be, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect (except as to (i) remaining rights of registration
of transfer, substitution and exchange and conversion of Notes, (ii) rights
hereunder of Noteholders to receive payments of principal of and premium, if
any, and interest on the Notes and the other rights, duties and obligations of
Noteholders, as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights, obligations and immunities of
the Trustee hereunder), and the Trustee, on demand of the Company accompanied by
an Officers' Certificate and an Opinion of Counsel as required by Section 17.5
and at the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture; the Company,
however, hereby agrees to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Notes.
Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject
to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1
shall be held in trust and applied by it to the payment, notwithstanding the
provisions of Article IV, either directly or through any paying agent (including
the Company if acting as its own paying agent), to the holders of the particular
Notes for the payment or redemption of which such monies have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Notes (other than the Trustee) shall, upon demand of the Company, be repaid to
it or paid to the Trustee, and thereupon such paying agent shall be released
from all further liability with respect to such monies.
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Section 13.4 Return of Unclaimed Monies. Subject to the requirements of
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or interest on Notes and not applied but
remaining unclaimed by the holders of Notes for two years after the date upon
which the principal of, premium, if any, or interest on such Notes, as the case
may be, shall have become due and payable, shall be repaid to the Company by the
Trustee on demand and all liability of the Trustee shall thereupon cease with
respect to such monies; and the holder of any of the Notes shall thereafter look
only to the Company for any payment which such holder may be entitled to collect
unless an applicable abandoned property law designates another person.
Section 13.5 Reinstatement. If (i) the Trustee or the paying agent is
unable to apply any money in accordance with Section 13.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application and (ii) the holders of at least a
majority in principal amount of the then outstanding Notes so request by written
notice to the Trustee, the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 13.1 until such time as the Trustee or the paying agent is permitted
to apply all such money in accordance with Section 13.2; provided, however, that
if the Company makes any payment of interest or premium, if any, on or principal
of any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the holders of such Notes to receive such payment
from the money held by the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or Subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
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ARTICLE XV
CONVERSION OF NOTES
Section 15.1 Right to Convert. Subject to and upon compliance with the
provisions of this Indenture, the holder of any Note shall have the right, at
his option, at any time prior to the close of business on 1, 2003 (except that,
with respect to any Note or portion of a Note which shall be called for
redemption, such right shall terminate, except as provided in the fourth
paragraph of Section 15.2, at the close of business on the last Trading Day
prior to the date fixed for redemption of such Note or portion of a Note unless
the Company shall default in payment due upon redemption thereof and such right
shall terminate with respect to any Note or portion thereof subject to a duly
completed election for repurchase unless the Company shall default in payment
due upon repurchase thereof) to convert the principal amount of any such Note,
or any portion of such principal amount which is $1,000 or an integral multiple
thereof, into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price in effect at such time, by surrender of the Note so to be
converted in whole or in part in the manner provided in Section 15.2. A Note in
respect of which a holder has delivered a notice of exercise of the right to
require the Company to repurchase such Note upon the occurrence of a Designated
Event may be converted only if such notice of exercise is withdrawn in
accordance with the terms of Section 16.2(b). A holder of Notes is not entitled
to any rights of a holder of Common Stock until such holder has converted his
Notes to Common Stock, and only to the extent such Notes are deemed to have been
converted to Common Stock under this Article XV.
Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Note, the holder of any such Note to be
converted in whole or in part shall surrender such Note, duly endorsed, at an
office or agency maintained by the Company pursuant to Section 5.2, accompanied
by the funds, if any, required by the last paragraph of this Section 15.2, and
shall give written notice of conversion in the form provided on the Notes (or
such other notice which is acceptable to the Company) to such office or agency
that the holder elects to convert such Note or such portion thereof specified in
said notice. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered
for conversion shall, unless the shares issuable on conversion are to be issued
in the same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, the Company shall issue and shall deliver to such
holder at the office or agency maintained by the Company for such purpose
pursuant to Section 5.2, a certificate or certificates for the number of
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full shares of Common Stock issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 15.3 (which payment, if any, shall
be paid no later than five Business Days after satisfaction of the requirements
for conversion set forth above). In case any Note of a denomination greater than
$1,000 shall be surrendered for partial conversion, and subject to Section 2.3,
the Company shall execute and the Trustee shall authenticate and deliver to the
holder of the Note so surrendered, without charge to him, a new Note or Notes in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 15.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date through the close of business on the day next preceding such interest
payment date shall (unless such Note or portion thereof being converted shall
have been called for redemption during the period from the close of business on
the record date for any interest payment date through the close of business on
the day next preceding such interest payment date) be accompanied by payment, in
funds acceptable to the Company, of an amount equal to the interest otherwise
payable on such interest payment date on the principal amount being converted;
provided, however, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Notes. An amount
equal to such payment shall be paid by the Company on such interest payment date
to the holder of such Note at the close of business on such record date;
provided, however, that if the Company shall default in the payment of interest
on such interest payment date, such amount shall be paid to the person who made
such required payment. Except as provided above in this Section 15.2, no
adjustment shall be made for interest accrued on any Note converted or for
dividends on any shares issued upon the conversion of such Note as provided in
this Article.
Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered for conversion. If any fractional share of
stock otherwise would be issuable upon the
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conversion of any Note or Notes, the Company shall make an adjustment therefor
in cash at the Current Market Price on the last Trading Day prior to the date of
conversion.
Section 15.4 Conversion Price. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XV.
Section 15.5 Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make
a distribution to all holders of the outstanding Common Stock in shares
of Common Stock, the Conversion Price in effect at the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Record Date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately
after the opening of business on the day following the Record Date. If
any dividend or distribution of the type described in this Section
15.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect
if such dividend or distribution had not been declared.
(b) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(c) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for a
period expiring within forty-five (45) days after the date fixed for
the determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price (as defined in
Section 15.5(h)) on the Record Date fixed for the determination of
stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect at the
opening of business on the date after such Record Date by a fraction of
which the numerator shall be the number of shares of Common
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Stock outstanding at the close of business on the Record Date plus the
number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Current Market Price, and
of which the denominator shall be the number of shares of Common Stock
outstanding on the close of business on the Record Date plus the total
number of additional shares of Common Stock so offered for subscription
or purchase. Such adjustment shall become effective immediately after
the opening of business on the day following the Record Date fixed for
determination of stockholders entitled to receive such rights or
warrants. To the extent that shares of Common Stock are not delivered
pursuant to such rights or warrants, upon the expiration or termination
of such rights or warrants the Conversion Price shall be readjusted to
the Conversion Price which would then be in effect had the adjustments
made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued,
the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination
of stockholders entitled to receive such rights or warrants had not
been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants,
the value of such consideration, if other than cash, to be determined
by the Board of Directors.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or distributions
to which Section 15.5(a) applies) or evidences of its indebtedness,
cash or other assets (including securities, but excluding any rights or
warrants referred to in Section 15.5(b) and dividends and distributions
paid exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation
to which Section 15.6 applies) (the foregoing hereinafter in this
Section 15.5(d) called the "Securities"), then, in each such case, the
Conversion Price shall be reduced so that the same shall be equal to
the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the Record Date (as
defined in Section 15.5(h)) with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price (as
defined in Section 15.5(h)) on such date less the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on such date of the
portion of the Securities so distributed applicable to one share of
Common Stock and the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening of
business on the day following the Record Date; provided, however, that
in the event the then fair market value (as so determined) of the
portion of the Securities so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Noteholder shall have the right to
receive upon conversion of a Note (or any portion thereof) the amount
of Securities such holder would have received had such holder converted
such Note (or
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portion thereof) immediately prior to such Record Date. In the event
that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not
been declared. If the Board of Directors determines the fair market
value of any distribution for purposes of this Section 15.5(d) by
reference to the actual or when issued trading market for any
securities comprising all or part of such distribution, it must in
doing so consider the prices in such market over the same period used
in computing the Current Market Price pursuant to Section 15.5(h) to
the extent possible.
