<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997
REGISTRATION NO. 333-32025
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
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
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
1055 PAGE AVENUE
FREMONT, CALIFORNIA 94538
(510) 683-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RONALD L. SCHAUER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HMT TECHNOLOGY CORPORATION
1055 PAGE AVENUE
FREMONT, CALIFORNIA 94538
(510) 683-6000
(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.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI,
FIVE PALO ALTO SQUARE PROFESSIONAL CORPORATION
3000 EL CAMINO REAL 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94306-2155 PALO ALTO, CALIFORNIA 94304
(650) 843-5000 (650) 493-9300
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
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 WHICH 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
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus are identical in all material respects except for the
outside front cover page, the discussion under the heading "Underwriting" and
the outside back cover page. The form of U.S. Prospectus is included in this
Registration Statement and is followed by the alternate front cover, back cover
and Underwriting pages to be used in the International Prospectus. The alternate
front cover, back cover and Underwriting pages for the International Prospectus
included in this Registration Statement are labeled "Substitute Page for
International Prospectus." Final forms of each Prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
<PAGE> 3
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
10,000,000 SHARES
LOGO
COMMON STOCK
($.001 PAR VALUE)
Of the 10,000,000 shares (the "Shares") of Common Stock of HMT Technology
Corporation ("HMT" or the "Company") offered hereby, 1,000,000 are being sold by
the Company and 9,000,000 are being sold by certain stockholders of the Company
(the "Selling Stockholders"). See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the Common Stock by the Selling
Stockholders.
Of the 10,000,000 Shares being offered hereby, 8,500,000 Shares are being
offered in the United States and Canada (the "U.S. Offering") and 1,500,000
Shares are being offered in a concurrent international offering outside the
United States and Canada (the "International Offering" and, together with the
U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters (collectively, the
"Underwriters"). The Price to Public and Underwriting Discount per share will be
identical for the U.S. Offering and the International Offering. See
"Underwriting." The closing of the U.S. Offering and International Offering are
conditioned upon each other.
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "HMTT." On August 12, 1997, the last reported sales price for the
Common Stock of the Company as reported by the Nasdaq National Market was $15.00
per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE 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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) PROCEEDS TO
SELLING
STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(2).......................... $ $ $ $
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting offering expenses payable by the Company estimated at
$500,000.
(2) The Company and the Selling Stockholders have granted the U.S. Underwriters
and the International Underwriters 30-day options to purchase up to
1,275,000 and 225,000 additional Shares, respectively, solely to cover
over-allotments, if any. If the Underwriters exercise these options in full,
the total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ ,
and $ , respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
The date of this Prospectus is , 1997
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 OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION.
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") (File No. 0-27586) pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K (the "Company's Annual Report
on Form 10-K"), for the fiscal year ended March 31, 1997.
2. The Company's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A,
for the fiscal quarter ended June 30, 1997.
3. The Company's Registration Statement on Form 8-A filed with the
Commission on January 19, 1996.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents that are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents).
Requests for such documents should be directed to HMT Technology Corporation,
Attn: Investor Relations, 1055 Page Avenue, Fremont, California 94538, telephone
number: (510) 683-6000.
The HMT Technology logo is a trademark of the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including "Risk Factors," appearing elsewhere in
this Prospectus, and in the documents incorporated herein by reference. 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 definition of certain terms may be found in the Glossary on page
34.
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 2.0 to 10.0 gigabytes (using two to 12 disks),
and substantially all have coercivity levels of 2000 Oe or higher. The Company
also supplies high-performance thin film disks for removable hard disk drives.
Since March 1994, the Company has focused on addressing the needs of the
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
meet the design and performance requirements of each particular customer. The
Company's principal customers currently include Maxtor Corporation ("Maxtor"),
Samsung Electronics Company Limited ("Samsung"), Iomega Corporation ("Iomega"),
Western Digital Corporation ("Western Digital"), Micropolis Corporation
("Micropolis") and Quantum Corporation ("Quantum").
Market demand for disks and disk drives has been growing steadily,
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, there were 340 million thin film disks produced in
1996, with an estimated market value of $4.0 billion. Trend Focus projects that
the total market for thin film disks will reach 725 million units in 2000, with
an estimated market value of $7.9 billion.
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 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 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. 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.
3
<PAGE> 6
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; expand manufacturing
capacity; and maintain strict quality control of manufacturing processes.
The Company recently completed construction of a 124,000 square foot
production facility at its Fremont, California site, in which it had brought
into service six production scale sputtering lines by the end of the first
quarter of fiscal 1998. The Company plans to install up to 10 additional
sputtering lines in this facility. In addition, the Company completed an
expansion of its facility in Eugene, Oregon during fiscal 1997, where it
produces aluminum substrates and nickel-plated and polished substrates.
HMT was incorporated in Delaware in 1988. The Company's principal executive
offices are located at 1055 Page Avenue, Fremont, California 94538; telephone
number: (510) 683-6000.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company
U.S. Offering........................... 850,000 shares
International Offering.................. 150,000 shares
Total........................... 1,000,000 shares
Common Stock offered by the Selling
Stockholders
U.S. Offering........................... 7,650,000 shares
International Offering.................. 1,350,000 shares
Total........................... 9,000,000 shares
Common Stock to be outstanding
after the Offerings..................... 42,296,187 shares(1)
Use of Proceeds........................... Capital expenditures, working capital and other
general corporate purposes. The Company will not
receive any proceeds from the sale of shares of
Common Stock in the Offerings by the Selling
Stockholders. See "Use of Proceeds."
Nasdaq National Market symbol............. HMTT
</TABLE>
- ---------------
(1) Based on shares outstanding as of July 22, 1997. Excludes 4,023,143 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $5.61 per share and 210,397 shares
issuable upon exercise of an outstanding warrant at an exercise price of
$0.0003 per share.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 70,987 $ 64,242 $ 72,893 $194,401 $263,209 $76,420 $76,837
Gross profit (loss)................. (5,250) (3,406) 5,354 74,598 106,932 32,406 29,361
Operating income (loss)............. (12,474) (11,302) (2,006) 58,674 89,317 28,110 23,641
Net income (loss) available for
common stockholders............... $(17,056) $(17,325) $ (8,941) $ 45,222 $ 61,745 $15,895 $15,369
Net income (loss) available for
common stockholders per share(1).. $ (0.49) $ (0.50) $ (0.26) $ 1.28 $ 1.35 $ 0.36 $ 0.31
Shares used in computing per share
amounts(1)........................ 34,822 34,822 34,822 35,224 46,027 44,015 53,805
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $ 61,513 $ 73,564
Total assets....................................................... $406,252 $418,303
Total liabilities.................................................. $294,392 $294,392
Total stockholders' equity......................................... $111,860 $123,911
</TABLE>
- ---------------
(1) See Note 1 of Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K and incorporated by reference into this
Prospectus for an explanation of the determination of the number of fully
diluted shares used in computing net income (loss) per share.
(2) Adjusted to reflect the sale of the Shares in the Offerings at an assumed
public offering price of $13.125 per share, after deducting underwriting
discounts and commissions and the offering expenses payable by the Company,
and the application of the net proceeds therefrom. See "Use of Proceeds."
Unless otherwise indicated, all information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." 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, financial information has been shown as ending on the last day
of the calendar quarter.
5
<PAGE> 8
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. 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.
FLUCTUATIONS IN OPERATING RESULTS
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 but are not limited to:
market acceptance of new products; timing of significant orders; changes in
pricing by the Company or its competitors; timing of product announcements and
product transitions 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 (11, as of June 30,
1997) 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. Manufacturing yields and
production capacity utilization may impact the Company's operating results. New
products often have lower manufacturing yields and are produced in lower
quantities than more mature products. If production for a disproportionate
number of new products is commenced in a given quarter or if manufacturing
yields for such products do not improve in a timely manner, the Company's
operating results for such quarter could be adversely affected. For example,
during the quarter ended March 31, 1997, the Company's operating results were
adversely affected due partly to lower yields associated with initial production
of a significant number of new 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 procedures 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
6
<PAGE> 9
made pursuant to purchase orders that are subject to cancellation, modification,
quantity reduction 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 1997, the Company shipped most of its thin film disks to four
customers: Maxtor, Samsung, Iomega and Western Digital. Aggregate shipments to
Maxtor, Samsung, Iomega and Western Digital represented 40.7%, 19.8% 12.2% and
11.9%, respectively, of net sales in fiscal 1997, and 9.7%, 27.7%, 32.1%, and
18.7%, respectively, of net sales in the first quarter of fiscal 1998. 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 and operating results. 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. 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, recently began 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. In addition, during the second
calendar quarter of 1996, Hewlett-Packard announced its intentions to exit the
disk drive business. 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."
The Company has generally sold its products to customers pursuant to
purchase orders and similar short-term arrangements. In June 1996, the Company
entered into a long-term supply agreement with Maxtor covering the supply of
disks to Maxtor through June 2001. While this agreement contemplates significant
purchases of disks by Maxtor, it is subject to a number of conditions and
qualifications and there can be no assurance that Maxtor will in fact remain a
significant customer during the term of the agreement.
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.
EXPANSION OF CAPACITY
Because the Company has been operating at close to full capacity, growth,
if any, in the Company's net sales depends on the successful expansion by the
Company of its manufacturing capacity. The Company recently completed
construction of a new 124,000 square foot production facility at its Fremont,
California site. The administrative office areas and six production scale
sputtering lines were brought into service by the end of the first quarter of
fiscal 1998. The Company plans to install up to 10 additional production scale
sputtering lines in this new facility. In addition, the Company completed an
expansion of its facility in Eugene, Oregon during fiscal 1997, where it
produces aluminum substrates and nickel-plated and polished substrates. The
Company currently expects to spend in excess of $200 million over the next
twelve months for expansion of production capacity, a substantial majority of
7
<PAGE> 10
which will be spent on the Company's Fremont, California facility. Any delay in
the completion of any of these expansion programs could have a material adverse
effect on the Company's business, results of operations and financial condition.
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. 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 Limited
("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, Western Digital and an affiliate of Maxtor,
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 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 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. The Company and certain of its competitors are currently
engaged in substantial efforts to increase disk manufacturing capacity. 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. See "Business -- Competition."
MANAGEMENT OF GROWTH
The Company has experienced a period of rapid expansion in its operations,
including the organization and management of a significant expansion in
manufacturing capacity that has placed, and may continue to place, a significant
strain on the Company's management and other resources. 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 and information systems. The Company currently plans to
install a new enterprise-wide integrated financial, accounting and manufacturing
information system beginning in the third quarter of fiscal 1998. There can be
no assurance that the Company will be able to complete this implementation
without disruption to its
8
<PAGE> 11
business, that such efforts will be achieved at acceptable expense levels or
that such efforts will not distract the attention of management of the Company.
The Company's ability to manage its 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.
DEPENDENCE ON INTENSELY COMPETITIVE AND CYCLICAL HARD DISK DRIVE INDUSTRY
The Company's operating results are primarily 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, providing the Company with the opportunity to
expand its capacity. 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." 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 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 aluminum blanks, 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
9
<PAGE> 12
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.
PROCESS QUALITY CONTROL RISKS
The manufacture of the Company's high-performance thin film disks requires
a tightly controlled multi-stage process and the use of high-quality materials.
Efficient production of the Company's products requires utilization of advanced
manufacturing techniques and clean room facilities. Disk fabrication occurs in a
highly controlled, clean environment to minimize dust and other yield- and
quality-limiting contaminants. Despite stringent manufacturing controls,
weaknesses in process control or minute impurities in materials may cause a
substantial percentage of the disks in a lot to be defective. The success of the
Company's manufacturing operation depends in part on the Company's ability to
maintain process control and minimize such impurities in order to maximize its
yield of acceptable high-quality disks. Minor variations from the Company's
specifications could have a disproportionate effect 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 resulted from chlorine contamination of disk
carriers provided by one of its suppliers. While the Company has implemented
procedures to monitor its manufacturing process and the quality of production
materials, there can be no assurance that such procedures will be adequate. 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 may need significant additional financing
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 $200 million on
capital expenditures directed toward expansion of production capacity over the
next twelve months. The Company believes existing cash balances, cash generated
from operations, and funds available under its credit facility 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 may 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 may require additional capital to support continued 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. See "Use of Proceeds," "Capitalization" and
"Management's
10
<PAGE> 13
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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.
The Company has 34 patents and 18 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 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 is from time to time 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.
On December 16, 1996 and July 1, 1997, Virgle L. Hedgcoth filed complaints
against the Company and several other entities in the Federal District Court for
the Northern District of California. In each complaint, Mr. Hedgcoth alleges
that certain HMT disks infringe patents allegedly owned by him. Each complaint
seeks an injunction and unspecified damages, which are sought to be trebled.
With respect to the December 16, 1996 complaint, the Company has filed a
counterclaim seeking a declaratory judgment that such patents are invalid and
unenforceable and that they are not infringed by the HMT disks. The Company
intends to defend both cases vigorously and does not believe that the litigation
Mr. Hedgcoth has pursued will have a material adverse effect on the Company's
business, operating results or financial condition.
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.
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. In addition, the
Company's future 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
11
<PAGE> 14
as the failure to recruit additional personnel could materially adversely effect
the Company's business, operating results and financial condition.
DEPENDENCE ON FREMONT MANUFACTURING FACILITIES; ENVIRONMENTAL ISSUES
The Company's Fremont facilities, which currently account for all of its
finished products, 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, would 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. See "Business -- Manufacturing and Quality -- Manufacturing
Facilities and Capacity."
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. These violations have
been corrected in all material respects without undue expense. Additionally,
existing waste water treatment facilities and air emission control devices are
being upgraded to accommodate increased production and more restrictive
environmental discharge levels. 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,
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.
RISKS OF INTERNATIONAL SALES
In fiscal 1996 and 1997, 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.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of the Company's Common Stock in the public
market 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. Based on beneficial ownership of Common Stock as set forth under
"Selling Stockholders," executive officers, directors and certain stockholders
holding an aggregate of 26,579,533 shares of Common Stock have entered into
lockup agreements with the Underwriters (the "Lockup Agreements") pursuant to
which shares may not be offered, sold or otherwise disposed of, with certain
limited exceptions, without the prior written consent of Salomon Brothers Inc
for a period of 90 days after the date of this Prospectus (ending
, 1997). Upon expiration of the Lockup Agreements, 26,279,533 of
such shares will be available for sale pursuant to Rule 144 adopted under the
Securities Act, subject to the volume limitations under Rule 144, so long as the
holders of such shares continue to be affiliates of the Company. Upon the
expiration of the Lockup Agreements, the remaining approximately 300,000 shares
covered by the Lockup Agreements will be available for sale, subject to certain
volume limitations under Rule 144. Such shares will no longer be "restricted
shares" under Rule 144 upon the expiration of a two-year period from the date
such shares were acquired (November 30, 1995). The holders of the 25,419,380
shares also have the right to require the Company to register such shares for
sale to the public under agreements with the Company. See "Description of
Capital Stock -- Registration Rights."
12
<PAGE> 15
The Company has registered under the Securities Act an aggregate of
7,312,029 shares of Common Stock reserved for issuance under the Company's 1995
Management Stock Option Plan, the 1995 Stock Option Plan, the 1996 Equity
Incentive Plan, the 1996 Non-Employee Directors' Stock Option Plan and the
Employee Stock Purchase Plan (collectively, the "Stock Plans"), thus permitting
the sale of such shares by non-affiliates in the public market without
restriction under the Securities Act. The shares registered include shares
issuable upon exercise of options to purchase 13,760,595 shares that were issued
and outstanding at June 30, 1997, of which options to purchase approximately
6,549,718 shares were exercisable and immediately saleable. The remainder of
these shares will become exercisable and saleable at various dates through
December 1999 pursuant to monthly vesting.
CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER EFFECTS
Based on shares outstanding at June 30, 1997 (after giving effect to the
Offerings), directors, officers and holders of 5% or more of the outstanding
shares of Common Stock of the Company owned approximately 41% of the outstanding
shares of Common Stock (31% assuming conversion of the Company's 5 3/4%
Convertible Subordinated Notes due 2004 and 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 significantly influence the election
of the Company's directors and to influence 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
stockholder approval could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Selling Stockholders" and "Description
of Capital Stock."
VOLATILITY OF COMMON STOCK PRICES
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 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.
13
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock by the Company in the Offerings are estimated to be $12.1 million
($13.9 million if the Underwriters' over-allotment options are exercised in
full), assuming the Shares are sold at a public offering price of $13.125 per
share and after deducting estimated underwriting discounts and commissions and
offering expenses. The Company will not receive any of the proceeds from the
sale of the shares of Common Stock offered by the Selling Stockholders. The
Company expects to use the net proceeds of this offering for capital
expenditures, working capital and other general corporate purposes. Pending such
uses, the Company intends to invest the net proceeds from these Offerings in
interest-bearing investment grade securities.
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, the terms of the Company's revolving credit
facility prohibit the payment of dividends without the banks' prior approval.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded publicly under the symbol "HMTT"
since the Company's initial public offering on March 13, 1996. The following
table sets forth the closing prices for the Company's Common Stock as reported
on the Nasdaq National Market for the periods indicated below.
<TABLE>
<CAPTION>
HIGH LOW
--------- -------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996
Fourth Quarter (from March 13, 1996)................... $11 1/2 $ 9 7/8
FISCAL YEAR ENDED MARCH 31, 1997
First Quarter.......................................... $28 1/4 $10 1/2
Second Quarter......................................... 21 3/4 12 3/4
Third Quarter.......................................... 2111/16 12 5/8
Fourth Quarter......................................... 22 12 1/4
FISCAL YEAR ENDING MARCH 31, 1998
First Quarter.......................................... $14 5/8 $10
Second Quarter (through August 12, 1997)............... 1611/16 12 3/8
</TABLE>
As of June 30, 1997, there were approximately 237 holders of Common Stock.
On August 12, 1997, the last sale price reported on the Nasdaq National Market
for the Common Stock was $15.00 per share.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the net proceeds
of the sale of Common Stock by the Company in the Offerings (at an assumed
offering price of $13.125 per share). See "Use of Proceeds." This table should
be read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto which are included in the Company's Annual Report on Form 10-K
and are incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
5 3/4% Convertible Subordinated Notes due 2004...................... $230,000 $ 230,000
Obligations under capital leases.................................... 4,776 4,776
Stockholders' equity:
Common Stock, $0.001 par value, 100,000,000 shares authorized,
41,228,793 issued and outstanding, actual; 42,228,793 shares
issued and outstanding, as adjusted(1)......................... 41 42
Additional paid-in capital........................................ 93,161 105,211
Retained earnings................................................. 95,307 95,307
Distribution in excess of basis................................... (76,649) (76,649)
------- -------
Total stockholders' equity..................................... 111,860 123,911
------- -------
Total capitalization......................................... $346,636 $ 358,687
======= =======
</TABLE>
- ---------------
(1) Based on shares outstanding as of June 30, 1997. Excludes 4,023,143 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $5.61 per share and 210,397 shares
issuable upon exercise of an outstanding warrant at an exercise price of
$0.0003 per share.
15
<PAGE> 18
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
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus and the Consolidated Financial
Statements of the Company, including the notes thereto, incorporated by
reference into this Prospectus. The Consolidated Statements of Operations Data
for the years ended March 31, 1993, 1994, 1995, 1996 and 1997 and the
Consolidated Balance Sheet Data as of March 31, 1995, 1996 and 1997 are derived
from, and are qualified by reference to, the audited Consolidated Financial
Statements incorporated by reference into this Prospectus. The consolidated
statements of operations data for the three months ended June 30, 1996 and 1997,
and the consolidated balance sheet data at June 30, 1997 are derived from
unaudited financial statements incorporated by reference into this Prospectus.
In the opinion of management of the Company, the unaudited consolidated
financial data presented below provide all adjustments, which include only
normal recurring adjustments, necessary for a fair presentation of the results
of operations for the periods specified. Such results, however, are not
necessarily indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
--------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 70,987 $ 64,242 $72,893 $194,401 $263,209 $ 76,420 $ 76,837
Cost of sales......................................... 76,237 67,648 67,539 119,803 156,277 44,014 47,476
-------- -------- ------- -------- -------- -------- --------
Gross profit (loss)................................... (5,250) (3,406) 5,354 74,598 106,932 32,406 29,361
-------- -------- ------- -------- -------- -------- --------
Operating expenses:
Research and development............................ 2,499 2,781 3,130 3,803 5,812 1,260 1,902
Selling, general and administrative................. 4,725 5,115 4,230 7,774 11,803 3,036 3,818
Recapitalization expenses........................... -- -- -- 4,347 -- -- --
-------- -------- ------- -------- -------- -------- --------
Total operating expenses.......................... 7,224 7,896 7,360 15,924 17,615 4,296 5,720
-------- -------- ------- -------- -------- -------- --------
Operating income (loss)............................... (12,474) (11,302) (2,006) 58,674 89,317 28,110 23,641
Interest expense, net................................. 4,806 6,001 6,915 8,578 3,329 1,048 1,685
-------- -------- ------- -------- -------- -------- --------
Income (loss) before income tax provision (benefit)
and extraordinary debt extinguishment costs......... (17,280) (17,303) (8,921) 50,096 85,988 27,062 21,956
Income tax provision (benefit)........................ (224) 22 20 2,590 25,400 10,284 6,587
-------- -------- ------- -------- -------- -------- --------
Net income (loss) before extraordinary debt
extinguishment costs................................ (17,056) (17,325) (8,941) 47,506 60,588 16,778 15,369
Extraordinary debt extinguishment costs, net of income
taxes............................................... -- -- -- 1,127 -- -- --
-------- -------- ------- -------- -------- -------- --------
Net income (loss)..................................... (17,056) (17,325) (8,941) 46,379 60,588 16,778 15,369
Accretion reversal (accretion) for dividends on
Mandatorily Redeemable Series A Preferred Stock..... -- -- -- (1,157) 1,157 (883) --
-------- -------- ------- -------- -------- -------- --------
Net income (loss) available for common stockholders... $(17,056) $(17,325) $(8,941) $ 45,222 $ 61,745 $ 15,895 $ 15,369
======== ======== ======= ======== ======== ======== ========
Net income (loss) available for common stockholders
per share(1)
Primary............................................. $(0.49) $(0.50) $(0.26) $1.28 $1.40 $0.36 $0.35
Fully diluted....................................... $(0.49) $(0.50) $(0.26) $1.28 $1.35 $0.36 $0.31
Shares used in computing per share amounts(1)
Primary............................................. 34,822 34,822 34,822 35,224 44,185 44,015 44,121
Fully diluted....................................... 34,822 34,822 34,822 35,224 46,027 44,015 53,805
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
MARCH 31, ---------------------
---------------------------------- AS
1995 1996 1997 ACTUAL ADJUSTED
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................................... $(82,715) $ 45,899 $ 71,827 $ 61,513 $ 73,564
Total assets...................................................... 75,936 165,786 373,389 406,252 418,303
Long-term and senior bank debt, less current portion.............. 9,750 -- -- -- --
Subordinated promissory notes payable to stockholders(2).......... -- 47,000 -- -- --
Mandatorily Redeemable Series A Preferred Stock(2)................ -- 60,157 -- -- --
5 3/4% Convertible Subordinated Notes due 2004(2)................. -- -- 230,000 230,000 230,000
Total stockholders' equity (deficit).............................. (51,550) 19,524 95,442 111,860 123,911
</TABLE>
- ---------------
(1) See Note 1 of Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K and incorporated by reference into this
Prospectus for an explanation of the determination of the number of shares
used in computing per share amounts.
(2) The subordinated promissory notes and Mandatorily Redeemable Series A
Preferred Stock, which were issued in conjunction with the Company's
leveraged recapitalization in November 1995, were repaid with a portion of
the proceeds of the sale of the 5 3/4% Convertible Subordinated Notes due
2004 in January 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Leveraged Recapitalization."
16
<PAGE> 19
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 under the heading entitled "Risk Factors." 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 incorporated by reference into this
Prospectus.
OVERVIEW
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, Ltd. ("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 Xidex acquisition, the Company has continued to supply thin film
disks to manufacturers of hard disk drives. Beginning in fiscal 1995, HMT's
management team, many of whom had joined the Company since February 1994,
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 fiscal 1996 and $60.6
million for fiscal 1997 compared with a net loss of $8.9 million for fiscal
1995.
LEVERAGED RECAPITALIZATION
On November 30, 1995 the Company effected a leveraged recapitalization (the
"Leveraged Recapitalization") pursuant to which the Company repurchased from
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 Common Stock, Mandatorily Redeemable
Series A Preferred Stock and subordinated promissory notes of the Company. 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
Mandatorily Redeemable Series A Preferred Stock ("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 and (iii) the grant of options to purchase
11,451,865 shares of Common Stock under the 1995 Management Stock Option Plan
and the 1995 Stock Option Plan. 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. The Leveraged Recapitalization was accounted for as a
recapitalization, and accordingly, no change in the accounting basis of the
Company's assets has been made. As of
17
<PAGE> 20
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.
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. In January 1997, the Company
completed a $230 million private placement of 5 3/4% Convertible Subordinated
Notes due 2004 (the "Convertible Notes") to qualified institutional investors,
resulting in net proceeds of approximately $222.5 million (after offering
costs). Proceeds from the issuance of the Convertible Notes were used to fully
redeem the $59 million of Series A Preferred Stock and to prepay the $47 million
principal balance of the Subordinated Notes issued pursuant to the Leveraged
Recapitalization plus accrued interest and to fully repay $41 million in long-
term borrowings outstanding.
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>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
----------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 107.4 105.3 92.7 61.6 59.4 57.6 61.8
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)........................... (7.4) (5.3) 7.3 38.4 40.6 42.4 38.2
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development.................... 3.5 4.3 4.3 2.0 2.2 1.6 2.5
Selling, general and administrative......... 6.7 8.0 5.8 4.0 4.5 4.0 4.9
Recapitalization expenses................... 0.0 0.0 0.0 2.2 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- -------
Total operating expenses.................. 10.2 12.3 10.1 8.2 6.7 5.6 7.4
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....................... (17.6) (17.6) (2.8) 30.2 33.9 36.8 30.8
Interest expense, net......................... 6.7 9.3 9.4 4.4 1.3 1.4 2.2
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax provision
(benefit) and extraordinary debt
extinguishment costs........................ (24.3) (26.9) (12.2) 25.8 32.6 35.4 28.6
Income tax provision (benefit)................ (0.3) 0.1 0.1 1.3 9.6 13.4 8.6
Extraordinary debt extinguishment costs, net
of income taxes............................. 0.0 0.0 0.0 0.6 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................. (24.0%) (27.0%) (12.3%) 23.9% 23.0% 22.0% 20.0%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Three Months Ended June 30, 1996 and 1997
Net Sales. Net sales increased 0.5% in the three months ended June 30, 1997
to $76.8 million, representing an increase of $417,000 compared to the three
months ended June 30, 1996. Unit sales volume increased 32.9% during the three
months ended June 30, 1997, while average selling prices declined 26.3%,
compared to the three months ended June 30, 1996. The increase in unit sales
volume
18
<PAGE> 21
during the three months ended June 30, 1997 was primarily attributable to an
increase in manufacturing capacity, as a result of the Company's facility
expansion and the installation of additional sputtering lines. Five additional
sputtering lines were brought into service during the nine months ended March
31, 1997 and two were brought into service during the three months ended June
30, 1997. Improved utilization of existing capacity, as well as improved
manufacturing processes, also contributed to higher production volume and unit
shipments. The ability to increase revenue will depend upon an increase in
overall unit production volume.
During the three months ended June 30, 1997, three customers individually
accounted for at least ten percent of consolidated net sales: Iomega (32.1%),
Samsung (27.7%), and Western Digital (18.7%). During the three months ended June
30, 1996, three customers accounted for at least ten percent of consolidated net
sales: Maxtor (43.3%), Western Digital (17.5%) and Iomega (15.6%). The Company
expects that it will continue to derive a substantial portion of its sales from
a relatively small number of customers, although the identity of such customers
may change from period to period.
Gross Profit. Gross margin was 38.2% for the three months ended June 30,
1997, compared with 42.4% for the three months ended June 30, 1996. The decline
in gross margin during the three months ended June 30, 1997 was a result of the
26.3% decline in average selling prices versus the comparable period in fiscal
1997, offset in part by decreased unit production costs, improved utilization of
manufacturing capacity, improved manufacturing processes, and the absorption of
fixed costs over higher unit production volume. Production of substrates at the
Eugene, Oregon manufacturing facility (which was acquired during the three
months ended June 30, 1996) and lower substrate and other raw material prices
also contributed to decreases in unit costs in the three months ended June 30,
1997 compared to the same three month period in fiscal 1997.
Research and Development. Research and development expenses increased
$642,000 in the three months ended June 30, 1997, compared to the same period in
1996. Research and development expenses increased primarily due to an increase
in headcount related to the Company's new product introductions and expanded
research efforts to support the Company's overall capacity expansion.
Selling, General and Administrative. Selling, general and administrative
expenses increased $782,000 in the three months ended June 30, 1997, compared to
the same period in the prior fiscal year. The increase in selling, general and
administrative expenses primarily reflected the increased headcount necessary to
support higher production volume and unit shipments. The Company anticipates
that operating expenses will continue to increase in absolute dollars as
headcount is increased to support new product introductions, and anticipated
higher levels of production volume and unit shipments, although, as a percentage
of net sales, operating expenses may fluctuate from period to period.
Interest Expense, Net. Net interest expense increased $637,000 during the
three months ended June 30, 1997, compared to the same period in fiscal 1997, a
result of the increased debt balance, partially offset by $1.4 million in
interest that was capitalized during the same period.
Provision for Income Taxes. For the three months ended June 30, 1997, the
Company recorded income taxes at its estimated annual effective tax rate of 30%.
During the three months ended June 30, 1996, income taxes were recorded at a
rate of 38%, reflecting the estimated annual rate at that time.
Fiscal Years Ended March 31, 1995, 1996 and 1997
Net Sales. Net sales were $72.9 million in fiscal 1995, $194.4 million in
fiscal 1996, and $263.2 million in fiscal 1997. This represented an increase of
166.6% from fiscal 1995 to fiscal 1996, and an increase of 35.4% from fiscal
1996 to fiscal 1997. The increase in net sales in fiscal 1996 compared to fiscal
1995 was primarily attributable to an increase in manufacturing capacity,
primarily from 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. The increase in net sales in fiscal 1997 was
primarily attributable to an increase in manufacturing capacity, resulting from
the addition of new sputtering lines,
19
<PAGE> 22
and improved utilization of existing capacity and improved manufacturing
processes, resulting in higher production volume and unit shipments. The unit
sales volume increased 104% from fiscal 1995 to fiscal 1996 and 60% from fiscal
1996 to fiscal 1997 while average selling prices increased 31% and decreased 16%
over the same periods, respectively. The Company anticipates that average
selling prices will fluctuate with industry supply and demand. 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. Gross margin was 7.3% in fiscal 1995, 38.4% in fiscal 1996
and 40.6% in fiscal 1997. Increased yields in fiscal 1996, and a manufacturing
disruption experienced during the last quarter of fiscal 1995 helped contribute
to improved margins in fiscal 1996 compared to fiscal 1995. The increases in
gross margin in fiscal 1996 and fiscal 1997 were primarily a result of decreased
unit production costs, improved utilization of manufacturing capacity, improved
manufacturing processes, and the absorption of fixed costs over higher unit
production volume. Production of aluminum and nickel plated substrates at the
Eugene, Oregon manufacturing facility (which was acquired during the first
quarter of fiscal 1997) and lower substrate and other raw material prices also
contributed to a decrease in unit cost during fiscal 1997.
Research and Development. Research and development expenses were $3.1
million, or 4.3% of net sales, in fiscal 1995, $3.8 million, or 2.0% of net
sales, in fiscal 1996, and $5.8 million, or 2.2% of net sales, in fiscal 1997.