In the event the Company implements a stockholder rights plan,
such rights plan shall provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon
such conversion, the rights issued under such rights plan
(notwithstanding the occurrence of an event causing such rights to
separate from the Common Stock at or prior to the time of conversion).
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 15.5(d) (and no adjustment to the Conversion Price
under this Section 15.5(d) will be required) until the occurrence of the
earliest Trigger Event. If such right or warrant is subject to subsequent
events, upon the occurrence of which such right or warrant shall become
exercisable to purchase different securities, evidences of indebtedness or other
assets or entitle the holder to purchase a different number or amount of the
foregoing or to purchase any of the foregoing at a different purchase price,
then the occurrence of each such event shall be deemed to be the date of
issuance and Record Date with respect to a new right or warrant (and a
termination or expiration of the existing right or warrant without exercise by
the holder thereof to the extent not exercised). In addition, in the event of
any distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto, that resulted in an adjustment to the Conversion Price under
this Section 15.5(d), (1) in the case of any such rights or warrants which shall
all have been redeemed or repurchased without exercise by any holders thereof,
the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution (but not a distribution paid
exclusively in cash), equal to the per share redemption or repurchase price
received by a holder of Common Stock with respect to such rights or warrants
(assuming such holder had retained such rights or warrants), made to all holders
of Common Stock as of the date of such redemption or repurchase, and (2) in the
case of such rights or warrants all of which shall have expired or been
terminated without exercise, the Conversion Price shall be readjusted as if such
rights and warrants had never been issued.
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For purposes of this Section 15.5(d) and Sections 15.5(a) and
(b), any dividend or distribution to which this Section 15.5(d) is
applicable that also includes shares of Common Stock or also includes
rights or warrants to subscribe for or purchase shares of Common Stock
to which Section 15.5(b) applies (or also includes both), shall be
deemed to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other
than such shares of Common Stock or rights or warrants to which Section
15.5(b) applies (and any Conversion Price reduction required by this
Section 15.5(d) with respect to such dividend or distribution shall
then be made) immediately followed by (2) a dividend or distribution of
such shares of Common Stock or such rights or warrants (and any further
Conversion Price reduction required by Sections 15.5(a) and (b) with
respect to such dividend or distribution shall then be made, except (A)
the Record Date of such dividend or distribution shall be substituted
as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution", "Record Date fixed for
such determination" and "Record Date" within the meaning of Section
15.5(a) and as "the date fixed for the determination of stockholders
entitled to receive such rights or warrants", "the Record Date fixed
for the determination of the stockholders entitled to receive such
rights or warrants" and "such Record Date" within the meaning of
Section 15.5(b) and (B) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close
of business on the Record Date fixed for such determination" within the
meaning of Section 15.5(a)).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash
that is distributed upon a merger or consolidation to which Section
15.6 applies or as part of a distribution referred to in Section
15.5(d)), in an aggregate amount that, combined together with (1) the
aggregate amount of any other such distributions to all holders of its
Common Stock made exclusively in cash within the twelve (12) months
preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to this Section 15.5(e) has been made, and
(2) the aggregate of any cash plus the fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) of consideration payable in respect of
any tender offer by the Company or any Subsidiary for all or any
portion of the Common Stock concluded within the twelve (12) months
preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to Section 15.5(f) has been made, exceeds
10% of the product of the Current Market Price (as defined in Section
15.5(h)) on the Record Date with respect to such distribution times the
number of shares of Common Stock outstanding on such date, then, and in
each such case, immediately after the close of business on such date,
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Record Date by a
fraction (i) the numerator of which shall be equal to the Current
Market Price on the Record Date less an amount equal to the quotient of
(x) the excess of such combined amount over such 10% and (y) the number
of shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on such
date; provided, however, that in the
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event the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price of
the Common Stock on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Noteholder
shall have the right to receive upon conversion of a Note (or any
portion thereof) the amount of cash such holder would have received had
such holder converted such Note (or portion thereof) immediately prior
to such Record Date. In the event that such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such dividend or
distribution had not been declared. Any cash distribution to all
holders of Common Stock as to which the Company makes the election
permitted by Section 15.5(n) and as to which the Company has complied
with the requirements of such Section shall be treated as not having
been made for all purposes of this Section 15.5(e).
(f) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and
such tender offer (as amended upon the expiration thereof) shall
require the payment to stockholders (based on the acceptance (up to any
maximum specified in the terms of the tender offer) of Purchased Shares
(as defined below)) of an aggregate consideration having a fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) that combined
together with (1) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration
of such tender offer, of consideration payable in respect of any other
tender offers, by the Company or any Subsidiary for all or any portion
of the Common Stock expiring within the twelve (12) months preceding
the expiration of such tender offer and in respect of which no
adjustment pursuant to this Section 15.5(f) has been made and (2) the
aggregate amount of any distributions to all holders of the Company's
Common Stock made exclusively in cash within twelve (12) months
preceding the expiration of such tender offer and in respect of which
no adjustment pursuant to Section 15.5(e) has been made, exceeds 10% of
the product of the Current Market Price (as defined in Section 15.5(h))
as of the last time (the "Expiration Time") tenders could have been
made pursuant to such tender offer (as it may be amended) times the
number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date
of the Expiration Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the close of business on the date
of the Expiration Time by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding (including any
tendered shares) at the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed
so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the
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product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration
Time, such reduction (if any) to become effective immediately prior to
the opening of business on the day following the Expiration Time. In
the event that the Company or any Subsidiary is obligated to purchase
shares pursuant to any such tender offer, but the Company or such
Subsidiary is permanently prevented by applicable law from effecting
any such purchases or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would
then be in effect if such tender offer had not been made. If the
application of this Section 15.5(f) to any tender offer would result in
an increase in the Conversion Price, no adjustment shall be made for
such tender offer under this Section 15.5(f). Any cash distribution to
all holders of Common Stock as to which the Company has made the
election permitted by Section 15.5(n) and as to which the Company has
complied with the requirements of such Section shall be treated as not
having been made for all purposes of this Section 15.5(f).
(g) In case of a tender or exchange offer made by a person
other than the Company or any Subsidiary for an amount which increases
the offeror's ownership of Common Stock to more than 25% of the Common
Stock outstanding and shall involve the payment by such person of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors whose determination shall be
conclusive and described in a Board Resolution at the last time (the
"Offer Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as it shall have been amended)) that
exceeds the Current Market Price of the Common Stock on the Trading Day
next succeeding the Offer Expiration Time, and in which, as of the
Offer Expiration Time the Board of Directors is not recommending
rejection of the offer, the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the Offer Expiration Time by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) at the
Offer Expiration Time multiplied by the Current Market Price of the
Common Stock on the Trading Day next succeeding the Offer Expiration
Time and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Offer Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred
to as the "Purchased Common Shares") and (y) the product of the number
of shares of Common Stock outstanding (less any Purchased Common
Shares) on the Offer Expiration Time and the Current Market Price of
the Common Stock on the Trading Day next succeeding the Offer
Expiration Time, such reduction to become effective immediately prior
to the opening of business on the day following the Offer Expiration
Time. In the event that such person is obligated to purchase shares
pursuant to any such tender or exchange offer, but such person is
permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price which
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would then be in effect if such tender or exchange offer had not been
made. If the application of this Section 15.5(g) to any tender or
exchange offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender or exchange offer under this
Section 15.5(g). Notwithstanding the foregoing, the adjustment
described in this Section 15.5(g) shall not be made if, as of the
Expiration Time, the offering documents with respect to such offer
disclose a plan or intention to cause the Company to engage in any
transaction described in Article XII.
(h) For purposes of this Section 15.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on
any day shall mean the closing sale price regular way on such
day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, in each case on the Nasdaq National Market or New York
Stock Exchange, as applicable, or, if such security is not
listed or admitted to trading on such National Market or
Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted
to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or, if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution.