Research and development expenses increased in absolute dollars in fiscal 1996
and fiscal 1997 due to an increase in headcount related to the Company's new
product introductions, as well as increased efforts to expand research and to
provide enabling technology elements for advanced products. 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 $4.2 million, or 5.8% of net sales, in fiscal 1995, $7.8 million,
or 4.0% of net sales, in fiscal 1996 and $11.8 million, or 4.5% of net sales, in
fiscal 1997. The fiscal 1996 and fiscal 1997 increase in selling, general and
administrative expenses in absolute dollars primarily reflected increased
headcount necessary to support higher production volume and unit shipments. The
fiscal 1996 decline in selling, general and administrative expenses as a
percentage of net sales primarily reflected the increase in net sales over the
same period, partially offset by an increase in the selling, general and
administrative expenses in absolute dollars. 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, although as a percentage of net sales, selling general and
administrative expenses may fluctuate from period to period.
Recapitalization Expenses. The Company effected the Leveraged
Recapitalization on November 30, 1995, and recorded a $4.3 million charge for
related expenses for the quarter ended December 31, 1995.
Interest Expense, Net. Interest expense, net was $6.9 million, or 9.4% of
net sales, in fiscal 1995, $8.6 million, or 4.4% of net sales, in fiscal 1996
and $3.3 million, or 1.3% of net sales, in fiscal 1997. 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 fiscal 1997 decrease was
primarily a result of interest earned on excess cash balances, lower average
debt balances and a $2.4 million increase in capitalized interest. The Company
anticipates interest expense, net will increase in absolute dollars as a result
of higher average debt balances (a result of the completion of the sale of the
Convertible Notes in January 1997), lower invested cash balances and lower
capitalized interest as construction-in-progress balances decrease.
20
<PAGE> 23
Provision for Income Taxes. The Company recorded income tax provisions of
$20,000, $2.6 million and $25.4 million in fiscal 1995, 1996 and 1997,
respectively.
Due to a loss in fiscal 1995, the Company required no federal income tax
provision. The income tax provision recorded during fiscal 1995 was based upon
state income taxes of Hitachi Metals allocated to the Company. During fiscal
1996, the Company assessed the recoverability of deferred tax assets and, based
on expectations about operating results for the fiscal year ending March 31,
1997 and future years, 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 fiscal 1996
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.
The fiscal 1997 tax rate of approximately 30% reflected statutory federal
and state rates, reduced primarily by benefits realized from the establishment
of a foreign sales corporation, utilization of state credits and implementation
of other state tax planning strategies.
Extraordinary debt extinguishment costs, net of income taxes. 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 its 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 during fiscal
1996.
Recent Pronouncements
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" (SFAS No. 128) which establishes
standards for computing and presenting earnings per share (EPS) more comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. While the Company studies the impact of the
pronouncement, it continues to calculate EPS based on Accounting Pronouncements
Board Opinion No. 15, "Earnings per Share." SFAS No. 128 will be effective for
the Company's 1998 fiscal year, including interim periods, with a restatement of
all prior-period EPS data presented.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, the Company financed its cash requirements primarily
through cash from operations. During fiscal 1996 and fiscal 1997 and the three
months ended June 30, 1997, the Company financed its cash requirements through
cash from financing activities and operations.
The Company's operations provided net cash of $8.7 million, $50.4 million,
$90.7 million and $30.9 million for fiscal 1995, 1996 and 1997 and for the three
months ended June 30, 1997, respectively. Cash generated during fiscal 1997
reflected net income plus depreciation and amortization, an increase in total
liabilities, and the utilization of deferred tax assets, partially offset by
increases in inventories and receivables. Increased sales and improved margins
contributed to the positive cash flow provided by operations in each of the past
two fiscal years. Cash generated during the three months ended June 30, 1997
reflected net income plus depreciation and amortization, as well as an increase
in accounts payable and current and long-term liabilities, partially offset by
increases in receivables and inventories.
For fiscal 1996 and fiscal 1997 and for the three months ended June 30,
1997, net cash used in investing activities was $35.5 million, $208.2 million
and $37.8 million, respectively. The Company invested $39.6 million, $197.4
million and $39.8 million in property, plant and equipment during fiscal 1996
and fiscal 1997 and for the three months ended June 30, 1997, respectively.
21
<PAGE> 24
During fiscal 1996 and fiscal 1997 and for the three months ended June 30,
1997, net cash from financing activities was $20.0 million, $125.9 million and
$4,000, respectively. Cash provided by financing activities for fiscal 1997
reflects the issuance of $230.0 million in Convertible Notes, and the related
redemption of $59.0 million in Series A Preferred Stock, prepayment of the $47.0
million in Subordinated Notes, and repayment of $41.0 million in long-term
borrowings, as well as the receipt of $11.7 million from the exercise of the
underwriters' over-allotment option pursuant to the Company's initial public
offering.
As of June 30, 1997, the Company's principal sources of liquidity consisted
of $46.4 million in cash, cash equivalents and short-term investments, and a
$50.0 million unsecured revolving credit facility under which there were no
borrowings. At June 30, 1997, the Company had indebtedness of $230.0 million in
Convertible Notes, that require semi-annual interest payments beginning July 15,
1997. The Company expects to spend in excess of $200 million on capital
expenditures directed toward expansion of production capacity over the next
twelve months.
The Company believes existing cash balances, cash generated from
operations, and funds available under its credit facility will provide adequate
cash to fund its operations for at least the next twelve months. The Company
expects to have significant future obligations and expects that it may require
additional capital to support continued expansion of the Company's manufacturing
capacity and growth, if any. Additional sources of long-term liquidity could
include cash generated from operations and debt and equity financings. 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.
22
<PAGE> 25
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
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 2.0 to 10.0 gigabytes (using two to 12 disks),
and substantially all have coercivity levels of 2000 Oe or higher. The Company
also supplies high-performance thin film disks for removable hard disk drives.
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's principal customers currently include Maxtor, Samsung, Iomega, Western
Digital, Micropolis and Quantum.
INDUSTRY BACKGROUND
The Disk Drive Market
Market demand for disks and disk drives has been growing steadily,
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 59
million units in 1995 and 69 million units in 1996, and are projected to reach
approximately 117 million units in 2000. 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 PC server markets has resulted in
strong growth in unit shipments of disk drives. According to IDC, worldwide
shipments of hard disk drives were 105 million units in 1996 and are projected
to be 132 million units in 1997 and 223 million units in 2000. According to
Trend Focus, the worldwide market for hard disk drives was approximately $24
billion in 1996. Strong overall demand for disk drives has also stimulated the
growth of the thin film disk market. According to Trend Focus, there were 340
million thin film disks produced in 1996 with an estimated market value of $4.0
billion. Trend Focus projects that the total market for thin film disks will
reach 725 million units in 2000, with an estimated market value of $7.9 billion.
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 use 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 MB in 1995 to 2.7 GB in 1997. 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 and to $0.10 in 1997. Today's market continues to generate
pressure for advances to facilitate these trends in computing, especially at the
high-end. Thus, the Company believes that success in the disk drive market
23
<PAGE> 26
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.
Additionally, 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:
[Diagram of typical hard disk drive with arrows identifying key
components: disks, spindle, recording head, and electronics.]
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 5,200 to 10,000
revolutions per minute. The head reads and writes data onto the spinning disk
while flying at a height of 0.7 to 1.7 microinches (0.018 to 0.04 micron) at
data transfer rates of 70 to 130 megabits per second. The combination of modern
head and disk technologies enables this drive to store data on 5,000 to 8,000
circumferential tracks per radial inch on the disk with 100,000 to 160,000 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 semiconductors.
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
24
<PAGE> 27
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 coercivity 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 2000 to 2400 Oe,
compared to a range of 950 to 1200 Oe seven years ago. The Company
believes that most high-end disk drive manufacturers will require
coercivities of 2400 Oe and above by the end of 1997. HMT currently
manufactures and sells disks in commercial quantities with coercivities
ranging from 2000 to 2400 Oe, with more than 50% of the Company's
revenues during the three months ended March 31, 1997 deriving from disks
with coercivities of 2200 Oe and above. The Company is also currently
producing small quantities of disks for use in customer development
programs with coercivities of up to 3000 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 1.0 microinch by the end of 1997. The
Company currently manufactures and sells disks in commercial quantities
with glide heights of 1.5 microinches to 1.0 microinch.
- 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.
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.
25
<PAGE> 28
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
3000 Oe level.
- 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 that can be effectively incorporated together into
leading edge disk drives.
26
<PAGE> 29
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 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. The Company recently completed
construction of a new 124,000 square foot production facility at its
Fremont, California site. The administrative office areas and six
production scale sputtering lines were brought into service by the end
of the first quarter of fiscal 1998. The Company plans to install up to
10 additional production scale sputtering lines in this new facility. In
addition, the Company completed an expansion of its facility in Eugene,
Oregon during fiscal 1997, where it produces aluminum substrates and
nickel-plated and polished substrates. 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.
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 substantially all having coercivities levels of
2000 Oe or higher 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 3000 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, 1997, substantially all products
shipped were 2000 Oe and above, with more than 50% of the units shipped having
coercivities of 2200 Oe and above.
As of June 30, 1997, the Company's disks were used by seven disk drive
manufacturers in 11 different 3 1/2-inch disk drive products. Currently, the
Company's products are used in fixed disk drives that have capacities ranging
from 2.0 GB to 10.0 GB with storage capacity per disk ranging from 750 MB to 1.5
GB and removable disk drives that have capacities of approximately 1.0 GB with
storage capacity per disk of approximately 500 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.
27
<PAGE> 30
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, HMT chamfers the inner
and outer edges of the blank, and bakes the chamfered blank to bring out surface
roughness. HMT then grinds the blank to achieve required gauge thickness and
flatness, remove surface defects, and improve surface finish. HMT then washes
the blank to remove particles. HMT currently produces these substrates through
in-house manufacturing, but may from time to time purchase a portion of its
requirements from independent vendors.
Plate, Polish, Texture and Wash. Aluminum substrates are plated with
electroless Nickel-Phosphorus alloy, 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
only.
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.
28
<PAGE> 31
THE THIN FILM DISK PRODUCTION PROCESS
[Diagram - A flow chart summarizing the principal steps
in the process flow and the corresponding disk layers
created during the thin film disk production process.]
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 evaluating the results
of HMT and customer testing, generating standards and performing source
audits.
29
<PAGE> 32
- 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. As of June 30, 1997, the
Company was operating 18 production scale sputtering lines seven days a week, 24
hours per day 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 recently
completed construction of a 124,000 square foot production facility at its
Fremont, California site, in which six of its sputtering lines are located. The
Company plans to install up to 10 additional production scale sputtering lines
in this facility. In addition, the Company completed an expansion of its
facility in Eugene, Oregon during fiscal 1997, where it produces aluminum
substrates and nickel-plated and polished substrates.
Because the Company has been operating at close to full capacity, further
growth in the Company's net sales will depend on the continued successful
expansion by the Company of its manufacturing capacity. 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; 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
30
<PAGE> 33
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 1995, 1996 and 1997 and the three
months ended June 30, 1997, the Company incurred $3.1 million, $3.8 million,
$5.8 million and $1.9 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.
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 fiscal 1995, fiscal 1996, fiscal 1997 and the three months ended
June 30, 1997:
<TABLE>
<CAPTION>
FISCAL
---------------------- THREE MONTHS ENDED
1995 1996 1997 JUNE 30, 1997
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Maxtor............................ 73.7% 40.5% 40.7% 9.7%
Samsung........................... 0.3 0.1 19.8 27.7
Iomega............................ -- 2.4 12.2 32.1
Western Digital................... 5.9 35.8 11.9 18.7
Micropolis........................ 11.2 9.1 8.4 1.6
</TABLE>
31
<PAGE> 34
The Company's other customers during fiscal 1997 included Quantum and
Hewlett-Packard. Iomega utilizes the Company's disks in its removable media hard
disk drives. Due to cessation of its high-end manufacturing operations,
Quantum's high-end products are now being manufactured by Matsushita Kotobuki
Electronics Industries ("MKE"), and the Company is currently shipping products
to MKE. 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 has generally sold its products to customers pursuant to
purchase orders and similar short-term arrangements. In June 1996, the Company
entered into a long-term supply agreement with Maxtor covering the supply of
disks to Maxtor through June 2001. While this agreement contemplates a
significant increase in the purchases of disks by Maxtor from current levels, it
is subject to a number of conditions and qualifications; and there can be no
assurance that Maxtor will in fact remain a significant customer during the term
of the agreement.
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. 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.
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
32
<PAGE> 35
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.
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. The Company and
certain of its competitors are currently engaged in substantial efforts to
increase disk manufacturing capacity. 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.
EMPLOYEES
As of June 30, 1997, the Company had 1,624 full-time employees, with 1,430
in manufacturing, 57 in research and development, 70 in quality assurance and 67
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.
33
<PAGE> 36
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 (GB): 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 (MB): 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).
34
<PAGE> 37
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1997 by the Selling
Stockholders. The shares being offered by each Selling Stockholder shall be
allocated 85% to the U.S. Offering and 15% to the International Offering
(subject to rounding adjustments). The Underwriters' over-allotment options
shall be allocated among the Company and the Selling Stockholders based on their
pro rata portion of the shares to be sold in the Offerings. Percentage of
beneficial ownership is based on 41,228,793 shares of Common Stock outstanding
as of June 30, 1997 and the number of shares owned as of such date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERINGS(1) SHARES OFFERINGS(1)(2)
--------------------- BEING ---------------------
NUMBER PERCENT OFFERED(3) NUMBER PERCENT
---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
SELLING STOCKHOLDERS
Summit Ventures III, L.P.(4)......... 6,778,429 16.4% 2,440,359 4,338,070 10.5%
Summit Ventures IV, L.P.(4).......... 6,778,429 16.4 2,440,359 4,338,070 10.5
Hitachi Metals, Ltd.................. 5,146,744 12.5 1,648,489 3,498,255 8.3
Ronald L. Schauer(5)................. 3,146,000 7.6 1,100,000 2,046,000 4.8
Summit Subordinated Debt Fund,
L.P.(4)............................ 909,881 2.2 327,518 582,363 1.4
Michael A. Russak(6)................. 840,754 2.0 275,000 565,754 1.3
George J. Hall(7).................... 681,215 1.7 240,000 441,215 1.0
Ronald J. Buschur(8)................. 889,986 2.2 235,000 654,986 1.6
Peter S. Norris(9)................... 560,769 1.4 100,000 460,769 1.1
Summit Investors II, L.P.(4)......... 253,952 * 91,515 162,437 *
Crossroads SF Limited Partnership.... 140,573 * 30,003 110,570 *
Crossroads Capital II Limited
Partnership........................ 106,890 * 28,535 78,355 *
Joseph E. Haefele(10)................ 200,374 * 20,000 180,374 *
Bruce C. Edwards(11)................. 46,500 * 12,000 34,500 *
Crossroads DPT Limited Partnership... 52,537 * 11,222 41,315 *
</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.
(2) Adjusted to reflect the sale of 1,000,000 shares by the Company in the
Offerings.
(3) Assumes no exercise of the Underwriters' over-allotment options. None of
the shares being offered are subject to a repurchase right in favor of the
Company.
(4) Walter G. Kortschak, a director of the Company, is a general partner of the
following entities: (i) Stamps, Woodsum & Co. III, the general partner of
Summit Partners III, L.P. and Summit Partners SD, L.P., which are the
general partners of Summit Ventures III, L.P. and Summit Subordinated Debt
Fund, L.P., respectively; (ii) Stamps, Woodsum & Co. IV, the general
partner of Summit Partners IV, L.P., which is the general partner of Summit
Ventures IV, L.P.; and (iii) Summit Investors II, L.P.
(5) Consists of 3,146,000 shares held by Ronald L. Schauer and Marlys A.
Schauer, as co-trustees of the Schauer Living Trust u/a/d 3/11/96 ("Schauer
Living Trust"). All of the shares being offered hereby are held by the
Schauer Living Trust. Includes 1,079,736 shares that are subject to a right
of repurchase in favor of the Company that expires ratably through November
1999 and 188,360 shares that are subject to a right of repurchase in favor
of the Company that expires upon the earlier of the Company achieving
certain performance goals or ratably beginning December 2000 through
December 2004. Mr. Schauer is President, Chief Executive Officer and
Chairman of the Board of the Company.