(2) "Current Market Price" shall mean, except as
provided in the following sentence, the average of the daily
Closing Prices per share of Common Stock for the ten (10)
consecutive Trading Days immediately prior to the date in
question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section
15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten
(10) consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the "ex" date
for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d),
(e), (f) or (g) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and prior
to the day in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal
of the fraction by which the
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Conversion Price is so required to be adjusted as a result of
such other event, and (3) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in
question, after taking into account any adjustment required
pursuant to clause (1) or (2) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair
market value (as determined by the Board of Directors in a
manner consistent with any determination of such value for
purposes of Section 15.5(d), (f) or (g), whose determination
shall be conclusive and described in a Board Resolution) of
the evidences of indebtedness, shares of capital stock or
assets being distributed applicable to one share of Common
Stock as of the close of business on the day before such "ex"
date. For purposes of any computation under Sections 15.5(f)
or (g), the Current Market Price of the Common Stock on any
date shall mean the average of the daily Closing Prices per
share of Common Stock for such day and the next two succeeding
Trading Days; provided, however, that if the "ex" date for any
event (other than the tender or exchange offer requiring such
computation) that requires an adjustment to the Conversion
Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) and
(g) occurs on or after the Expiration Time or Offer Expiration
Time, as applicable, for the tender or exchange offer
requiring such computation and prior to the day in question,
the Closing Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result
of such other event. For purposes of this paragraph, the term
"ex" date, (1) when used with respect to any issuance or
distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the
right to receive such issuance or distribution, (2) when used
with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock
trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes
effective, and (3) when used with respect to any tender or
exchange offer means the first date on which the Common Stock
trades regular way on such exchange or in such market after
the Expiration Time or Offer Expiration Time, as applicable,
of such offer. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for
pursuant to this Section 15.5, such adjustments shall be made
to the Current Market Price as may be necessary or appropriate
to effectuate the intent of this Section 15.5 and to avoid
unjust or inequitable results as determined in good faith by
the Board of Directors.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length
transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right
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to receive any cash, securities or other property or in which
the Common Stock (or other applicable security) is exchanged
for or converted into any combination of cash, securities or
other property, the date fixed for determination of
stockholders entitled to receive such cash, securities or
other property (whether such date is fixed by the Board of
Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York
Stock Exchange or another national security exchange, a day on
which the New York Stock Exchange or such other national
security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a
day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 15.5(a), (b), (c),
(d), (e), (f) and (g), as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least twenty (20) days, the
reduction is irrevocable during the period and the Board of Directors
shall have made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive
and described in a Board Resolution. Whenever the Conversion Price is
reduced pursuant to the preceding sentence, the Company shall mail to
the holder of each Note at his last address appearing on the Note
register provided for in Section 2.5 a notice of the reduction at least
fifteen (15) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and
the period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 15.5(j) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article XV shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. No adjustment need be made for a change in
the par value or no par value of the Common Stock.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth
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a brief statement of the facts requiring such adjustment. Promptly
after delivery of such certificate, the Company shall prepare a notice
of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at his last address
appearing on the Note register provided for in Section 2.5, within
twenty (20) days of the effective date of such adjustment. Failure to
deliver such notice shall not effect the legality or validity of any
such adjustment.
(l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after a Record Date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the holder of any Note converted after such Record Date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii) paying
to such holder any amount in cash in lieu of any fractional shares
pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company.
(n) In lieu of making any adjustment to the Conversion Price
pursuant to Section 15.5(e), the Company may elect to reserve an amount
of cash for distribution to the holders of the Notes upon the
conversion of the Notes so that any such holder converting Notes will
receive upon such conversion, in addition to the shares of Common Stock
and other items to which such holder is entitled, the full amount of
cash which such holder would have received if such holder had,
immediately prior to the Record Date for such distribution of cash,
converted its Notes into Common Stock, together with any interest
accrued with respect to such amount, in accordance with this Section
15.5(n). The Company may make such election by providing an Officers'
Certificate to the Trustee to such effect on or prior to the payment
date for any such distribution and depositing with the Trustee on or
prior to such date an amount of cash equal to the aggregate amount the
holders of the Notes would have received if such holders had,
immediately prior to the Record Date for such distribution, converted
all of the Notes into Common Stock. Any such funds so deposited by the
Company with the Trustee shall be invested by the Trustee in a money
market fund limited to United States government obligations, or
repurchase agreements backed by such obligations, and the Trustee shall
not be liable for any losses incurred from any such investment. Upon
conversion of Notes by a holder, the holder will be entitled to
receive, in addition to the Common Stock issuable upon conversion, an
amount of cash from such funds equal to the amount such holder would
have received if such holder had, immediately prior to the Record Date
for such distribution converted its Note into Common Stock, along with
such holder's pro-rata share
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of any accrued interest earned as a consequence of the investment such
funds. Promptly after making an election pursuant to this Section
15.5(n), the Company shall give or shall cause to be given notice to
all Noteholders of such election, which notice shall state the amount
of cash per $1,000 principal amount of Notes such holders shall be
entitled to receive (excluding interest) upon conversion of the Notes
as a consequence of the Company having made such election.
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company to
any other corporation as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, then the Company or
the successor or purchasing corporation, as the case may be, shall execute with
the Trustee a supplemental indenture (which shall comply with the Trust
Indenture Act as in force at the date of execution of such supplemental
indenture if such supplemental indenture is then required to so comply)
providing that such Note shall be convertible into the kind and amount of shares
of stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of such Notes (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock available to convert all such Notes)
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming such holder of Common Stock did not
exercise his rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section 15.6 the kind and
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each non-electing share shall
be deemed to be the kind and amount so receivable per share by a plurality of
the non-electing shares). Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. If, in the case of any such
reclassification, change, consolidation, merger, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the holders of the Notes as the Board of Directors
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shall reasonably consider necessary by reason of the foregoing, including to the
extent practicable the provisions providing for the repurchase rights set forth
in Article XVI herein.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The Trustee, subject to the provisions of Sections 8.1 and 8.2, shall
be entitled to receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Section 15.6.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
Section 15.7 Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
Common Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares to
provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be provided
for the purpose of conversion of Notes hereunder require registration with or
approval of any governmental authority
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under any federal or state law before such shares may be validly issued upon
conversion, the Company will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be.
The Company further covenants that if at any time the Common Stock
shall be listed on the New York Stock Exchange or any other national securities
exchange the Company will, if permitted by the rules of such exchange, list and
keep listed, so long as the Common Stock shall be so listed on such exchange,
all Common Stock issuable upon conversion of the Notes.
Section 15.9 Responsibility of Trustee. The Company is solely
responsible for performing the duties and responsibilities contained in this
Article XV, except for the specific obligations assigned to the Trustee in
Sections 15.2, 15.5(n) and 15.6, respectively, and except for duties assigned to
any conversion agent. The Trustee and any other conversion agent shall not at
any time be under any duty or responsibility to any holder of Notes to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same. The
Trustee and any other conversion agent shall not be accountable with respect to
the validity or value (or the kind or amount) of any shares of Common Stock, or
of any securities or property, which may at any time be issued or delivered upon
the conversion of any Note; and the Trustee and any other conversion agent make
no representations with respect thereto. Subject to the provisions of Section
8.1, neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or cash upon the surrender
of any note for the purpose of conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in this Article. Without
limiting the generality of the foregoing, neither the Trustee nor any conversion
agent shall be under any responsibility to determine the correctness of any
provisions contained in any supplemental indenture entered into pursuant to
Section 15.6 relating either to the kind or amount of shares of stock or
securities or property (including cash) receivable by Noteholders upon the
conversion of their Notes after any event referred to in such Section 15.6 or to
any adjustment to be made with respect thereto, but, subject to the provisions
of Section 8.1, may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the Officers' Certificate
(which the Company shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto.