35
<PAGE> 38
(6) Includes 818,899 shares held by Michael A. Russak and Bonnie-Anne Russak,
as co-trustees of the Russak Living Trust u/a/d 5/31/96 ("Russak Living
Trust"). All of the shares being offered hereby are held by the Russak
Living Trust. Includes 21,000 shares held by the 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
297,794 shares that are subject to a right of repurchase in favor of the
Company that expires ratably through November 1999 and 51,949 shares that
are subject to a right of repurchase that expires upon the earlier of the
Company achieving certain performance goals or ratably beginning December
2000 through December 2004. Dr. Russak is Vice President, Research and
Development of the Company.
(7) Consists of 653,715 shares held by George J. Hall and Dianna Lynn Hall, as
co-trustees of the George J. Hall Family Trust u/a/d 11/26/92, amended
5/8/96 ("Hall Family Trust") and 27,500 shares held by the Anne T. Hall
Foundation ("Hall Foundation"). All of the shares being offered hereby are
held by the Hall Family Trust. Mr. Hall disclaims beneficial ownership of
the shares held by him as trustee of the Hall Foundation. Includes 297,794
shares that are subject to a right of repurchase in favor of the Company
that expires ratably through November 1999 and 51,949 shares that are
subject to a right of repurchase that expires upon the earlier of the
Company achieving certain performance goals or ratably beginning December
2000 through December 2004. Mr. Hall is Vice President, Operations of the
Company.
(8) Includes 851,546 shares held by Ronald J. Buschur and Lisa A. Buschur, as
co-trustees of the Buschur Living Trust u/a/d 3/11/96 ("Buschur Living
Trust"), 19,220 shares held by the Ryan Buschur 1996 Irrevocable Trust
u/a/d 2/9/96 ("Ryan Buschur Trust") and 19,220 shares held by the Lynsey
Buschur 1996 Irrevocable Trust u/a/d 2/6/96 ("Lynsey Buschur Trust").
Subsequent to June 30, 1997, Mr. Buschur transferred 215,760 shares of the
Company's Common Stock to the Buschur Living Trust. All of the shares being
offered hereby are held by the Buschur Living Trust. Ryan Buschur, the
beneficiary of the Ryan Buschur Trust, and Lynsey Buschur, the beneficiary
of the Lynsey Buschur Trust, are the children of Mr. Buschur. Mr. Buschur
disclaims beneficial ownership of the shares held by him as trustee of the
Ryan Buschur Trust and the Lynsey Buschur Trust. Includes 297,794 shares
that are subject to a right of repurchase in favor of the Company that
expires ratably through November 1999 and 51,949 shares that are subject to
a right of repurchase in favor of the Company that expires upon the earlier
of the Company achieving certain performance goals or ratably beginning
December 2000 through December 2004. Mr. Buschur is Vice President, Quality
Assurance of the Company.
(9) Includes 240,857 shares that are subject to a right of repurchase in favor
of the Company that expires ratably through November 1999 and 29,214 shares
that are subject to a right of repurchase in favor of the Company that
expires upon the earlier of the Company achieving certain performance goals
or ratably beginning December 2000 through December 2004. Mr. Norris is
Vice President, Finance, Chief Financial Officer, Treasurer and Assistant
Secretary of the Company.
(10) Includes 55,813 shares that are subject to a right of repurchase in favor
of the Company that expires ratably through November 1999 and 9,718 shares
that are subject to a right of repurchase in favor of the Company that
expires upon the earlier of the Company achieving certain performance goals
or ratably beginning December 2000 through December 2004. Includes 19,740
shares held by Mr. Haefele's spouse. Mr. Haefele was promoted to Vice
President of Operations, Fremont of the Company in July 1997.
(11) Includes 13,563 shares held by Bruce C. Edwards and Susan E. Edwards, as
co-trustees of the Bruce C. Edwards and Susan E. Edwards Living Trust u/a/d
6/26/91 ("Edwards Living Trust"). Subsequent to June 30, 1997, Mr. Edwards
transferred 2,906 shares of the Company's Common Stock to the Edwards
Living Trust. All of the shares being offered hereby are held by the
Edwards Living Trust. Includes 30,031 shares that are subject to a right of
repurchase in favor of the Company that expires ratably beginning January
1997 through January 2000. Mr. Edwards is a director of the Company.
36
<PAGE> 39
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 9,100,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of July 22, 1997, there were 41,296,187 shares of Common Stock
outstanding held of record by approximately 237 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 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.
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
Warrantholders. 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 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. In June 1997, one of the
Warrantholders exercised its warrant and sold all of the underlying shares of
Common Stock. As of June 30, 1997, a warrant to purchase an aggregate of 210,397
shares of Common Stock remained outstanding.
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. 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
became exercisable in 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.
In connection with the issuance of the Convertible Notes, pursuant to the
Registration Agreement for the benefit the holders of the Convertible Notes and
the Common Stock issuable upon conversion
37
<PAGE> 40
thereof, the Company registered the resale of such securities pursuant to a
shelf registration statement. The other registration rights described above do
not give any other holders of securities of the Company (other than the
Warrantholders) the right to participate in any such registration statement
because such registration rights are inapplicable by their terms or, to the
extent otherwise applicable, have been waived.
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 Boston
EquiServe Limited Partnership. Its telephone number is (617) 575-2000.
38
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "U.S. Underwriting Agreement") among the Company, the Selling Stockholders
and each of the underwriters named below (the "U.S. Underwriters"), for whom
Salomon Brothers Inc, Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC and
Robertson, Stephens & Company LLC, are acting as representatives (the "U.S.
Representatives"), the Company and the Selling Stockholders have agreed to sell
to each of the U.S. Underwriters and each of the U.S. Underwriters has severally
agreed to purchase from the Company and the Selling Stockholders the aggregate
number of Shares set forth opposite its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
------------------------------------------------------------------------ ----------
<S> <C>
Salomon Brothers Inc....................................................
Alex. Brown & Sons Incorporated.........................................
Hambrecht & Quist LLC...................................................
Robertson, Stephens & Company LLC.......................................
----------
Total......................................................... 8,500,000
==========
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters to purchase the Shares listed above are subject to certain
conditions set forth therein. The U.S. Underwriters are committed to purchase
all of the Shares offered by this Prospectus (other than those covered by the
over-allotment options described below), if any are purchased. In the event of
default by any U.S. Underwriter, the U.S. Underwriting Agreement provides that,
in certain circumstances, the purchase commitments of the non-defaulting U.S.
Underwriters may be increased or the U.S. Underwriting Agreement may be
terminated.
The U.S. Representatives have advised the Company and the Selling
Stockholders that the U.S. Underwriters propose initially to offer such Shares
to the public at the initial public offering price set forth on the cover page
of this Prospectus, and to certain dealers at such price less a discount not in
excess of $ per share. The U.S. Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share on sales to
certain other dealers. After the Offerings, the public offering price and such
discounts may be changed.
The Company and the Selling Stockholders also have entered into an
underwriting agreement (the "International Underwriting Agreement") with the
International Underwriters named therein, for whom Salomon Brothers
International Limited, Alex. Brown & Sons International, Hambrecht & Quist LLC
and Robertson, Stephens & Company LLC, are acting as representatives (the
"International Representatives"), providing for the concurrent offer and sale of
1,725,000 of the Shares outside the U.S. and Canada (including up to 225,000
shares subject to exercise of an underwriters' over-allotment option by the
International Underwriters) (the "International Securities").
The closing with respect to the sale of the Shares pursuant to the U.S.
Underwriting Agreement is a condition to the closing with respect to the sale of
the Shares pursuant to the International Underwriting Agreement, and the closing
with respect to the sale of Shares pursuant to the International Underwriting
Agreement is a condition to the closing with respect to the sale of the Shares
pursuant to the U.S. Underwriting Agreement. The initial public offering price
and underwriting discounts per Share for the U.S. Offering and the International
Offering will be identical.
39
<PAGE> 42
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 8,500,000 Shares by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any Prospectus relating to the
U.S. Offering to any person outside of the United States or Canada, or to anyone
other than a United States or Canadian Person and (iii) any dealer to whom it
may sell any Shares will represent that it is not purchasing for the account of
anyone other than a United States or Canadian Person and agree that it will not
offer or resell, directly or indirectly, any Shares outside of the United States
or Canada, or to anyone other than a United States or Canadian Person or to any
other dealer who does not so represent and agree.
Each International Underwriter has severally agreed that, as part of the
distribution of the 1,500,000 Shares by the International Underwriters, (i) it
is not purchasing any Shares for the account of any United States or Canadian
Person, (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute this Prospectus to any person in the United
States or Canada, or to any United States or Canadian Person and (iii) any
dealer to whom it may sell any Shares will represent that it is not purchasing
for the account of any United States or Canadian Person and agree that it will
not offer or resell, directly or indirectly, any Shares in the United States or
Canada, or to any United States or Canadian Person or to any other dealer who
does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of its source (other than a foreign branch
of such entity) and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers and sales are
made.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Shares as may be mutually agreed.
The price of any Shares so sold shall be the public offering price set forth on
the cover page of this Prospectus, less an amount not greater than the
concession to securities dealers set forth above. To the extent that there are
sales between the International Underwriters and the U.S. Underwriters pursuant
to the Agreement Between U.S. Underwriters and International Underwriters, the
number of Shares initially available for sale by the U.S. Underwriters or by the
International Underwriters may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any
International Securities in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986 with respect to anything done
by it in relation to the International Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the International Securities to a person who is of
a kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
40
<PAGE> 43
The Company and the Selling Stockholders have granted to the U.S.
Underwriters and the International Underwriters options to purchase up to an
additional 1,275,000 and 225,000 Shares, respectively, at the price to public
less the underwriting discount set forth on the cover page of this Prospectus,
solely to cover over-allotments, if any. Such options may be exercised at any
time up to 30 days after the date of this Prospectus. To the extent such options
are exercised, each of the U.S. Underwriters and the International Underwriters
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares of Common Stock as the percentage
it was obligated to purchase pursuant to the U.S. Underwriting Agreement or the
International Underwriting Agreement, as applicable.
The Company, the Selling Stockholders and all of the executive officers and
directors of the Company have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act with respect to, any shares of capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
such capital stock (except for the shares offered hereby), or publicly announce
an intention to effect any such transaction for a period of 90 days after the
date of this Prospectus without the prior written consent of Salomon Brothers
Inc, subject to certain limited exceptions. Salomon Brothers Inc currently does
not intend to release any securities subject to such lock-up agreements, but
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to such lock-up agreements.
The U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the Company and the Selling Stockholders will indemnify
the several U.S. Underwriters and International Underwriters against certain
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters and the International Underwriters may be required to make in
respect thereof.
Certain of the Underwriters and their affiliates have been engaged from
time to time, and may in the future be engaged, to perform investment banking
and other advisory-related services to the Company and its affiliates, including
certain of the Selling Stockholders, in the ordinary course of business. In
connection with rendering such services in the past, such Underwriters and
affiliates have received customary compensation, including reimbursement of
related expenses.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Cooley Godward LLP, Palo
Alto, California. Certain legal matters in connection with this offering 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 LLP beneficially owns 93,000 shares of Common Stock,
of which 60,062 shares are subject to the Company's right of repurchase. In
addition, James C. Kitch, a partner of Cooley Godward LLP, is the Secretary of
the Company.
41
<PAGE> 44
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997, incorporated by reference in this Prospectus, have
been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth
in their report dated April 22, 1997, and are incorporated by reference herein
in reliance upon the report of such firm, which report is given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such Web site is http://www.sec.gov. The Company's
Common Stock is listed on the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006, and reports, proxy statements and other information
concerning the Company can be inspected at said office.
A registration statement on Form S-3 with respect to the Common Stock
offered hereby (together with all amendments and exhibits, the "Registration
Statement") has been filed with the Commission under the Act. This Prospectus
does not contain all of the information contained in such Registration Statement
and the exhibits and schedules thereto, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus regarding the contents of any
contract or any other documents are not necessarily complete and, in each
instance, reference is hereby made to the copy of such contract or document
filed as an exhibit to the Registration Statement. The Registration Statement,
including exhibits thereto, may be inspected without charge at the Securities
and Exchange Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Public Reference Section,
Securities and Exchange Commission, Washington, D.C. 20549, upon payment of the
prescribed fees.
42
<PAGE> 45
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY 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 AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 14
Dividend Policy...................... 14
Price Range of Common Stock.......... 14
Capitalization....................... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 23
Glossary............................. 34
Selling Stockholders................. 35
Description of Capital Stock......... 37
Underwriting......................... 39
Legal Matters........................ 41
Experts.............................. 42
Additional Information............... 42
</TABLE>
10,000,000 SHARES
HMT TECHNOLOGY
CORPORATION
COMMON STOCK
($.001 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
PROSPECTUS
DATED , 1997
<PAGE> 46
[Substitute Page For International Prospectus]
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
10,000,000 SHARES
LOGO
COMMON STOCK
($.001 PAR VALUE)
Of the 10,000,000 shares (the "Shares") of Common Stock of HMT Technology
Corporation ("HMT" or the "Company") offered hereby, 1,000,000 are being sold by
the Company and 9,000,000 are being sold by certain stockholders of the Company
(the "Selling Stockholders"). See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the Common Stock by the Selling
Stockholders.
Of the 10,000,000 Shares being offered hereby, 1,500,000 Shares are being
offered outside the United States and Canada (the "International Offering") and
8,500,000 Shares are being offered in a concurrent offering in the United States
and Canada (the "U.S. Offering" and, together with the International Offering,
the "Offerings"), subject to transfers between the International Underwriters
and the U.S. Underwriters (collectively, the "Underwriters"). The Price to
Public and Underwriting Discount per share will be identical for the
International Offering and the U.S. Offering. See "Underwriting." The closing of
the International Offering and U.S. Offering are conditioned upon each other.
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "HMTT." On August 12, 1997, the last reported sales price for the
Common Stock of the Company as reported by the Nasdaq National Market was $15.00
per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE 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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) PROCEEDS TO
SELLING
STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(2).......................... $ $ $ $
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting offering expenses payable by the Company estimated at
$500,000.
(2) The Company and the Selling Stockholders have granted the International
Underwriters and the U.S. Underwriters 30-day options to purchase up to
225,000 and 1,275,000 additional Shares, respectively, solely to cover
over-allotments, if any. If the Underwriters exercise these options in full,
the total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ ,
and $ , respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INTERNATIONAL LIMITED
ALEX. BROWN & SONS
INTERNATIONAL
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
The date of this Prospectus is , 1997
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 OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION.
<PAGE> 47
[Substitute Page For International Prospectus]
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "International Underwriting Agreement") among the Company, the Selling
Stockholders and each of the underwriters named below (the "International
Underwriters"), for whom Salomon Brothers International Limited, Alex. Brown &
Sons International, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC,
are acting as representatives (the "International Representatives"), the Company
and the Selling Stockholders have agreed to sell to each of the International
Underwriters and each of the International Underwriters has severally agreed to
purchase from the Company and the Selling Stockholders the aggregate number of
Shares set forth opposite its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
------------------------------------------------------------------------ ----------
<S> <C>
Salomon Brothers International Limited..................................
Alex. Brown & Sons International........................................
Hambrecht & Quist LLC...................................................
Robertson, Stephens & Company LLC.......................................
----------
Total......................................................... 1,500,000
==========
</TABLE>
The International Underwriting Agreement provides that the obligations of
the International Underwriters to purchase the Shares listed above are subject
to certain conditions set forth therein. The International Underwriters are
committed to purchase all of the Shares offered by this Prospectus (other than
those covered by the over-allotment options described below), if any are
purchased. In the event of default by any International Underwriter, the
International Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the non-defaulting International Underwriters may be
increased or the International Underwriting Agreement may be terminated.
The International Representatives have advised the Company and the Selling
Stockholders that the International Underwriters propose initially to offer such
Shares to the public at the initial public offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a discount
not in excess of $ per share. The International Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share on
sales to certain other dealers. After the Offerings, the public offering price
and such discounts may be changed.
The Company and the Selling Stockholders also have entered into an
underwriting agreement (the "U.S. Underwriting Agreement") with the U.S.