Section 15.10 Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained
earnings); or
(b) the Company shall authorize the granting to all of the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any share of any class or any other rights or warrants; or
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(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding Common
Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or of any consolidation or merger to
which the Company is a party and for which approval of any shareholders
of the Company is required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen (15) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, authorization of rights or warrants, or, if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective or occur, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
ARTICLE XVI
REPURCHASE UPON A DESIGNATED EVENT
Section 16.1 Repurchase Right. If, at any time prior to , 2003 there
shall occur a Designated Event, then each Noteholder shall have the right, at
such holder's option, to require the Company to repurchase all of such holder's
Notes, or any portion thereof (in principal amounts of $1,000 or integral
multiples thereof), on the repurchase date (the "repurchase date") that is forty
(40) days after the date of the Company Notice (as defined in Section 16.2
below) of such Designated Event (or, if such 40th day is not a Business Day, the
next succeeding Business Day). Such repayment shall be made in cash at a price
equal to 100% of the principal amount of Notes such holder elects to require the
Company to repurchase together with accrued interest thereon to, but excluding,
the repurchase date (the "Repurchase Price"); provided that, if such repurchase
date is an interest payment date, the semi-annual payment of interest becoming
due on such date shall be payable to the holders of such Notes registered as
such on the relevant record date subject to the terms and provisions of Section
2.3 hereof. No Notes may be repurchased at the option of holders upon a
Designated Event if there has occurred and is continuing an Event of Default,
other than a default in the payment of the Repurchase Price with respect to such
Notes on the repurchase date.
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<PAGE> 74
Section 16.2 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all
of the outstanding Notes, on or before the fifteenth (15th) calendar day after
the occurrence of a Designated Event, the Company or, at the request of the
Company, the Trustee, shall mail to all holders a notice (the "Company Notice")
of the occurrence of the Designated Event and of the repurchase right set forth
herein arising as a result thereof. The Company shall also deliver a copy of
such Company Notice of a repurchase right to the Trustee and cause a copy of
such Company Notice of a repurchase right, or a summary of the information
contained therein, to be published in a newspaper of general circulation in The
City of New York. The Company Notice shall contain the following information:
(1) the repurchase date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a holder must follow
to exercise a repurchase right, and
(5) the Conversion Price then in effect, a statement that the
right to convert the principal amount of the Notes to be repurchased
will terminate upon surrender for repurchase (unless the Company
defaults in its obligation to repurchase the Notes) and the place or
places where Notes may be surrendered for conversion.
No failure of the Company to give the foregoing notices or defect
therein shall limit any holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
(b) To exercise a repurchase right, a holder shall deliver to the
Trustee on or before the thirty-fifth (35th) day after the date the Company
Notice is first mailed to Noteholders (i) written notice to the Company (or
agent designated by the Company for such purpose) of the holder's exercise of
such right, which notice shall set forth the name of the holder, the principal
amount of the Notes to be repurchased and a statement that an election to
exercise the repurchase right is being made thereby, and (ii) the Notes with
respect to which the repurchase right is being exercised, duly endorsed for
transfer to the Company.
A holder's notice of exercise of a repurchase right may be withdrawn by
means of a written notice of withdrawal delivered to the Company (or agent
designated by the Company for such purpose) at any time prior to the close of
business on the Trading Day prior to the repurchase date specifying:
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<PAGE> 75
(1) the serial number of the Note in respect of which such
notice of withdrawal is being submitted,
(2) the principal amount of the Note with respect to which
such notice of withdrawal is being submitted, and
(3) the principal amount, if any, of such Note which remains
subject to the original written notice of exercise of the repurchase
right and which has been delivered for repurchase by the Company.
(c) If the Company fails to repurchase on the repurchase date any Notes
(or portions thereof) as to which the repurchase right has been properly
exercised, then the principal of such Notes shall, until paid, bear interest to
the extent permitted by applicable law from the repurchase date at the rate
borne by the Notes and each such Note shall be convertible into Common Stock in
accordance with this Indenture until the principal of such Note shall have been
paid or duly provided for.
(d) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee (with due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and deliver to the holder of
such Note without service charge, a new Note or Notes, containing identical
terms and conditions, of any authorized denomination as requested by such holder
in aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Note so surrendered.
(e) On or prior to the repurchase date, the Company shall deposit with
the Trustee or with a paying agent (or, if the Company is acting as its own
paying agent, segregate and hold in trust as provided in Section 5.4) an amount
of money sufficient to pay the Repurchase Price of the Notes that are to be
repaid on the repurchase date, provided that if such payment is made on the
repurchase date it must be received by the Trustee or paying agent, as the case
may be, by 10:00 a.m., New York City time, on such date.
Section 16.3 Certain Definitions. For purposes of this Article XVI:
(a) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 and 13d-5, as in effect on the date of the
original execution of this Indenture, promulgated by the Commission
pursuant to the Exchange Act;
(b) the term "person" or "group" shall include any syndicate
or group which would be deemed to be a "person" under Section 13(d) (3)
and 14(d) of the Securities Exchange Act of 1934, as amended, as in
effect on the date of the original execution of this Indenture; and
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<PAGE> 76
(c) the term "Continuing Director" means at any date a member
of the Company's Board of Directors (i) who was a member of such board
on ________, 1996 or (ii) who was nominated or elected by at least a
majority of the directors who were Continuing Directors at the time of
such nomination or election or whose election to the Company's Board of
Directors was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination
or election. (Under this definition, if the current Board of Directors
of the Company were to approve a new director or directors and then
resign, no Change in Control would occur even though the current Board
of Directors would thereafter cease to be in office).
(d) the term "Designated Event" means a Change in Control or a
Termination of Trading.
(e) the term "Change in Control" means an event or series of
events as a result of which (i) any person or group is or becomes the
beneficial owner of shares representing more than 50% of the combined
voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company (the "Voting
Stock"), (ii) the stockholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company, (iii) the
Company consolidates with or merges into any other corporation, or
conveys, transfers or leases all or substantially all of its assets to
any person, or any other corporation merges into the Company, and, in
the case of any such transaction, the outstanding common stock of the
Company is changed or exchanged into or for other assets or securities
as a result, unless the stockholders of the Company immediately before
such transaction own, directly or indirectly immediately following such
transaction, at least 51% of the combined voting power of the
outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of
the Voting Stock immediately before such transaction, or (iv) the
Continuing Directors do not constitute a majority of the Board of
Directors of the Company (or, if applicable, a successor corporation to
the Company); provided that a Change in Control shall not be deemed to
have occurred if either (x) the Closing Price of the Common Stock for
any five (5) Trading Days during the ten (10) Trading Days immediately
preceding the Change in Control is at least equal to 105% of the
Conversion Price in effect on the date on which the Change in Control
occurs or (y) at least 90% of the consideration (excluding cash
payments for fractional shares) in the transaction or transactions
constituting the Change in Control consists of common stock traded on a
United States national securities exchange or quoted on the Nasdaq
National Market (or which will be so traded or quoted when issued or
exchanged in connection with such Change in Control) and as a result of
such transaction or transactions such Notes become convertible solely
into such common stock.
(f) a "Termination of Trading" shall have occurred if the
Common Stock of the Company (or other common stock into which the Notes
are then convertible) is neither listed for trading on a United States
national securities exchange nor approved for trading on an established
automated over-the-counter trading market in the United States.
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<PAGE> 77
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.
Section 17.2 Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 17.3 Addresses for Notices, Etc. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Notes on the Company shall be deemed to have
been sufficiently given or made, for all purposes if given or served by being
sent by overnight courier, or deposited postage prepaid by registered or
certified mail in a post office letter box addressed (until another address is
filed by the Company with the Trustee) to HMT Technology Corporation, 1055 Page
Avenue, Fremont, California, 94538, Attention: Chief Financial Officer. Any
notice, direction, request or demand hereunder to or upon the Trustee shall be
deemed to have been sufficiently given or made, for all purposes, if given or
served by being sent by overnight courier, or deposited postage prepaid by
registered or certified mail in a post office letter box addressed to the
Corporate Trust Office of the Trustee, which office is, at the date as of which
this Indenture is dated, located at ______________________________________,
Attention: ___________________________.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4 Governing Law. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York.
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<PAGE> 78
Section 17.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel, stating
that, in the opinion of such counsel, all such conditions precedent have been
complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 17.6 Legal Holidays. In any case where the date of maturity of
interest on or principal of the Notes or the date fixed for redemption or
repurchase of any Note will not be a Business Day, then payment of such interest
on or principal of the Notes need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption or repurchase, and no
interest shall accrue for the period from and after such date.
Section 17.7 No Security Interest Created. Nothing in this Indenture or
in the Notes, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction.
Section 17.8 Trust Indenture Act. If and to the extent that any
provision of this Indenture limits, qualifies or conflicts with another
provision included in this Indenture which is required to be included in this
Indenture by any of Section 310 to 317, inclusive, of the Trust Indenture Act,
such required provision shall control. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provision shall be deemed to apply to this
Indenture as so modified or excluded, as the case may be.
Section 17.9 Benefits of Indenture. Nothing in this Indenture or in the
Notes, expressed or implied, shall give to any person, other than the parties
hereto, any paying agent, any authenticating agent, any Note registrar, any
conversion agent and their successors hereunder, the holders of Notes and the
holders of Senior Indebtedness, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 17.10 Table of Contents, Headings, Etc. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference
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<PAGE> 79
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 17.11 Authenticating Agent. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and
purposes as though the authenticating agent had been expressly authorized by
this Indenture and those Sections to authenticate and deliver Notes. For all
purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
Trustee shall promptly appoint a successor authenticating agent (which may be
the Trustee), shall give written notice of such appointment to the Company and
shall mail notice of such appointment to all holders of Notes as the names and
addresses of such holders appear on the Note register.
The Trustee agrees to pay to the authenticating agent from time to time
reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.
Section 17.12 Execution in Counterparts. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
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<PAGE> 80
[Trustee] hereby accepts the trusts in this Indenture declared and
provided, upon the terms and conditions hereinabove set forth.
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<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed all as of the date first written above.
HMT TECHNOLOGY CORPORATION
By:
--------------------------------
Title:
-----------------------------
[TRUSTEE]
as Trustee
By:
--------------------------------
Title:
-----------------------------
75
<PAGE> 82
EXHIBIT A - FORM OF NOTE
[FORM OF FACE OF NOTE]
No.___________ $______________
HMT TECHNOLOGY CORPORATION
__% Convertible Subordinated Note Due 2003
HMT TECHNOLOGY CORPORATION, a corporation duly organized and validly
existing under the laws of the State of Delaware (herein called the "Company",
which term includes any successor corporation under the Indenture referred to on
the reverse hereof), for value received hereby promises to pay to
_____________________, or registered assigns, the principal sum of ___________
Dollars on ____________, 2003, and to pay interest on said principal sum
semiannually on __________ 1 and ___________ 1 of each year, commencing
____________, 199_, at the rate per annum specified in the title of this
Note, accrued from the _________ 1 or _________ 1, as the case may be, next
preceding the date of this Note to which interest has been paid or duly
provided for, unless the date of this Note is a date to which interest has
been paid or duly provided for, in which case interest shall accrue from the
date of this Note, or unless no interest has been paid or duly provided for on
this Note, in which case interest shall accrue from __________, 1996, until
payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any __________ 15
or __________ 15, as the case may be, and before the following __________ 1 or
__________ 1, this Note shall bear interest from such __________ 1 or
__________ 1, respectively; provided, however, that if the Company shall
default in the payment of interest due on such __________ 1 or __________ 1,
then this Note shall bear interest from the next preceding __________ 1 or
__________ 1 to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for on this Note, from _________,
1996. Except as provided in the Indenture with respect to Notes redeemed or
repurchased between a __________ 15 and __________ 1 or between a __________ 15
and __________ 1, the interest so payable on any __________ 1 or _________ 1
will be paid to the person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on the record date, which shall
be the __________ 15 or __________ 15 (whether or not a Business Day) next
preceding such __________ 1 or __________ 1, respectively; provided that any
such interest not punctually paid or duly provided for shall be payable as
provided in the Indenture. Payment of the principal of and interest accrued
on this Note shall be made at the office or agency of the Company maintained
for that purpose in the Borough of Manhattan, The City of New York, or, at
the option of the holder of this Note, at the Corporate Trust Office of the
Trustee, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts; provided, however, that at the option of the Company, payment of
interest may be made by check mailed to the registered address of the person
entitled thereto.
<PAGE> 83
Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on this Note to the
prior payment in full of all Senior Indebtedness as defined in the Indenture and
provisions giving the holder of this Note the right to convert this Note into
Common Stock of the Company on the terms and subject to the limitations referred
to on the reverse hereof and as more fully specified in the Indenture. Such
further provisions shall for all purposes have the same effect as though fully
set forth at this place.
This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by the
Trustee or a duly authorized authenticating agent under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
HMT TECHNOLOGY CORPORATION
Dated: By:
---------- -------------------------------------------------------
Title
Attest:
--------------------------------------------------
Secretary
2
<PAGE> 84
[FORM OF CERTIFICATE OF AUTHENTICATION]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named Indenture.
[TRUSTEE], as Trustee
By:
-----------------------------------------------
Authorized Signatory
[FORM OF REVERSE OF NOTE]
HMT TECHNOLOGY CORPORATION
[ %] Convertible Subordinated Note Due 2003
This Note is one of a duly authorized issue of Notes of the Company,
designated as its [ %] Convertible Subordinated Notes due 2003 (herein called
the "Notes"), limited to the aggregate principal amount of $172,500,000 all
issued or to be issued under and pursuant to an Indenture dated as of [Date],
1996 (herein called the "Indenture"), between the Company and State Street Bank
and Trust Company (herein called the "Trustee"), to which Indenture and all
indentures supplemental thereto reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Trustee, the Company and the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes at the time outstanding, evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the holders of the Notes; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal amount
thereof or premium, if any, thereon, or reduce any amount payable on redemption
or
<PAGE> 85
repurchase thereof, change or impair the obligation of the Company to repurchase
any Note at the option of the holder upon the happening of a Designated Event,
as defined in the Indenture, or impair or affect the right of any Noteholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Notes, or change or impair the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture, including
Section 15.6 thereof, or modify the provisions of the Indenture with respect to
the subordination of the Notes in a manner adverse to the Noteholders, without
the consent of the holder of each Note so affected or (ii) reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. It is also provided in the Indenture that, prior to any declaration
accelerating the maturity of the Notes, the holders of a majority in aggregate
principal amount of the Notes at the time outstanding may on behalf of the
holders of all of the Notes waive any past default or Event of Default under the
Indenture and its consequences except a default in the payment of interest or
any premium on or the principal of or any redemption price or repurchase price
of any of the Notes or a failure by the Company to convert any Notes into Common
Stock of the Company. Any such consent or waiver by the holder of this Note
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such holder and upon all future holders and owners of this Note and any
Notes which may be issued in exchange or substitution hereof, irrespective of
whether or not any notation thereof is made upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
as defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
his attorney in fact for such purpose.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the place, at the respective times, at the rate and in the coin
or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months compounded semi-annually.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. At the
office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without payment
of any service charge but with payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration or exchange of Notes,
2
<PAGE> 86
Notes may be exchanged for a like aggregate principal amount of Notes of other
authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
, 1998. On or after such date and prior to maturity the Notes may be redeemed at
the option of the Company as a whole, or from time to time in part, upon mailing
a notice of such redemption not less than 20 nor more than 60 days before the
date fixed for redemption to the holders of Notes at their last registered
addresses, all as provided in the Indenture, at the following redemption prices
(expressed as percentages of the principal amount), together in each case with
accrued interest to, but excluding, the date fixed for redemption; provided,
however, that the Company may not redeem the Notes prior to ____________, 1999
unless the closing price of the Common Stock on the principal stock exchange or
market on which the Common Stock is then quoted or admitted to trading equals or
exceeds 150% of the conversion price for at least 20 Trading Days, as defined in
the Indenture, within a period of 30 consecutive Trading Days ending on the
fifth Trading Day prior to the date the notice of redemption is first mailed to
the holder of the Notes.
If redeemed during the 12-month period beginning 1:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1998 %
1999 %
2000 %
2001 %
2002 %
</TABLE>
and 100% at _______, 2003; provided that, if the date fixed for redemption is a
________ 1 or ________ 1, then the interest payable on such date shall be paid
to the holder of record on the next preceding ________ 15 or _______ 15,
respectively.
The Notes are not subject to redemption through the operation of any
sinking fund.