Underwriters named therein, for whom Salomon Brothers Inc, Alex. Brown & Sons
Incorporated, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC, are
acting as representatives (the "U.S. Representatives"), providing for the
concurrent offer and sale of 9,775,000 of the Shares in the U.S. and Canada
(including up to 1,275,000 shares subject to exercise of an underwriters'
over-allotment option by the U.S. Underwriters) (the "International
Securities").
The closing with respect to the sale of the Shares pursuant to the
International Underwriting Agreement is a condition to the closing with respect
to the sale of the Shares pursuant to the U.S. Underwriting Agreement, and the
closing with respect to the sale of Shares pursuant to the U.S. Underwriting
Agreement is a condition to the closing with respect to the sale of the Shares
pursuant to the International Underwriting Agreement. The initial public
offering price and underwriting discounts per Share for the International
Offering and the U.S. Offering will be identical.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 8,500,000 Shares by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a
39
<PAGE> 48
[Substitute Page For International Prospectus]
United States or Canadian Person, (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any Prospectus
relating to the U.S. Offering to any person outside of the United States or
Canada, or to anyone other than a United States or Canadian Person and (iii) any
dealer to whom it may sell any Shares will represent that it is not purchasing
for the account of anyone other than a United States or Canadian Person and
agree that it will not offer or resell, directly or indirectly, any Shares
outside of the United States or Canada, or to anyone other than a United States
or Canadian Person or to any other dealer who does not so represent and agree.
Each International Underwriter has severally agreed that, as part of the
distribution of the 1,500,000 Shares by the International Underwriters, (i) it
is not purchasing any Shares for the account of any United States or Canadian
Person, (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute this Prospectus to any person in the United
States or Canada, or to any United States or Canadian Person and (iii) any
dealer to whom it may sell any Shares will represent that it is not purchasing
for the account of any United States or Canadian Person and agree that it will
not offer or resell, directly or indirectly, any Shares in the United States or
Canada, or to any United States or Canadian Person or to any other dealer who
does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of its source (other than a foreign branch
of such entity) and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers and sales are
made.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of Shares as may be mutually agreed. The price
of any Shares so sold shall be the public offering price set forth on the cover
page of this Prospectus, less an amount not greater than the concession to
securities dealers set forth above. To the extent that there are sales between
the International Underwriters and the U.S. Underwriters pursuant to the
Agreement Between U.S. Underwriters and International Underwriters, the number
of Shares initially available for sale by the International Underwriters or by
the U.S. Underwriters may be more or less than the amount specified on the cover
page of this Prospectus.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any
International Securities in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986 with respect to anything done
by it in relation to the International Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the International Securities to a person who is of
a kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
The Company and the Selling Stockholders have granted to the International
Underwriters and the U.S. Underwriters options to purchase up to an additional
225,000 and 1,275,000 Shares, respectively, at the price to public less the
underwriting discount set forth on the cover page of this Prospectus, solely to
cover over-allotments, if any. Such options may be exercised at any time up to
30 days after the date
40
<PAGE> 49
[Substitute Page For International Prospectus]
of this Prospectus. To the extent such options are exercised, each of the
International Underwriters and the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as the percentage it was obligated to
purchase pursuant to the International Underwriting Agreement or the U.S.
Underwriting Agreement, as applicable.
The Company, the Selling Stockholders and all of the executive officers and
directors of the Company have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act with respect to, any shares of capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
such capital stock, or publicly announce an intention to effect any such
transaction (except for the shares offered hereby) for a period of 90 days after
the date of this Prospectus without the prior written consent of Salomon
Brothers Inc, subject to certain limited exceptions. Salomon Brothers Inc
currently does not intend to release any securities subject to such lock-up
agreements, but may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to such lock-up agreements.
The International Underwriting Agreement and the U.S. Underwriting
Agreement provide that the Company and the Selling Stockholders will indemnify
the several International Underwriters and U.S. Underwriters against certain
liabilities under the Securities Act, or contribute to payments the
International Underwriters and the U.S. Underwriters may be required to make in
respect thereof.
Certain of the Underwriters and their affiliates have been engaged from
time to time, and may in the future be engaged, to perform investment banking
and other advisory-related services to the Company and its affiliates, including
certain of the Selling Stockholders, in the ordinary course of business. In
connection with rendering such services in the past, such Underwriters and
affiliates have received customary compensation, including reimbursement of
related expenses.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Cooley Godward LLP, Palo
Alto, California. Certain legal matters in connection with this offering 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 LLP beneficially owns 93,000 shares of Common Stock,
of which 60,062 shares are subject to the Company's right of repurchase. In
addition, James C. Kitch, a partner of Cooley Godward LLP, is the Secretary of
the Company.
41
<PAGE> 50
[Substitute Page For International Prospectus]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY 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 AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 14
Dividend Policy...................... 14
Price Range of Common Stock.......... 14
Capitalization....................... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 23
Glossary............................. 34
Selling Stockholders................. 35
Description of Capital Stock......... 37
Underwriting......................... 39
Legal Matters........................ 41
Experts.............................. 42
Additional Information............... 42
</TABLE>
10,000,000 SHARES
HMT TECHNOLOGY
CORPORATION
COMMON STOCK
($.001 PAR VALUE)
[LOGO]
SALOMON BROTHERS
INTERNATIONAL LIMITED
ALEX. BROWN & SONS
INTERNATIONAL
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
PROSPECTUS
DATED , 1997
<PAGE> 51
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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 shares of Common Stock being registered. All the amounts shown are
estimates except for the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration fee............ $ 50,640
Printing and engraving expenses................................ 125,000
Legal fees and expenses........................................ 150,000
Accounting fees and expenses................................... 35,000
NASD Filing Fee................................................ 17,211
Nasdaq Listing Fee............................................. 17,500
Transfer agent, registrar and custodian fees and expenses...... 10,000
Miscellaneous.................................................. 94,649
--------
TOTAL................................................ $500,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of a corporation, and,
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate liability for breach of the director's duty of
loyalty to the Registrant or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit or for
any willful or negligent payment of any unlawful dividend or any unlawful stock
purchase agreement or redemption.
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 listed 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 Registrant has purchased an insurance policy covering the officers and
directors of the Registrant with respect to certain liabilities arising under
the Securities Act or otherwise.
II-1
<PAGE> 52
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ------------------------------------------------------------------------------
<C> <S>
1.1 U.S. Underwriting Agreement by and among the Company, the Selling
Stockholders, Salomon Brothers Inc, Alex. Brown & Sons Incorporated, Hambrecht
& Quist LLC and Robertson, Stephens & Company LLC (collectively, the "U.S.
Underwriters")
1.2 International Underwriting Agreement by and among the Company, the Selling
Stockholders, Salomon Brothers International Limited, Alex. Brown & Sons
International, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC
(collectively, the "International Underwriters")
5.1* Opinion of Cooley Godward LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a 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 Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, Bylaws,
indemnification agreements 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.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE> 53
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
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 13th day of August, 1997.
HMT TECHNOLOGY CORPORATION
By: /s/ PETER S. NORRIS
------------------------------------
Peter S. Norris
Vice President, Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capabilities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ ----------------
<C> <S> <C>
/s/ RONALD L. SCHAUER* President, Chief Executive August 13, 1997
- ------------------------------------- Officer and Director
Ronald L. Schauer (Principal Executive Officer)
/s/ PETER S. NORRIS Vice President, Finance, Chief August 13, 1997
- ------------------------------------- Financial
Peter S. Norris Officer and Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ BRUCE C. EDWARDS* Director August 13, 1997
- -------------------------------------
Bruce C. Edwards
/s/ NEIL M. GARFINKEL* Director August 13, 1997
- -------------------------------------
Neil M. Garfinkel
/s/ WALTER G. KORTSCHAK* Director August 13, 1997
- -------------------------------------
Walter G. Kortschak
/s/ ROBERT G. TEAL* Director August 13, 1997
- -------------------------------------
Robert G. Teal
*By: /s/ PETER S. NORRIS
- -------------------------------------
Peter S. Norris
Attorney-in-fact
</TABLE>
II-3
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ------------------------------------------------------------------------------
<C> <S>
1.1 U.S. Underwriting Agreement by and among the Company, the Selling
Stockholders, Salomon Brothers Inc, Alex. Brown & Sons Incorporated, Hambrecht
& Quist LLC and Robertson, Stephens & Company LLC
1.2 International Underwriting Agreement by and among the Company, the Selling
Stockholders, Salomon Brothers International Limited, Alex. Brown & Sons
International, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC
5.1* Opinion of Cooley Godward LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
HMT TECHNOLOGY CORPORATION
10,000,000 SHARES
COMMON STOCK
($0.001 PAR VALUE)
U.S. UNDERWRITING AGREEMENT
New York, New York
August , 1997
Salomon Brothers Inc
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Robertson, Stephens & Company LLC
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
HMT Technology Corporation, a Delaware corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto (the
U.S. "Underwriters"), for whom you (the "Representatives") are acting as
representatives, 850,000 shares of Common Stock, $0.001 par value ("Common
Stock") of the Company, and the persons named in Schedule II hereto (the
"Selling Stockholders"), propose to sell to the Underwriters 7,650,000 shares of
Common Stock (said shares to be issued and sold by the Company and shares to be
sold by the Selling Stockholders collectively being hereinafter called the "U.S.
Underwritten Securities"). The Company and the Selling Stockholders also propose
to grant to the Underwriters an option to purchase up to 1,275,000 additional
shares of Common Stock (the "Option Securities"; the U.S. Option Securities,
together with the U.S. Underwritten Securities, being hereinafter called the
"U.S. Securities"), which U.S. Option Securities shall be allocated among the
Company and the Selling Stockholders, on a pro rata basis, based on the
proportion of U.S. Underwritten Securities sold by each of them. It is
understood that the Company and Selling Stockholders are concurrently entering
into an International Underwriting Agreement dated the date hereof (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of an aggregate of 1,500,000 shares of Common Stock
(said
1
<PAGE> 2
shares to be sold by the Company and the Selling Stockholders being hereinafter
called the "International Underwritten Securities"), outside the United States
and Canada with certain underwriters outside the United States and Canada (the
"International Underwriters"), for whom Salomon Brothers International Limited,
Alex. Brown & Sons International, Hambrecht & Quist LLC and Robertson, Stephens
& Company are acting as representatives (the "International Representatives"),
and providing for the grant to the International Underwriters for an option to
purchase from the Company and the Selling Stockholders up to 225,000 additional
shares of Common Stock (the "International Option Securities"; the International
Option Securities, together with the International Underwritten Securities,
being hereinafter called the "International Securities" and the U.S. Securities,
together with the International Securities, being hereinafter called the
"Securities." It is further understood and agreed that the U.S. Underwriters and
the International Underwriters have entered into an Agreement Between U.S.
Underwriters and International Underwriters dated the date hereof (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which, among other things, the U.S. Underwriters may purchase from the
International Underwriters a portion of the International Securities to be sold
pursuant to the International Underwriting Agreement and the International
Underwriters may purchase from the U.S. Underwriters a portion of the U.S.
Securities to be sold pursuant to the U.S. Underwriting Agreement. To the extent
there are no additional Underwriters listed on Schedule I other than you, the
term Representatives as used herein shall mean you, as U.S. Underwriters, and
the terms Representatives and Underwriters shall mean either the singular or
plural as the context requires. Any reference herein to the Registration
Statement, a Preliminary Prospectus or a Prospectus shall be deemed to refer to
and include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 which were filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") on or before the Effective Date of the Registration
Statement or the issue date of such Preliminary Prospectus or Prospectus, as the
case may be; and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, any Preliminary
Prospectus or Prospectus shall be deemed to refer to and include the filing of
any document under the Exchange Act after the Effective Date of the Registration
Statement, or the issue date of any Preliminary Prospectus or Prospectus, as the
case may be, deemed to be incorporated therein by reference.
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, each
U.S. Underwriter as set forth below in this Section 1. Certain terms used in
this Section 1 are defined in Section 17 hereof.
(i) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended (the "Act") and has filed with
the Securities
2
<PAGE> 3
and Exchange Commission (the "Commission") a registration statement
(file number 333-32025) on such Form, including related preliminary
prospectuses, for the registration under the Act of the offering and
sale of the Securities. The Company may have filed one or more
amendments thereto, including related preliminary prospectuses, each of
which has previously been furnished to you. The Company will next file
with the Commission one of the following: (A) prior to the Effective
Date of such registration statement, a further amendment to such
registration statement, including the form of final prospectus, or (B)
after the effective date of such registration statement, final
prospectuses in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (B), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to
be included in such registration statement and the Prospectuses. As
filed, such amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together with all
other such required information, and, except to the extent the
Representatives shall agree to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall
contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus) as the
Company has advised you, prior to the Execution Time, will be included
or made therein.
It is understood that two forms of prospectus are to be used in
connection with the offering and sale of the Securities: one form of prospectus
relating to the U.S. Securities, which are to be offered and sold to United
States and Canadian Persons, and one form of prospectus relating to the
International Securities, which are to be offered and sold to persons other than
United States and Canadian Persons. The two forms of prospectus are identical
except for the outside front cover page, the discussion under the heading
"Underwriting" and the outside back cover page. Such form of prospectus relating
to the U.S. Securities as first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement the Effective Date, is
hereinafter called the "U.S. Prospectus"; such form of prospectus relating to
the International Securities as first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement at the Effective Date, is
hereinafter called the "International Prospectus"; and the U.S. Prospectus and
the International Prospectus are hereinafter collectively called the
"Prospectuses."
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectuses are first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein)
and on any date on which shares sold in respect of the U.S.
Underwriters' over-allotment option are purchased, if such date
3
<PAGE> 4
is not the Closing Date (a "Settlement Date") each Prospectus (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the Exchange Act and the
respective rules thereunder; on the Effective Date and at the Execution
Time, the Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date, each Prospectus, if
not filed pursuant to Rule 424(b), did or will not, and on the date of
any filing pursuant to Rule 424(b) and on the Closing Date and any
Settlement Date, each Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact neces sary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectuses (or any
supplement thereto) in reliance upon and in conformity with information
furnished herein or in writing to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion in
the Registration Statement or the Prospectuses (or any supplement
thereto).
(iii) Each of the Company and its subsidiary, HMT Barbados FSC
Ltd., a Barbados West Indies Company (the "Subsidiary") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or organized
with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction wherein it owns or leases
material properties or conducts material business and where the failure
to be so qualified would, individually or in the aggregate, have a
material adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and the
Subsidiary, taken as a whole, whether or not arising from transactions
in the ordinary course of business; 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; each of the Company
and the Subsidiary 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, all of which are valid and in full force and effect;
neither the Company nor the Subsidiary is in violation of its respective
charter 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,
4
<PAGE> 5
contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or the
Subsidiary is a party or by which either of them or any of their
properties may be bound; and neither the Company nor the Subsidiary is
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. The Company does not own or control,
directly or indirectly, any corporation, asso ciation or other entities
other than the Subsidiary, which is not a "Significant Subsidiary" (as
such term is defined in Regulation S-X of the Act).;
(iv) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through wholly
owned subsidiaries free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any other
security interests, claims, liens or encumbrances;
(v) The Company's authorized equity capitalization is as set
forth in the Prospectuses; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectuses; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities being sold hereunder have been duly and validly authorized,
and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be fully paid and nonassessable; the
certificates for the Securities are in valid and sufficient form; the
holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities;
and, except as set forth in the Prospectuses, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or
rights to convert any obligations into or exchange any securities for,
shares of capital stock of or ownership interests in the Company are
outstanding. 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 Final Memorandum,
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(vi) There is no pending or, to the knowledge of the Company,
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiary or either of their property of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectuses, and there is no
5
<PAGE> 6
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectuses, or to be filed
as an exhibit thereto, which is not described or filed as required."
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms.
(viii) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act;
(ix) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection with
the transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the U.S. Underwriters in the manner contemplated herein
and in the Prospectuses;
(x) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiary pursuant
to, (i) the charter or by-laws of the Company or the Subsidiary or (ii)
the terms of any material indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or the Subsidiary
is a party or bound or to which its or their property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree
applicable to the Company or the Subsidiary of any court, regulatory
body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or the Subsidiary or any
of their properties.
(xi) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement, except
as have been waived in writing.
(xii) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Prospectuses
and the Registration Statement present fairly in all material respects
the financial condition, results of operations and cash flows of the
Company as of the dates and for the periods
6
<PAGE> 7
indicated, comply as to form with the applicable accounting requirements
of the Act and the rules and regulations thereunder and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under
the caption "Selected Consolidated Financial Data" in the Prospectuses
and Registration Statement fairly present, on the basis stated in the
Prospectuses and the Registration Statement, the information included
therein.
(xiii) The Company owns or has obtained licenses for the patents,
patent applications, trade and service marks, trade secrets and other
intellectual properties referenced or described in the Prospectuses as
being owned by or licensed to it (collectively, the "Intellectual
Property"). Except as set forth in the Prospectuses under the caption
"Risk Factors - Intellectual Property and Proprietary Rights," (a) to
the Company's knowledge, there are no rights of third parties to any
such Intellectual Property; (b) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any such Intellectual
Property, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (c) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any such Intellectual
Property, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (d) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of
others, and the Company is unaware of any other fact which would form a
reasonable basis for any such claim; (e) to the Company's knowledge,
there is no U.S. patent or published U.S. patent application which
contains claims that dominate or may dominate any Intellectual Property
described in the Prospectus as being owned by or licensed to the Company
or that interferes with the issued or pending claims of any such
Intellectual Property; and (f) there is no prior art of which the
Company is aware that may render any U.S. patent held by the Company
invalid or any U.S. patent application held by the Company unpatentable
which has not been disclosed to the U.S. Patent and Trademark Office.
Each of the Company and the Subsidiary owns the Intellectual Property or
has the rights to the Intellectual Property that is necessary to conduct
its business as described in the Prospectuses.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the U.S. Underwriters in
connection with the offering of the Securities shall be deemed a representation
and warranty by the Company, as to matters covered thereby, to each U.S.
Underwriter.
7
<PAGE> 8
(b) Each Selling Stockholder, severally and not jointly,
represents and warrants to, and agrees with, each Underwriter that:
(i) Such Selling Stockholder is the lawful owner of the
Securities to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such U.S. Securities, as provided
herein, such Selling Stockholder will convey good and valid title to
such U.S. Securities, free and clear of all liens, encumbrances,
equities and claims whatsoever.
(ii) Such Selling Stockholder has not taken and will not take,
directly or in directly, any action designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
U.S. Securities and since July 30, 1997, has not effected any sales of
shares of Common Stock which, if effected by the issuer, would be
required to be disclosed in response to Item 701 of Regulation S-K.
(iii) Certificates in negotiable form for such Selling
Stockholder's U.S. Securities have been placed in custody, for delivery
pursuant to the terms of this Agreement, under a Custody Agreement duly
authorized, executed and delivered by such Selling Stockholder, in the
form heretofore furnished to you (the "Custody Agreement"), with Boston
EquiServe Limited Partnership, as Custodian (the "Custodian"); the U.S.
Securities represented by the certificates so held in custody U.S. for
such Selling Stockholder are subject to the interests hereunder of the
Underwriters, the Company and the other Selling Stockholders; the
arrangements for custody and delivery of such certificates, made by such
Selling Stockholder hereunder and under the Custody Agreement, are not
subject to termination by any acts 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; and if any such death,
incapacity or any other such event shall occur before the delivery of
such U.S. Securities hereunder, certificates for the U.S. Securities
will be delivered by the Custodian in accordance with the terms and
conditions of this Agreement and the Custody Agreement as if such death,
incapacity or other event had not occurred, regardless of whether or not
the Custodian shall have received notice of such death, incapacity or
other event.
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except such
as may have been obtained under the Act and such as may be required
under the blue sky laws of any
8
<PAGE> 9
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters and such other approvals as have been
obtained.
(v) Neither the sale of the U.S. Securities being sold by such
Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by such Selling Stockholder or the
fulfillment of the terms hereof by such Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a
default under any law or, where applicable, the charter or by-laws of
such Selling Stockholder or the terms of any material indenture or other
agreement or instrument to which such Selling Stockholder or any of its
subsidiaries is a party or bound, or any judgment, order or decree
applicable to such Selling Stockholder or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder or any of
its subsidiaries.
In respect of any statements in or omissions from the
Registration Statement or the Prospectuses or any supplement thereto made in
reliance upon and in conformity with information furnished in writing to the
Company by any Selling Stockholder specifically for use in connection with the
preparation thereof, such Selling Stockholder hereby makes the same
representations and warranties to each Underwriter as the Company makes to such
Underwriter under paragraph (a)(ii) of this Section.
2. Purchase and Sale. (a) Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company and the Selling Stockholders (collectively, the "Sellers" and
individually, a "Seller") agree, severally and not jointly, to sell to each U.S.
Underwriter, and each U.S. Underwriter agrees, severally and not jointly, to
purchase from the Sellers, at a purchase price of $_____ per share, the amount
of the U.S. Securities set forth opposite such U.S. Underwriter's name in
Schedule I hereto. The amount of U.S. Securities to be purchased by each U.S.
Underwriter from each Seller shall be as nearly as practicable in the same
proportion to the total amount of U.S. Underwritten Securities to be purchased
by such U.S. Underwriter as the total amount of U.S. Underwritten Securities to
be sold by each Seller bears to the total amount of U.S.
Underwritten Securities to be sold pursuant hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company and the Selling
Stockholders hereby grant an option to the several U.S. Underwriters to
purchase, severally and not jointly, up to 1,275,000 shares of U.S. Option
Securities at the same purchase price per share as the U.S. Underwriters shall
pay for the U.S. Underwritten Securities. Said option may be exercised only to
cover over-allotments in the sale of the U.S. Underwritten Securities by the
U.S. Underwriters. Said option may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date of the
9
<PAGE> 10
Prospectuses upon written or telegraphic notice by the Representatives to the
Company and the Selling Stockholders setting forth the number of shares of the
U.S. Option Securities as to which the several U.S. Underwriters are exercising
the option and the Settlement Date. Delivery of certificates for the shares of
Option Securities, and payment therefor, shall be made as provided in Section 3
hereof. The maximum number of shares of the U.S. Option Securities to be
purchased by each U.S. Underwriter shall be the same percentage of the total
number of shares of the U.S. Option Securities to be purchased by the several
U.S. Underwriters as such Underwriter is purchasing of the U.S. Underwritten
Securities, subject to such adjustments as you in your absolute discretion shall
make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the U.S.
Underwritten Securities and the U.S. Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the third
Business Day prior to the Closing Date) shall be made at 7:00 AM, California
time, on August __, 1997, or at such time on such later date not more than three
Business Days after the foregoing date as the Representatives and the
International Representatives shall designate, which date and time may be
postponed by agreement among the Representatives, the International
Representatives, the Company and the Selling Stockholders or as provided in
Section 9 hereof (such date and time of delivery and payment for the Securities
being herein called the "Closing Date"). Delivery of the U.S. Securities shall
be made to the Representatives for the respective accounts of the several U.S.
Underwriters against payment by the several U.S. Underwriters through the
Representatives of the respective aggregate purchase prices of the U.S.
Securities being sold by the Company and each of the Selling Stockholders to or
upon the order of the Company and the Selling Stockholders by wire transfer
payable in same-day funds to an account specified by the Company. Delivery of
the U.S. Underwritten Securities and the U.S. Option Securities shall be made
through the facilities of The Depository Trust Company unless the U.S.
Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state transfer
taxes, if any, involved in the transfer to the several U.S. Underwriters of the
U.S. Securities to be urchased by them from such Selling Stockholder and the
respective U.S. Underwriters will pay any additional stock transfer taxes
involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised
after the third business day prior to the Closing Date, the Company and the
Selling Stockholders will deliver the U.S. Option Securities (at the expense of
the Company) to the Representatives on the date specified by the Representatives
(which shall be within three Business Days after exercise of said option)
against payment of the purchase price thereof to or upon the order of the
Company and the Selling Stockholders by wire transfer payable in same-day funds
to an account specified by each of the Company and the Selling Stockholders. If
10
<PAGE> 11
settlement for the U.S. Option Securities occurs after the Closing Date, the
Company and such Selling Stockholders will deliver to the Representatives on the
Settlement Date for the Option Securities, and the obligation of the
Underwriters to purchase the U.S. Option Securities shall be conditioned upon
receipt of, supplemental opinions, certificates and letters confirming as of
such date the opinions, certificates and letters delivered on the Closing Date
pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the International Underwriting
Agreement, and that the Settlement Date, if any, shall occur simultaneously with
the "Settlement Date" under the International Underwriting Agreement.
4. Offering by Underwriters. It is understood that the several
U.S. Underwriters propose to offer the U.S. Securities for sale to the public as
set forth in the U.S. Prospectus.
5. Agreements. (a) The Company agrees with the several U.S.
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Pros pectuses or any
Rule 462(b) Registration Statement unless the Company has furnished you
a copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object. Subject
to the foregoing sentence, if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectuses
is otherwise required under Rule 424(b), the Company will cause the
Prospectuses, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory
to the Representatives of such timely filing. The Company will promptly
advise the Representatives (A) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (B) when
the Prospectuses, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b) or when any Rule
462(b) Registration Statement shall have been filed with the Commission,
(C) when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or become
effective, (D) of any request by the Commission or its staff for any
amendment of the Registration Statement, or any Rule 462(b) Registration
Statement, or for any supplement to the Prospectuses or of any
additional information, (E) of the issuance by the Commission of any
stop
11
<PAGE> 12
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance
of any such stop order or the suspension of any such qualification and,
if issued, to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result
of which either of the Pro spectuses as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement either of
the Prospectuses to comply with the Act or the Exchange Act or the
respective rules thereunder, the Company promptly will (A) prepare and
file with the Commission, subject to the second sentence of paragraph
(a)(i) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance and (B) supply any
supplemented Prospectuses to you in such quantities as you may
reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company and the Subsidiary which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under
the Act.
(iv) The Company will furnish to the Representatives and counsel
for the U.S. Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
U.S. Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by a U.S. Underwriter
or dealer may be required by the Act or otherwise required, as many
copies of each U.S. Preliminary Prospectus and the U.S. Prospectus and
any supplement thereto as the Representatives may reasonably request.
The Company will pay the expenses of printing or other production of all
documents relating to the offering.
(v) The Company will arrange, if necessary, for the qualification
of the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay any fee of the National Association of Secu rities Dealers,
Inc., in connection with its review of the offering; provided that in no
event shall the Company be obligated to qualify to do business in any
12
<PAGE> 13
jurisdiction where it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any
jurisdiction where it is not now so subject.
(vi) The Company will not, for a period of 90 days following the
Execution Time, without the prior written consent of Salomon Brothers
Inc (which consent shall not be unreasonably withheld), offer, sell or
contract to sell, pledge or otherwise dispose of, or file a registration
statement with the Commission in respect of, or establish or increase a
put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Exchange Act with
respect to, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital stock,
or publicly announce an intention to effect any such transaction (except
for the shares offered hereby); provided, however, that the Company may
grant options and other rights and issue and sell Common Stock pursuant
to any employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time and the
Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution
Time.
(b) Each Selling Stockholder agrees with the several U.S.
Underwriters that such Selling Stockholder will not during the period of 90 days
following the Execution Time, without the prior written consent of the Salomon
Brothers Inc, offer, sell or contract to sell, pledge or otherwise dispose of,
or file a registration statement with the Commission in respect of, or establish
or increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Exchange Act with respect to,
any shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction (except for the shares offered hereby),
subject to certain limitations as set forth in the "Lockup Agreement" attached
as Exhibit A.
(c) Each U.S. Underwriter agrees that (i) it is not purchasing
any of the U.S. Securities for the account of anyone other than a United States
or Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any of the U.S. Securities or distribute any U.S.
Prospectus to any person outside the United States or Canada, or to anyone other
than a United States or Canadian Person, and (iii) any dealer to whom it may
sell any of the U.S. Securities will represent that it is not purchasing for the
account of anyone other than a United States or Canadian Person and agree that
it will not offer or resell, directly or indirectly, any of the U.S. Securities
outside the United States or Canada, or to anyone other than a United States or
Canadian Person or to any other dealer who does
13
<PAGE> 14
not so represent and agree; provided, however, that the foregoing shall not
restrict (A) purchases and sales between the U.S. Underwriters on the one hand
and the International Underwriters on the other hand pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, (B) stabilization
transactions contemplated under the Agreement Between U.S. Underwriters and
International Underwriters, conducted through Salomon Brothers Inc (or through
the Representatives and International Representatives) as part of the
distribution of the Securities, and (C) sales to or through (or distributions of
U.S. Prospectuses or U.S. Preliminary Prospectuses to) persons who are United
States or Canadian Persons who are investment advisors, or who otherwise
exercise investment discretion, and who are purchasing for the account of anyone
other than a United States or Canadian Person.
(d) The agreements of the U.S. Underwriters set forth in
paragraph (c) of this Section 5 shall terminate upon the earlier of the
following events:
(i) a mutual agreement of the Representatives and the
International Representatives to terminate the selling restrictions set
forth in paragraph (c) of this Section 5 and in Section 5(b) of the
International Underwriting Agreement; or
(ii) the expiration of a period of 30 days after the Closing
Date, unless (A) the U.S. Representatives shall have given notice to the
Company and the Representatives that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed, or (B)
the Representatives shall have given notice to the Company and the U.S.
Underwriters that the distribution of the International Securities by
the International Underwriters has not yet been completed. If such
notice by the Representatives or the International Representatives is
given, the agreements set forth in such paragraph (b) shall survive
until the earlier of (1) the event referred to in clause (i) of this
subsection (c) or (2) the expiration of an additional period of 30 days
from the date of any such notice.