Upon the occurrence of a Designated Event, as defined in the Indenture,
prior to _______, 2003, the Noteholder has the right, at such holder's option,
to require the Company to repurchase all or any portion of such holder's Notes
on the 40th day after notice of such Designated Event at a price equal to 100%
of the principal amount of the Notes, together in each case with accrued
interest to, but excluding, the date fixed for redemption; provided that if such
repurchase date is ________ 1 or ______ 1, then the interest payable on such
date shall be paid to the holder of record of the Note on the next preceding
_______ 15 or ________ 15, respectively. The Company shall mail to all holders
of record of the Notes a notice of the occurrence of a Designated Event and of
the repurchase right arising as a result thereof on or before 15 calendar days
after the occurrence of such Designated Event.
3
<PAGE> 87
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after the latest date of original issuance of
the Notes and prior to the close of business on the Trading Day next preceding
________ 1, 2003, or, as to all or any portion hereof called for redemption,
prior to the close of business on the Trading Day next preceding the date
fixed for redemption (unless the Company shall default in payment due upon
redemption), to convert the principal hereof or any portion of such principal
which is $1,000 or an integral multiple thereof, into that number of fully
paid and non-assessable shares of the Company's Common Stock, as said shares
shall be constituted at the date of conversion, obtained by dividing the
principal amount of this Note or portion thereof to be converted by the
conversion price of $_______ as such conversion price is adjusted from time to
time as provided in the Indenture, upon surrender of this Note, together with
a conversion notice as provided in the Indenture and this Note, to the Company
at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, or at the option of such holder,
the Corporate Trust Office of the Trustee, and, unless the shares issuable on
conversion are to be issued in the same name as this Note, duly endorsed by,
or accompanied by instruments of transfer in form satisfactory to the Company
duly executed by, the holder or by his duly authorized attorney. No adjustment
in respect of interest or dividends will be made upon any conversion;
provided, however, that if this Note shall be surrendered for conversion
during the period from the close of business on any record date for the
payment of interest through the close of business on the Trading Day next
preceding the following interest payment date, this Note (unless it or the
portion being converted shall have been called for redemption on a date in such
period) must be accompanied by an amount, in funds acceptable to the Company,
equal to the interest otherwise payable on such interest payment date on the
principal amount being converted. No fractional shares of Common Stock will be
issued upon any conversion, but an adjustment in cash will be paid to the
holder, as provided in the Indenture, in respect of any fraction of a share
which would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Any Notes called for redemption, unless surrendered for conversion on
or before the close of business on the last Trading Day prior to the date fixed
for redemption, may be deemed to be purchased from the holder of such Notes at
an amount equal to the applicable redemption price, together with accrued
interest to the date fixed for redemption, by one or more investment bankers or
other purchasers who may agree with the Company to purchase such Notes from the
holders thereof and convert them into Common Stock of the Company and to make
payment for such Notes as aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust Office
of the Trustee, a new Note or Notes of authorized denominations for an equal
aggregate principal amount will be issued to the transferee in exchange thereof,
subject to the limitations provided in the Indenture, without charge except for
any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this
4
<PAGE> 88
Note (whether or not this Note shall be overdue and notwithstanding any notation
of ownership or other writing hereon made by anyone other than the Company or
any Note registrar), for the purpose of receiving payment hereof, or on account
hereof, for the conversion hereof and for all other purposes, and neither the
Company nor the Trustee nor any other authenticating agent nor any paying agent
nor any other conversion agent nor any Note registrar shall be affected by any
notice to the contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid, satisfy and
discharge liability for monies payable on this Note.
No recourse for the payment of the principal of or premium, if any, or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer, director
or Subsidiary, as defined in the Indenture, as such, past, present or future, of
the Company or of any successor corporation, either directly or through the
Company or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
5
<PAGE> 89
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the _________________ Custodian
entireties (Cust)
JT TEN - as joint tenants with _________________ under
right of survivorship (Minor)
and not as tenants in
common
Uniform Gifts to
Minors Act_________________
(State)
Additional abbreviations may also be used
though not in the above list.
<PAGE> 90
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: HMT Technology Corporation
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid to the undersigned on account of interest accompanies this Note.
Dated:
-------------------
----------------------------------------------
----------------------------------------------
Signature(s)
Signature(s) must be guaranteed by
an eligible Guarantor Institution
(banks, stock brokers, savings and
loan associations and credit unions)
with membership in an approved signature
guarantee medallion program pursuant to
Securities and Exchange Commission
Rule 17Ad-15 if shares of Common Stock
are to be issued, or Notes are to be
delivered, other than to and in the name
of the registered holder.
- --------------------------------------------------
Signature Guarantee
<PAGE> 91
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:
- --------------------------------------
(Name)
- --------------------------------------
(Street Address)
- --------------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all): $_____,000
-----------------------------------
Social Security or Other
Taxpayer Identification Number
2
<PAGE> 92
[FORM OF OPTION TO ELECT REPURCHASE
UPON A DESIGNATED EVENT]
To: HMT Technology Corporation
The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from HMT Technology Corporation (the "Company") as to the
occurrence of a Designated Event with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Note, or the
portion thereof (which is $1,000 principal amount or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Note, together with accrued interest to such date, to the
registered holder hereof.
Dated:
---------------------------
----------------------------------------------
----------------------------------------------
Signature(s)
----------------------------------------------
Social Security or Other
Taxpayer Identification Number
Principal amount to be repaid
(if less than all): $_____,000
NOTICE: The above signatures of the
holder(s) hereof must correspond with the
name as written upon the face of the Note in
every particular without alteration or
enlargement or any change whatever.
<PAGE> 93
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sell(s), assign(s)
and transfer(s) unto ________________________________ (Please insert social
security or other identifying number of assignee) the within Note, and hereby
irrevocably constitutes and appoints
_________________________________________________________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.
Dated:
------------------
- ---------------------------------
- ---------------------------------
Signature(s)
Signature(s) must be guaranteed
by an eligible Guarantor Institution
(banks, stock brokers, savings and
loan associations and credit
unions) with membership in an
approved signature guarantee
medallion program pursuant to
Securities and Exchange
Commission Rule 17Ad-15
- ---------------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect repurchase
upon a Designated Event or the assignment must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatever.
<PAGE> 1
Exhibit 10.12.1
AMENDMENT AGREEMENT NO. 1
to that certain
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), dated as of February
22, 1996, is among HMT Technology Corporation (the "Borrower"), The First
National Bank of Boston ("FNBB"), Banque Paribas ("Paribas"), the other lending
institutions party thereto (collectively with FNBB and Paribas, the "Banks"),
The First National Bank of Boston as documentation agent and co-syndication
agent for itself, the other Banks and the Bank Agents (as defined therein), and
Banque Paribas as administrative agent (the "Agent") and co-syndication agent
for itself, the other Banks and the Banks Agents.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit and Term Loan Agreement, dated as of November 30, 1995
(as amended and in effect from time to time, the "Credit Agreement"), pursuant
to which the Banks, upon certain terms and conditions, have made loans to and
may issue letters of credit for the benefit of the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. DEFINED TERMS. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
Section 2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
hereby amended as follows:
(a) The definition of "Consolidated Excess Cash Flow" set forth
in Section 1.1 of the Credit Agreement is amended by inserting after
the words "any optional" in clause (C) of such definition the word
"permanent".
(b) The definition of "Majority Banks" set forth in Section 1.1
of the Credit Agreement is amended by inserting after the word
"Banks", the parenthetical "(excluding any Delinquent Banks)".
<PAGE> 2
-2-
(c) The definition of "Obligations" set forth in Section
1.1 of the Credit Agreement is amended by deleting the words "the Bank
Agents", and substituting therefor the words "any of the Banks".