6. Conditions to the Obligations of the Underwriters. The
obligations of the U.S. Underwriters to purchase the U.S. Underwritten
Securities and the Option Securities, as the case may be, shall be subject to
the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholders contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Company and the Selling Stockholders made in
any certificates pursuant to the provisions hereof, to the performance by the
Company and the Selling Stock holders of their respective obligations hereunder
and to the following additional conditions:
14
<PAGE> 15
(a) If the Registration Statement has not become effective prior
to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement shall have become effective not
later than (i) 3:00 PM California time, on the date of determination of
the public offering price, if such determination occurred at or prior to
12:00 Noon California time on such date or (ii) 6:30 AM on the Business
Day following the day on which the public offering price was determined,
if such determination occurred after 12:00 Noon California time on such
date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to the applicable paragraph of Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Cooley Godward LLP, counsel for the Company, dated the
Closing Date, 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 in which it is chartered or organized,
with full corporate power and authority to own its properties
and conduct its business as described in the Prospectuses, and,
to the best of such counsel's knowledge, is duly qualified to do
business as a foreign corporation and is in good standing under
the laws of each jurisdiction wherein it owns or leases material
properties or conducts material business, except where the
failure to be so qualified would not have a material adverse
effect on the financial condition, earnings, operations or
business of the Company and the Subsidiary, taken as a whole;
(ii) all the outstanding shares of capital stock of the
Subsidiary has been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectuses, all outstanding shares of capital
stock of the Subsidiary are owned of record by the Company free
and clear of, to the knowledge of such counsel, any security
interests, claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is
as set forth in the Prospectuses under the caption
"Capitalization"; the capital stock of the Company conforms in
all material respects to the description thereof contained in
the Prospectuses under the caption "Description of Capital
Stock"; the outstanding shares of Common Stock (including the
Securities
15
<PAGE> 16
being sold hereunder by the Selling Stockholders) have been duly
and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder by the
Company have been duly and validly authorized, and, when issued
and delivered to and paid for by the U.S. Underwriters pursuant
to this Agreement and by the International Underwriters pursuant
to the International Underwriting Agreement, will be fully paid
and nonassessable; the Securities being sold hereunder are duly
authorized for listing, subject to official notice of issuance
and evidence of satisfactory distri bution; the certificates for
the "Common Stock" in the form filed as an exhibit to the
Company's Registration Statement on Form 8-A filed with the
Commission in January 19, 1996 are in valid and sufficient form;
and the holders of outstanding shares of capital stock of the
Company are not entitled to preemptive or, to the best of such
counsel's knowledge, other rights to sub scribe for the
Securities; and, except as set forth in the Prospectuses, to the
best of such counsel's knowledge, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or
rights to convert any obligations into or exchange any
securities for, shares of capital stock of the Company are
outstanding;
(iv) to the knowledge of such counsel, (a) there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator to which the Company or the Subsidiary is a party of
a character required to be described in the Registration
Statement under the Act and the rules and regulations of the
Commission thereunder (the "Rules") which is not adequately
described in the Prospectuses, and (b) there is no franchise,
contract or other document of a character required to be
described in the Registration Statement or Prospectuses under
the Act and the Rules, or to be filed as an exhibit thereto,
which is not described or filed as required; and the statements
in the Prospectuses under the heading "Risk Factors -
Intellectual Property and Proprietary Rights," insofar as such
statements constitute a summary of legal matters, documents or
proceedings referred to therein, fairly summarize such legal
matters, documents and proceedings, to the extent required by
the Act and the Rules;
(v) the Registration Statement has become effective
under the Act; any required filing of the Prospectuses, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, no
proceedings for that purpose have been instituted or threatened
16
<PAGE> 17
and the Registration Statement and the Prospectuses (other than
the financial and statistical statements and other financial
information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules
thereunder;
(vi) this Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by
the Company;
(vii) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be
an "investment company" as defined in the Investment Company Act
of 1940, as amended;
(viii) no consent, approval, authorization, filing with
or order of any court or governmental agency or body is required
by the Company in connection with the transactions contemplated
herein, except such as have been obtained under the Act and such
as may be required under the blue sky laws of any jurisdiction
in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated in
this Agreement and the International Underwriting Agreement and
in the Prospectuses and such other approvals (specified in such
opinion) as have been obtained;
(ix) neither the issue and sale of the Securities, nor
the consummation of any other of the transactions herein or in
the International Underwriting Agreement contemplated nor the
fulfillment of the terms hereof or thereof conflict with, result
in a breach or violation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiary pursuant to, (i) the charter or by-laws of the
Company or the Subsidiary or (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Subsidiary is a party or
bound or to which its property is subject and that would be
required to be filed with the Commission in connection with a
registration statement of the Company on Form S-1 if filed as of
the date hereof, or (iii) any statute, law, rule or regulation
(except that such counsel need not opine as to requirements
under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the
Underwriters), or, to the knowledge of such counsel, any
judgment, order or decree applicable to the Company or the
Subsidiary of any court, regulatory body, administrative agency,
17
<PAGE> 18
governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its or their properties;
and
(x) to the knowledge of such counsel, no holders of
securities of the Company have rights to the registration of
such securities under the Registration Statement, except for
such rights of persons identified in such opinion, which have
been effectively waived.
In addition, such opinion shall state that in connection with the
preparation of the Registration Statement and the Prospectuses, 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 conference the contents of the Registration Statement and
Prospectuses and related matters were discussed and, although they have
not verified the accuracy of completeness of the statements contained in
the Registration Statement or the Prospectuses, nothing has come to
their attention which leads them to believe that on the Effective Date,
the Registration Statement (other than the financial statements,
including supporting schedules and other financial and statistical
information contained therein, as to which they make 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, the Prospectuses as of their date or
as of the Closing Date (other than the financial statements, including
supporting schedules and other financial and statistical information
contained therein, as to which they make no comment), contained or
contains 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.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of California, the Delaware General Corporation Law or the Federal
laws of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing whom
they believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and
public officials. References to the Prospectuses in this paragraph (b)
include any supplements thereto at the Closing Date.
18
<PAGE> 19
(c) Each of the Selling Stockholders shall have furnished to the
Representatives the opinion of counsel for such Selling Stockholder
acceptable to the Representatives, dated the Closing Date, to the effect
that:
(i) this Agreement, the International Underwriting
Agreement, the Custody Agreement and the Power-of-Attorney have
been duly authorized, executed and delivered by or on behalf of
such Selling Stockholders, the Custody Agreement is valid and
binding on such Selling Stockholders, subject to applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium
or other similar laws affecting creditors' rights, and subject to
general principles of equity and to limitations or availability
of equitable relief, including specific performance; and each
Selling Stockholder that is an entity, has full power and
authority under its organizational documents, to sell, transfer
and deliver in the manner provided in this Agreement, the
International Underwriting Agreement, and the Custody Agreement,
the Securities being sold by such Selling Stockholder hereunder;
(ii) the delivery by such Selling Stockholder to the
several U.S. Underwriters of certificates for the Securities
being sold hereunder with due endorsement for transfer by such
Selling Stockholder against payment therefor as provided herein,
will pass valid title to such Securities to the several U.S.
Underwriters, free and clear of all liens, encumbrances, equities
and claims whatsoever;
(iii) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation by such Selling
Stockholder of the transactions contemplated herein, except such
as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities
by the U.S. Underwriters and such other approvals (specified in
such opinion) as have been obtained; and
(iv) neither the sale of the Securities being sold by such
Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by such Selling Stockholder or
the fulfillment of the terms hereof by such Selling Stockholder
will conflict with, result in a breach or violation of, or
constitute a default under any law (except that such counsel need
not opine as to requirements under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters) or, where applicable, the
organizational documents of such Selling Stockholder or the terms
of any indenture or
19
<PAGE> 20
other agreement or instrument known to such counsel and to which
such Selling Stockholder or any of its subsidiaries is a party
or bound, or any judgment, order or decree known to such counsel
to be applicable to such Selling Stockholder or any of its
subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over
such Selling Stockholder or any of its subsidiaries.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than those
in which such counsel is expert (which jurisdictions shall be disclosed
in such opinion) to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters, and (B) as to matters of fact, to the extent they deem
proper and where applicable, on certificates of responsible officers of
the Selling Stockholders and public officials.
(d) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for the U.S.
Underwriters, such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectuses (together with any supplement thereto) and
other related matters as the Representatives may reasonably require, and
the Company and each Selling Stockholder shall have furnished to such
counsel such documents as they request for the purpose of enabling them
to pass upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplements to the Prospectuses and this Agreement and
that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on
and as of the Closing Date with the same effect as if made on the
Closing Date 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;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's knowledge,
threatened; and
20
<PAGE> 21
(iii) since the date of the most recent financial
statements included in the Prospectuses (exclusive of any
supplement thereto), there has been no material adverse change in
the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiary, taken
as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement
thereto).
(f) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by or on behalf of such Selling
Stockholder or, where applicable, the Chairman of the Board or the
President and the principal financial or accounting officer of such
Selling Stockholder, dated the Closing Date, to the effect that the
representations and warranties of such Selling Stockholder in this
Agreement are true and correct in all material respects on and as of the
Closing Date to the same effect as if made on the Closing Date.
(g) At the Execution Time and at the Closing Date, Coopers &
Lybrand L.L.P. shall have furnished to the Representatives letters,
dated respectively as of the Execution Time and as of the Closing Date,
in form and substance satisfactory to the Representatives, confirming
that they are independent accountants within the meaning of the Act and
the Exchange Act and the respective applicable published rules and
regulations thereunder and that they have performed a review of the
unaudited interim financial information of the Company for the six-month
period ended June 30, 1997 and as at June 30, 1997, in accordance with
Statement on Accounting Standards No. 71 and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated in
the Registration Statement and the Prospectuses and reported on
by them comply in form in all material respects with the
applicable accounting requirements of the Act and the Ex change
Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and the
Subsidiary; their review, in accordance with standards
established under Statement on Auditing Standards No. 71, of the
unaudited interim financial information as indicated in their
reports incorporated in the Registration Statement and the
Prospectus; carrying out certain specified procedures (but not
an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the
stockholders, directors and executive, finance and audit
21
<PAGE> 22
committees of the Company and the Subsidiaries; and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company and the
Subsidiary as to transactions and events subsequent to June 30,
1997, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements included or
incorporated in the Registration Statement and the
Prospectuses do not comply in form in all material
respects with applicable accounting requirements and with
the published rules and regulations of the Commission with
respect to financial statements included or incorporated
in quarterly reports on Form 10-Q under the Exchange Act;
and said unaudited financial statements are not in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of
the audited financial statements included or incorporated
in the Registration Statement and the Prospectus;
(2) with respect to the period subsequent to June
30, 1997, there were any changes, at a specified date not
more than five days prior to the date of the letter, in
the long-term liabilities of the Company and the
Subsidiary or capital of the Company or decreases in the
stockholders' equity of the Company or decreases in
working capital of the Company and the Subsidiary as
compared with the amounts shown on the June 30, 1997
consolidated balance sheet included or incorporated in the
Registration Statement and the Prospectuses, or for the
period from July 1, 1997 to such specified date there were
any decreases, as compared with the six-month period ended
June 30, 1996 in net sales or income or in total or per
share amounts of net income of the Company and the
Subsidiary, or in income (loss) before income taxes
provision (benefit) and extraordinary debt extinguishment
costs, income tax provision (benefit), net income (loss)
before extraordinary debt extinguishment costs, or in
extraordinary debt extinguishment costs, net of income
taxes, except in all instances for changes or decreases
set forth in such letter, in which case the letter shall
be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives;
(3) if the information included in the Registration
Statement and Prospectus in response to Regulation S-K,
Item 301 (Selected
22
<PAGE> 23
Financial Data), Item 302 (Supplementary Financial
Information), Item 402 (Executive Compensation) and Item
503(d) (Ratio of Earnings to Fixed Charges) is not in
conformity with the applicable disclosure requirements
of Regulation S-K; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and the Subsidiary) set forth in the Registration
Statement and the Prospectuses, including the information set
forth under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" in
the Prospectuses, the information included or incorporated in
Items 1, 2, 6, 7 and 11 of the Company's Annual Report on Form
10-K (or incorporated by reference therein), incorporated in the
Registration Statement and the Prospectus, and the information
included in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included or
incorporated in the Company's Quarterly Reports on Form 10-Q,
incorporated in the Registration Statement and the Prospectus,
agrees with the accounting records of the Company and the
Subsidiary, excluding any questions of legal interpretation.
References to the Prospectuses in this paragraph (g) include any
supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as
of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectuses (exclusive of any
supplement thereto), there shall not have been (i) any change specified
in the letter or letters referred to in paragraph (g) of this Section 6
or (ii) any change, or any development involving a prospective change,
in or affecting the condition (financial or otherwise), earnings,
business or properties of the Company and the Subsidiary, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectuses
(exclusive of any supplement thereto) the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement
thereto).
23
<PAGE> 24
(i) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto from each executive officer and director of the Company and
certain stockholders of the Company addressed to the Representatives, in
which each such person agrees not to offer, sell, contract to sell,
pledge or otherwise dispose of, or file a registration statement with
the Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act with respect to, any shares of
capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce
an intention to effect any such transaction (except the shares offered
hereby and by the International Underwriting Agreement), for a period of
90 days after the Execution Time, other than as set forth therein.
(j) Subsequent to the Execution Time, there shall not have been
any decrease in the rating of any of the Company's debt securities by
any "nationally recognized statistical rating organization" (as defined
for purposes of Rule 436(g) under the Act) or any notice given of any
intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(k) The Company shall have caused the Securities to be eligible
for trading on the Nasdaq National Market upon issuance.
(l) Prior to the Closing Date, the Company and each Selling
Stockholder shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may
reasonably request.
(m) The closing of the purchase of the International Underwritten
Securities to be issued and sold by the Company and sold by the Selling
Stockholders pursuant to the International Underwriting Agreement shall
occur concurrently with the closing described herein.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
U.S. Underwriters, this Agreement and all obligations of the U.S. Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company and
each Selling Stockholder in writing or by telephone or facsimile confirmed in
writing.
24
<PAGE> 25
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cooley Godward LLP, counsel for the Company, at Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, California, on the Closing
Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the U.S. Underwriters set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10 hereof or because
of any refusal, inability or failure on the part of the Company or any Selling
Stockholder to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the U.S. Underwriters, the Company
will reimburse the U.S. Underwriters severally through Salomon Brothers Inc on
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities. If the Company is
required to make any payments to the U.S. Underwriters under this Section 7
because any Selling Stockholder's refusal, inability or failure to satisfy any
condition to the obligations of the U.S. Underwriters set forth in Section 6,
the Selling Stockholders pro rata in proportion to the percentage of Securities
to be sold by each shall reimburse the Company on demand for all amounts so
paid.
8. Indemnification and Contribution. (a) The Company, jointly and
severally, and each of Summit Ventures III, L.P., Summit Ventures IV, L.P.,
Summit Investors II. L.P. and Summit Subordinated Debt Fund (collectively,
"Summit") severally, agrees to indemnify and hold harmless each U.S.
Underwriter, the directors, officers, employees and agents of each U.S.
Underwriter and each person who controls any U.S. Underwriter within the meaning
of either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectuses, or in any amendment thereof 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 not misleading in light of the
circumstances under which they were made, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action (provided that Summit shall not be liable
under such indemnity for any untrue statement or alleged untrue statement or any
omission or alleged omission in the Preliminary Prospectus if Summit provided
corrected information in writing to the Company or its counsel for inclusion in
the final Prospectuses and the corrected information was not so included or such
final Prospectuses were not properly
25
<PAGE> 26
delivered by the Company and/or the U.S. Underwriters); provided, however, that
the Company and Summit will 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
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any U.S. Underwriter
through the Representatives specifically for inclusion therein. This indemnity
agreement will be in addition to any liability which the Company or Summit may
otherwise have. Notwithstanding the foregoing, each U.S. Underwriter agrees that
it shall not make demand on Summit for indemnification hereunder until, and
except to the extent that, such Underwriter shall have made demand on the
Company for indemnification hereunder and the Company shall not have paid the
same within 30 days after such demand.
(b) Each Selling Stockholder other than Summit severally and not
jointly agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who signs the Registration Statement, each U.S.
Underwriter, the directors, officers, employees and agents of each U.S.
Underwriter and each person who controls the Company or any U.S. Underwriter
within the meaning of either the Act or the Exchange Act and each other Selling
Stockholder to the same extent as the foregoing indemnity from the Company to
each U.S. Underwriter, but only with reference to written information furnished
to the Company by or on behalf of such Selling Stockholder specifically for use
in the preparation of the documents referred to in the foregoing indemnity
(provided that no Selling Stockholder shall be liable under such indemnity for
any untrue statement or alleged untrue statement or any omission or alleged
omission in the Preliminary Prospectus if such Selling Stockholder provided
corrected information in writing to the Company or its counsel for inclusion in
the final Prospectuses and the corrected information was not so included or such
final Prospectuses were not properly delivered by the Company and/or the U.S.
Underwriters). This indemnity agreement will be in addition to any liability
which any Selling Stockholder may otherwise have.
(c) Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each Selling Stockholder and
each person who controls such Selling Stockholder, to the same extent as the
foregoing indemnity from the Company to each U.S. Underwriter, but only with
reference to written information relating to such U.S. Underwriter furnished to
the Company by or on behalf of such U.S. Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any U.S. Underwriter may otherwise have. The Company and each Selling
Stockholder acknowledge that the statements set forth in the paragraph of the
cover page regarding delivery of the Securities, the stabilization legend in
block capital letters on page 2 and,
26
<PAGE> 27
under the heading "Underwriting", (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization in any U.S. or
International Preliminary Prospectus and the Prospectuses constitute the only
information furnished in writing by or on behalf of the several U.S.
Underwriters for inclusion in any U.S. or International Preliminary Prospectus
or the Prospectuses.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a), (b) or (c) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a), (b) or (c) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnify ing party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, 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, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. It is understood, however, that the Company
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such U.S. Underwriters and controlling persons,
which firm shall be designated in writing by Salomon Brothers Inc. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment
27
<PAGE> 28
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company, the Selling Stockholders and
the U.S. Underwriters agree to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "Losses") to
which the Company, one or more of the Selling Stockholders and one or more of
the U.S. Under writers may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and by the Selling
Stockholders, on the one hand, and by the U.S. Underwriters, on the other, from
the offering of the U.S. Securities; provided, however, that in no case shall
any U.S. Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the U.S. Securities) be responsible for
any amount in excess of the underwriting discount or commission applicable to
the Securities purchased by such U.S. Underwriter hereunder. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the Company, the Selling Stockholders and the U.S. Underwriters shall contribute
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company, of the Selling Stockholders and of
the U.S. Underwriters in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company and by the Selling Stockholders shall be deemed
to be equal to the total net proceeds from the offering (before deducting
expenses) received by each of them, and benefits received by the U.S.