(d) Section 6.3.3 of the Credit Agreement is amended as
follows:
(i) paragraph (a) of Section 6.3.3 is amended by
inserting before the period at the end of such paragraph the
following text: "or, in the case of a Bank that is not a "bank"
under Section 881(c) of the Code, a Form W-8 and a certificate
stating that such Bank is not a "bank" within the meaning of the
aforementioned Code section";
(ii) paragraph (c) of Section 6.3.3 is amended by
inserting after the words "Form 1001", the words "or Form W-8,
if applicable";
(iii) paragraph (c)(i) of Section 6.3.3 is amended by
inserting after the words "Form 4224", the words "or Form W-8";
and
(iv) Paragraph (c)(ii) of Section 6.3.3 is amended by
(A) deleting the word "or" between the words "Form 4224" and
"Form 1001" contained in the third line of such paragraph
(c)(ii) and substituting therefore a comma, and (B) deleting
the words "or, as the case may be Form 1001" contained in the
5th line of such paragraph (c)(ii) and substituting therefore
the words ", Form 1001, or as the case may be, Form W-8".
(e) Section 9.15 of the Credit Agreement is amended by
deleting the number "sixty (60)", and substituting therefor the number
"one hundred twenty (120)".
(f) Section 16.5.3 of the Credit Agreement is amended by
inserting the following sentence at the end of such section: "Until such
time as its delinquency is satisfied, a Delinquent Bank shall have no
right to vote with respect to any matters under or in respect of this
Credit Agreement and shall not be entitled to receive its portion of any
commitment fee paid in accordance with Section 2.2 of this Credit
Agreement."
(g) Section 20.5 of the Credit Agreement is amended by
inserting before the period at the end of such section the words "or
fees".
(h) Section 27 of the Credit Agreement is amended by
inserting after the words "Notwithstanding the foregoing, the rate of
interest on the Notes," in the second sentence thereof, the following
phrase "the timing of any regularly scheduled payment date for
principal, interest or fees".
Section 3. AFFIRMATION AND ACKNOWLEDGE OF THE BORROWER. The
Borrower hereby ratifies and confirms all of its Obligations to the Banks,
including, without limitation the Loans, and the Borrower hereby affirms its
absolute and unconditional promise to pay to the Banks the Loans and all other
amounts due under the Credit
<PAGE> 3
-3-
Agreement as amended hereby. The Borrower hereby confirms that the Obligations
are and remain secured pursuant to the Security Documents and pursuant to all
other instruments and documents executed and delivered by the Borrower as
security for the Obligations.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this Amendment
and all other instruments and agreements required to be executed and
delivered by the Borrower in connection with the transactions
contemplated hereby or referred to herein (collectively, the "Amendment
Documents"), and the performance by the Borrower of its obligations and
agreements under the Amendment Documents and the Credit Agreement as
amended hereby, are within the corporate authority of the Borrower, have
been authorized by all necessary corporate proceedings on behalf of the
Borrower, and do not and will not contravene any provision of law or any
of the Borrower's charter, other incorporation papers, by-laws or any
stock provision or any amendment thereof or of any indenture, agreement,
instrument or undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as amended
hereby constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally binding the
execution, delivery or performance by the Borrower of the Amendment
Documents or the Credit Agreement as amended hereby, or the consummation
by the Borrower of the transactions among the parties contemplated
hereby and thereby or referred to herein.
(d) The representations and warranties contained in Section 8 of
the Credit Agreement were correct at and as of the date made. Except to
the extent that the facts upon which such representations and warranties
were based have changed in the ordinary course of business (which
changes, either singly or in the aggregate, have not been materially
adverse) and after giving effect to the provisions hereof, such
representations and warranties also are correct at and as of the date
hereof.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
Section 6. EFFECTIVENESS. The effectiveness of this Amendment shall be
subject to the satisfaction of the following conditions:
<PAGE> 4
-4-
(a) Delivery. Each of the Borrower, the Banks and the Bank Agents
shall have executed and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident
thereto shall be reasonably satisfactory in substance and form to the
Banks, the Bank Agents and the Bank Agents' Special Counsel, and the Banks,
the Bank Agents and such counsel shall have received all information and
such counterpart originals or certified or other copies of such documents
as the Bank Agents may reasonably request.
Section 7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of
the parties hereto that the Credit Agreement, as amended hereby, shall
continue in full force and effect, and that this Amendment and Credit
Agreement shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL
AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
(d) Pursuant to Section 17 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable
out-of-pocket costs and expenses incurred or sustained by the Agent in
connection with the preparation of this Amendment (including reasonable legal
fees).
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
HMT TECHNOLOGY CORPORATION
By:
-------------------------------
Title: President and CEO
BANQUE PARIBAS, individually and as
Agent and Co-Syndication Agent
By:
-------------------------------
Title: Vice President
By:
-------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Documentation
Agent and Co-Syndication Agent
By:
-------------------------------
Title: Division Executive
FLEET NATIONAL BANK OF MASSACHUSETTS
By:
-------------------------------
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By:
-------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.12.2
AMENDMENT AGREEMENT NO. 2
to that certain
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This AMENDMENT AGREEMENT NO. 2 (the "Amendment"), dated as of March 31,
1996, is among HMT Technology Corporation (the "Borrower"), The First National
Bank of Boston ("FNBB"), Banque Paribas ("Paribas"), the other lending
institutions party thereto (collectively with FNBB and Paribas, the "Banks"),
The First National Bank of Boston as documentation agent and co-syndication
agent for itself, the other Banks and the Bank Agents (as defined therein), and
Banque Paribas as administrative agent (the "Agent") and co-syndication agent
for itself, the other Banks and the Banks Agents.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit and Term Loan Agreement, dated as of November 30, 1996
(as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks, upon certain terms and conditions, have made loans
to and may issue letters of credit for the benefit of the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
Section 2. Amendment of Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is amended by inserting
the following definition in the appropriate place in the alphabetical
sequence thereof:
CMDC Purchase. The purchase by the Borrower of certain assets
of Computer Memory Disk Corporation for an aggregate purchase price not
in excess of $5,000,000 and otherwise on terms and conditions
satisfactory to the Bank Agents.
(b) Section 9.4 of the Credit Agreement is amended as follows:
<PAGE> 2
(i) paragraph (b) of section 9.4 is amended by
deleting the words "the fiscal quarters" in each instance in
such paragraph and substituting therefor the words "the first
three fiscal quarters of each fiscal year";
(ii) paragraph (c) of section 9.4 is amended by
deleting such paragraph in its entirety and substituting
therefor the phrase "intentionally omitted";
(iii) paragraph (d) of section 9.4 is amended by
deleting the letter "(c)" in such paragraph and substituting
therefor the letter "(b)";
(iv) paragraph (h) of section 9.4 is amended by
deleting the phrase "February 28th of each year" from clause
(ii) of such paragraph and substituting therefor the phrase
"ninety (90) days after the end of each fiscal year of the
Borrower"; and
(v) paragraph (i) of section 9.4 is amended by
deleting such paragraph in its entirety and substituting
therefor the phrase "intentionally omitted".
(c) Section 10.8.1 of the Credit Agreement is amended by
inserting before the period at the end of such section the following
text "and except for the CMDC Purchase; provided that no later than
May 31, 1996 the Borrower shall have executed and delivered to the
Agent financing statements in form and substance satisfactory to the
Agent for filing in the jurisdictions where the Collateral acquired in
connection with the CMDC Purchase is located; and provided further,
that although the Banks as of the date of such acquisition have elected
to defer compliance by the Borrower with section 9.13 of the Credit
Agreement in connection with such acquisition, the Borrower will, upon
the request of the Agent, execute and deliver to the Agent a mortgage
in form and substance satisfactory to the Agent over the real estate
acquired pursuant to the CMDC Purchase Agreement and shall otherwise
comply with the provision of section 9.13".
(d) Section 11.5 of the Credit Agreement is amended by
deleting such section in its entirety and substituting therefor the
phrase "Intentionally Omitted."
Section 3. Affirmation and Acknowledgment of the Borrower. The
Borrower hereby ratifies and confirms all of its Obligations to the Banks,
including, without limitation the Loans, and the Borrower hereby affirms its
absolute and unconditional promise to pay to the Banks the Loans and all other
amounts due under the Credit Agreement as amended hereby. The Borrower hereby
confirms that the Obligations are and remain secured pursuant to the Security
Documents and pursuant to all other instruments and documents executed and
delivered by the Borrower as security for the Obligations.
Section 4. Representation and Warranties. The Borrower hereby
represents and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this
Amendment and all other instruments and agreements required to be executed and
delivered by the
<PAGE> 3
Borrower in connection with the transactions contemplated hereby or
referred to herein (collectively, the "Amendment Documents"), and the
performance by the Borrower of its obligations and agreements under the
Amendment Documents and the Credit Agreement as amended hereby, are
within the corporate authority of the Borrower, have been authorized by
all necessary corporate proceedings on behalf of the Borrower, and do
not and will not contravene any provision of law or any of the
Borrower's charter, other incorporation papers, by-laws or any stock
provision or any amendment thereof or of any indenture, agreement,
instrument or undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as
amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms except
as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of or filing with, any
governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by the Borrower of the
Amendment Documents or the Credit Agreement as amended hereby, or the
consummation by the Borrower of the transactions among the parties
contemplated hereby and thereby or referred to herein.
(d) The representations and warranties contained in section
8 of the Credit Agreement were correct at and as of the date made.
Except to the extent that the facts upon which such representations and
warranties were based have changed in the ordinary course of business
(which changes, either singly or in the aggregate, have not been
materially adverse) and after giving effect to the provisions hereof,
such representations and warranties also are correct at and as of the
date hereof.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
Section 6. Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrower, the Banks and the Bank
Agents shall have executed and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in
connection with the transactions contemplated by this Amendment and all
documents incident thereto shall be reasonably satisfactory in
substance and form to the Majority Banks, the Bank Agents and the Bank
Agents' Special Counsel, and the Majority Banks, the Bank Agents and
such counsel shall have received all information and such counterpart
originals or certified or other copies of such documents as the Bank
Agents may reasonably request.
<PAGE> 4
Section 7. Miscellaneous Provisions. (a) Except as otherwise
expressly provided by this Amendment all of the terms, conditions and
provisions of the Credit Agreement shall remain the same. It is declared and
agreed by each of the parties hereto that the Credit Agreement, as amended
hereby, shall continue in full force and effect, and that this Amendment and
the Credit Agreement shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN
AGREEMENT UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
instrument. In making proof of this Amendment it shall not be necessary to
produce or account for more than one counterpart signed by each party hereto by
and against which enforcement hereof is sought.
(d) Pursuant to section 17 of the Credit Agreement, the
Borrower hereby agrees to pay to the Agent on demand by the Agent, all
reasonable out-of-pocket costs and expenses incurred or sustained by the Agent
in connection with the preparation of this Amendment (including reasonable
legal fees).
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
HMT TECHNOLOGY CORPORATION
By:
--------------------------------
Title: President and CEO
BANQUE PARIBAS, individually and as
Agent and Co-Syndication Agent
By: /s/
--------------------------------
Title: Vice President
By: /s/
--------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Documentation
Agent and Co-Syndication Agent
By:
--------------------------------
Title: Division Executive
FLEET NATIONAL BANK
OF MASSACHUSETTS
By:
--------------------------------
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By:
--------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 11.1
HMT TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE(1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Primary and Fully Diluted:
Weighted average shares outstanding for the period................. 29,656 29,656 30,234
Common equivalent shares pursuant to Staff Accounting Bulletin No.
83............................................................... 5,166 5,166 4,990
------- ------- -------
Shares used in computing per share amounts......................... 34,822 34,822 35,224
======= ======= =======
Net income (loss) available for common
stockholders..................................................... (17,325) (8,941) 45,222
======= ======= =======
Net income per common share........................................ $ (0.50) $ (0.26) $ 1.28
======= ======= =======
</TABLE>
- ---------------
(1) Primary and fully diluted calculations are substantially the same.
<PAGE> 1
EXHIBIT 12.1
HMT TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) before income tax
provision (benefit) and
extraordinary debt extinguishment
costs............................... $(21,085) $(17,280) $(17,303) $(8,921) $50,096
Less: capitalized interest.......... 865 277 58 8 278
-------- -------- -------- ------- -------
(21,950) (17,557) (17,361) (8,929) 49,818
Fixed charges:
Extraordinary debt extinguishment
costs............................ -- -- -- -- 1,819
Interest expense.................... 5,102 4,840 6,033 6,966 8,766
Capitalized interest................ 865 277 58 8 278
-------- -------- -------- ------- -------
Total fixed charges.............. 5,967 5,117 6,091 6,974 10,863
-------- -------- -------- ------- -------
Earnings before income taxes and fixed
charges............................. $(15,983) $(12,440) $(11,270) $(1,955) $60,681
======== ======== ======== ======= =======
Ratio of earnings to fixed
charges(1).......................... -- -- -- -- 5.6
======== ======== ======== ======= =======
</TABLE>
- ---------------
(1) Earnings were inadequate to cover fixed charges for all periods prior to
fiscal 1996.
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
HMT TECHNOLOGY CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 94-3084354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1055 Page Avenue
Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
--------------------
% Convertible Subordinated Notes due 2003
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22- 17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and
Qualification which relates to matters peculiarly within the knowledge of the
obligor or any underwriter of the obligor, the trustee has relied upon the
information furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 23rd day of May, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/Eric J. Donaghey
-------------------------------
Eric J. Donaghey
Assistant Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by HMT
Technology Corporation of its _% Convertible Subordinated Notes due 2003, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Eric J. Donaghey
-------------------------------
Eric J. Donaghey
Assistant Vice President
Dated: May 23, 1996
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business December
31, 1995, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ....... 1,331,827
Interest-bearing balances ................................ 5,971,326
Securities ........................................................ 6,325,054
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ...................... 5,436,994
Loans and lease financing receivables:
Loans and leases, net of unearned income ... 4,308,339
Allowance for loan and lease losses ........ 63,491
Loans and leases, net of unearned income and
allowances ............................................. 4,244,848
Assets held in trading accounts ................................... 1,042,846
Premises and fixed assets ......................................... 374,362
Other real estate owned ........................................... 3,223
Investments in unconsolidated subsidiaries ........................ 31,624
Customers' liability to this bank on acceptances outstanding ...... 57,472
Intangible assets ................................................. 68,384
Other assets ...................................................... 670,058
----------
Total assets ...................................................... 25,558,018
==========
LIABILITIES
Deposits:
In domestic offices ...................................... 6,880,231
Noninterest-bearing ............... 4,728,115
Interest-bearing .................. 2,152,116
In foreign offices and Edge subsidiary ................... 9,607,427
Noninterest-bearing ............... 28,265
Interest-bearing .................. 9,579,162
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ...................... 5,913,969
Demand notes issued to the U.S. Treasury and Trading Liabilities .. 530,406
Other borrowed money .............................................. 493,191
Bank's liability on acceptances executed and outstanding .......... 57,387
Other liabilities ................................................. 620,287
----------
Total liabilities ................................................. 24,102,898
----------
EQUITY CAPITAL
Common stock ...................................................... 29,176
Surplus ........................................................... 228,448
Undivided profits ................................................. 1,197,496
----------
Total equity capital .............................................. 1,455,120
----------
Total liabilities and equity capital .............................. 25,558,018
==========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001005967
<NAME> HMT TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 35,843
<SECURITIES> 0
<RECEIVABLES> 31,070
<ALLOWANCES> 612
<INVENTORY> 7,129
<CURRENT-ASSETS> 80,306
<PP&E> 79,128
<DEPRECIATION> 42,310
<TOTAL-ASSETS> 165,786
<CURRENT-LIABILITIES> 34,407
<BONDS> 47,000
60,157
0
<COMMON> 77,952
<OTHER-SE> (58,428)
<TOTAL-LIABILITY-AND-EQUITY> 165,786
<SALES> 194,401
<TOTAL-REVENUES> 194,401
<CGS> 119,803
<TOTAL-COSTS> 119,803
<OTHER-EXPENSES> 15,924
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 8,578
<INCOME-PRETAX> 50,096
<INCOME-TAX> 2,590
<INCOME-CONTINUING> 47,506
<DISCONTINUED> 0
<EXTRAORDINARY> 1,127
<CHANGES> 0
<NET-INCOME> 45,222
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