Underwriters shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectuses.
Relative fault shall be determined by reference to, among other things, whether
any untrue or any alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information provided by the
Company, the Selling Stockholders on the one hand or the U.S. Underwriters on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company, the Selling Stockholders and the U.S. Underwriters agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this paragraph (e), no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls a U.S. Underwriter within the
28
<PAGE> 29
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of an Underwriter shall have the same rights to contribution
as such Underwriter, and each person who controls the Company within the meaning
of either the Act or the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to the
applicable terms and provisions of this paragraph (e).
(f) The liability of each Selling Stockholder (other than Summit) under
such Selling Stockholder's representations and warranties contained in Section 1
hereof and under the indemnity and contribution agreements contained in this
Section 8 shall be limited to an amount equal to the net initial public offering
price of the U.S. Securities sold by such Selling Stockholders to the U.S.
Underwriters (before deducting expenses). The liability of Summit under its
representations and warranties contained in Section 1 hereof and under the
indemnity and contribution agreements contained in this Section 8 shall be
limited to the lesser of (i) an amount equal to the net initial public offering
price of the U.S. Securities sold by Summit to the U.S. Underwriter (before
deducting expenses), and (ii) Summit's proportionate share of the aggregate
liability, based on the number of shares sold by it. The Company and the Selling
Stockholders may agree, as among themselves, and without limiting the rights of
the U.S. Underwriters, under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
9. Default by an Underwriter. If any one or more U.S.
Underwriters shall fail to purchase and pay for any of the U.S. Securities
agreed to be purchased by such U.S. Underwriter or U.S. Underwriters hereunder
and such failure to purchase shall constitute a default in the performance of
its or their obligations under this Agreement, the remaining U.S. Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of U.S. Securities set forth opposite their names
in Schedule I hereto bears to the aggregate amount of Securities set forth
opposite the names of all the remaining U.S. Underwriters) the U.S. Securities
which the defaulting U.S. Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of U.S.
Securities which the defaulting U.S. Underwriter or Underwriters agreed but
failed to purchase shall exceed 10% of the aggregate amount of U.S. Securities
set forth in Schedule I hereto, the remaining U.S. Underwriters shall have the
right to purchase all, but shall not be under any obligation to purchase any, of
the U.S. Securities, and if such nondefaulting U.S. Underwriters do not purchase
all the U.S. Securities, this Agreement will terminate without liability to any
nondefaulting U.S. Underwriter, the Selling Stockholders or the Company. In the
event of a default by any U.S. Underwriter as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding five Business
Days, as the Representatives shall determine in order that the required changes
in the Registration Statement and the Prospectuses or in any other documents or
arrangements may be effected. Nothing contained in this
29
<PAGE> 30
Agreement shall relieve any defaulting U.S. Underwriter of its liability, if
any, to the Company, the Selling Stockholders and any nondefaulting U.S.
Underwriter for damages occasioned by its default hereunder.
10. Effective Date of Agreement and Termination. This Agreement
shall become effective at such time (after notification of the effectiveness of
the Registration Statement has been released by the Commission) as the
Underwriters, the Selling Stockholders and the Company shall agree on the
initial public offering price and underwriting discount per share, unless prior
to such time such of the Underwriters as have agreed to purchase in the
aggregate 50% or more of the Securities shall have given notice to the Company
that such Underwriters elect that this Agreement and the International
Underwriting Agreement shall not become effective; provided, however, that the
provisions of this Section 10 and of Section 8 hereof shall at all times be
effective. If this Agreement shall not have become effective prior to 2:00 PM,
California time, on the seventh full business day after the Effective Date, this
Agreement shall not thereafter become effective unless such period is extended
by agreement among the Underwriters, the Selling Stockholders and the Company.
This Agreement shall be subject to termination in the absolute
discretion of the Representatives, by notice given to the Company prior to
delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or National Market, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war or other calamity or crisis the effect of
which on financial markets is such as to make it, in the reasonable judgment of
the Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the U.S.
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
U.S. Underwriter, any Selling Stockholder or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the U.S. Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
30
<PAGE> 31
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Brothers Inc General Counsel (fax no.:
(212) 783-1752) and confirmed to the General Counsel, care of Salomon Brothers
Inc, at Seven World Trade Center, New York, New York, 10048, Attention: General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
(408) 623-9750 and confirmed to it at 1055 Page Avenue, Fremont, California
94538, attention of Peter S. Norris, Chief Financial Officer, with a copy to
James C. Kitch, Esq., Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino
Real, Palo Alto, California 94306 (fax no.: (650) 857-0663); or if sent to the
Selling Stockholders, will be mailed, delivered or telegraphed and confirmed to
them at the addresses set forth in Schedule II hereto.
13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Business Day" shall mean any day other than a Saturday, a Sunday
or a legal holiday or a day on which banking institutions or trust
companies are authorized or obligated by law to close in New York City
or the State of California.
"Effective Date" shall mean each date and time that the
Registration State ment, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Execution Time" shall mean the date and time that this Agreement
is executed and delivered by the parties hereto.
31
<PAGE> 32
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective) and,
in the event any post-effective amendment thereto or any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended or such Rule 462(b) Registration Statement, as the case may be.
Such term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A.
"Rule 424," "Rule 430A" and "Rule 462" refer to such rules under
the Act.
"Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration statement.
"U.S. Preliminary Prospectus" and the "International Preliminary
Prospectus," respectively, shall mean any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, referred to in the first paragraph set
forth above and any preliminary prospectus with respect to the offering
of the U.S. Securities and the International Securities, as the case may
be, included in the Registration Statement at the Effective Date that
omits Rule 430A Information; and the U.S. Preliminary Prospectus and the
International Preliminary Prospectus are hereinafter collectively called
the "Preliminary Prospectuses."
"United States or Canadian Person" shall mean any person who is
a national or resident of the United States or Canada, any corporation,
partnership, or other entity created or organized in or under the laws
of the United States or Canada or of any political subdivision thereof,
or any estate or trust the income of which is subject to United States
or Canadian Federal income taxation, regardless of its source (other
than any non-United States or non-Canadian branch of any United States
or Canadian Person), and shall include any United States or Canadian
branch of a person other than a United States or Canadian Person. "U.S."
or "United
32
<PAGE> 33
States" shall mean the United States of America (including the states
thereof and the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
HMT Technology Corporation
By:_____________________
[Title]
Selling Stockholders
By:_____________________
Attorney-in-Fact
33
<PAGE> 34
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Robertson, Stephens & Company LLC
By: Salomon Brothers Inc
By: _______________________
[Title]
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
34
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
<S> <C>
Salomon Brothers Inc . . . . . . .
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Robertson, Stephens & Company LLC
---------
Total . . . . . . . . . 8,500,000
=========
</TABLE>
35
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF UNDERWRITTEN
SECURITIES TO BE
SELLING STOCKHOLDERS/ADDRESSES SOLD
- ------------------------------ ----------------------
<S> <C>
Summit Ventures III, L.P.
[Address]
Summit Ventures IV, L.P.
[Address]
Summit Investors II. L.P.
[Address]
Summit Subordinated Debt Fund L.P.
[Address]
Hitachi Metals, Ltd.
[Address]
Ronald L. Schauer
[Address]
Michael A. Russak
[Address]
George J. Hall
[Address]
Ronald J. Buschur
[Address]
Peter S. Norris
[Address]
Crossroads SF Limited Partnership
[Address]
Joseph E. Haefele
[Address]
Crossroads Capital II Limited Partnership
[Address]
Bruce C. Edwards
[Address]
Crossroads DPT Limited Partnership
[Address]
--------------
Total . . . . . . . . .
==============
</TABLE>
36
<PAGE> 37
EXHIBIT A
[Lockup Agreement]
37
<PAGE> 1
EXHIBIT 1.2
HMT TECHNOLOGY CORPORATION
1,500,000 Shares
Common Stock
($0.001 par value)
International Underwriting Agreement
London, England
August __, 1997
Salomon Brothers International Limited
Alex. Brown & Sons International
Hambrecht & Quist LLC
Robertson, Stephens & Company LLC
As International Representatives of the several
International Underwriters,
c/o Salomon Brothers International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W 0SB ENGLAND
Ladies and Gentlemen:
HMT Technology Corporation, a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule I hereto (the
"International Underwriters"), for whom you (the "International
Representatives") are acting as representatives, 150,000 shares of Common Stock,
$0.001 par value ("Common Stock"), of the Company, and the persons named in
Schedule II hereto (the "Selling Stockholders") propose to sell to the
International Underwriters 1,350,000 shares of Common Stock (said shares to be
issued and sold by the Company and shares to be sold by the Selling Stockholders
collectively being hereinafter called the "International Underwritten
Securities"). The Company and the Selling Stockholders also propose to grant to
the International Underwriters an option to purchase up to 225,000 additional
shares of Common Stock (the "International Option Securities"; the International
Option Securities, together with the International Underwritten Securities,
being hereinafter called the "International Securities"). It is understood that
the Company and the Selling Stockholders are concurrently entering into a U.S.
Underwriting Agreement dated the date hereof (the "U.S. Underwriting Agreement")
providing for the sale by the Company, Alex. Brown & Sons Incorporated,
Hambrecht & Quist LLC and Robertson, Stephens & Company and the Selling
Stockholders of an aggregate of 850,000 shares of Common Stock (said shares to
be sold by the Company and the Selling Stockholders
<PAGE> 2
pursuant to the U.S. Underwriting Agreement being hereinafter called the "U.S.
Underwritten Securities"), in the United States and Canada through arrangements
with certain underwriters in the United States and Canada (the "U.S.
Underwriters"), for whom Salomon Brothers International Limited, Alex. Brown &
Sons Incorporated, Hambrecht & Quist LLC and Robertson, Stephens & Company are
acting as representatives (the "Representatives"), and providing for the grant
to the U.S. Underwriters of an option to purchase from the Company and the
Selling Stockholders up to 1,275,000 additional shares of Common Stock (the
"U.S. Option Securities"; the U.S. Option Securities, together with the U.S.
Underwritten Securities, being hereinafter called the "U.S. Securities" and the
International Securities, together with the U.S. Securities, being hereinafter
called the "Securities"). It is further understood and agreed that the U.S.
Underwriters and the International Underwriters have entered into an Agreement
Between U.S. Underwriters and International Underwriters dated the date hereof
(the "Agreement Between U.S. Underwriters and International Underwriters"),
pursuant to which, among other things, the International Underwriters may
purchase from the U.S. Underwriters a portion of the U.S. Securities to be sold
pursuant to the U.S. Underwriting Agreement and the U.S. Underwriters may
purchase from the International Underwriters a portion of the International
Securities to be sold pursuant to the International Underwriting Agreement. To
the extent there are no additional International Underwriters listed on Schedule
I other than you, the term International Representatives as used herein shall
mean you, as International Underwriters, and the terms International
Representatives and International Underwriters shall mean either the singular or
plural as the context requires. Any reference herein to the Registration
Statement, a Preliminary Prospectus or a Prospectus shall be deemed to refer to
and include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 which were filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") on or before the Effective Date of the Registration
Statement or the issue date of such Preliminary Prospectus or Prospectus, as the
case may be; and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, any Preliminary
Prospectus or Prospectus "supplement" with respect shall be deemed to refer to
and include the filing of any document under the Exchange Act after the
Effective Date of the Registration Statement, or the issue date of any
Preliminary Prospectus or Prospectus, as the case may be, deemed to be
incorporated therein by reference.
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with,
each International Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in Section 17 hereof.
(i) The Company meets the requirements for the use of
Form S-3 under the Securities Act of 1933, as amended (the "Act") and
has filed with the Securities and Exchange Commission (the
"Commission") a registration statement
2
<PAGE> 3
(file number 333-32025) on Form, including related preliminary
prospectuses, for the registration under the Securities Act of 1933
(the "Act") of the offering and sale of the Securities. The Company
may have filed one or more amendments thereto, including the related
preliminary prospectuses, each of which has previously been furnished
to you. The Company will next file with the Commission either (A)
prior to the Effective Date of such registration statement, a further
amendment to such registration statement (including the form of final
prospectus) or (B) after the Effective Date of such registration
statement, final prospectuses in accordance with Rules 430A and
424(b)(1) or (4). In the case of clause (B), the Company has included
in such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and
the rules thereunder to be included in such registration statement and
the Prospectuses. As filed, such amendment and form of final
prospectuses, or such final prospectuses, shall contain all Rule 430A
Information, together with all other such required information, and,
except to the extent the International Representatives shall agree to
a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained
in the latest International Preliminary Prospectus) as the Company has
advised you, prior to the Execution Time, will be included or made
therein.
It is understood that two forms of prospectus are to be used
in connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons, and one form of prospectus
relating to the International Securities, which are to be offered and
sold to persons other than United States and Canadian Persons. The two
forms of prospectus are identical except for the outside front cover
page, the discussion under the heading "Underwriting" and the outside
back cover page. Such form of prospectus relating to the U.S.
Securities as first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement at the Effective
Date, is hereinafter called the "U.S. Prospectus"; such form of
prospectus relating to the International Securities as first filed
pursuant to Rule 424(b) after the Execution Time or, if no filing
pursuant to Rule 424(b) is made, such form of prospectus included in
the Registration Statement at the Effective Date, is hereinafter called
the "International Prospectus"; and the U.S. Prospectus and the
International Prospectus are hereinafter collectively called the
"Prospectuses".
(ii) On the Effective Date, the Registration Statement
did or will, and when the Prospectuses are first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein)
and on any date on which shares sold in respect of the International
Underwriters' over-allotment option are purchased, if
3
<PAGE> 4
such date is not the Closing Date (a "Settlement Date"), each
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act and the Exchange
Act and the respective rules thereunder; on the Effective Date and at
the Execution Time, the Registration Statement did not or will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective
Date, each Prospectus, if not filed pursuant to Rule 424(b), did or
will not, and on the date of any filing pursuant to Rule 424(b) and on
the Closing Date and any Settlement Date, each Prospectus (together
with any supplement thereto) will not, include any untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the
Prospectuses (or any supplement thereto) in reliance upon and in
conformity with information furnished herein or in writing to the
Company by or on behalf of any International Underwriter through the
International Representatives specifically for inclusion in the
Registration Statement or the Prospectuses (or any supplement
thereto).
(iii) Each of the Company and its subsidiary, HMT Barbados
FSC Ltd., a Barbados West Indies Company (the "Subsidiary") has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own its properties
and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction wherein it owns or leases
material properties or conducts material business and where the
failure to be so qualified would, individually or in the aggregate,
have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and the Subsidiary, taken as a whole, whether or not arising from
transactions in the ordinary course of business; 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; each of
the Company and the Subsidiary 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, all of which are valid
and in full force and effect; neither the Company nor the Subsidiary
is in violation of its respective charter 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,
4
<PAGE> 5
contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or
the Subsidiary is a party or by which either of them or any of their
properties may be bound; and neither the Company nor the Subsidiary is
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. The Company does not own or
control, directly or indirectly, any corporation, association or other
entities other than the Subsidiary, which is not a "Significant
Subsidiary" (as such term is defined in Regulation S-X of the Act).;
(iv) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through wholly
owned subsidiaries free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any other
security interests, claims, liens or encumbrances;
(v) The Company's authorized equity capitalization is as
set forth in the Prospectuses; the capital stock of the Company
conforms in all material respects to the description thereof contained
in the Prospectuses; the outstanding shares of Common Stock have been
duly and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder have been duly and
validly authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to subscribe
for the Securities; and, except as set forth in the Prospectuses, no
options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership
interests in the Company are outstanding. 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 Final Memorandum, accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(vi) There is no pending or, to the knowledge of the
Company, threatened action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator involving
the Company or the Subsidiary or either of their property of a
character required to be disclosed in the
5
<PAGE> 6
Registration Statement which is not adequately disclosed in the
Prospectuses, and there is no franchise, contract or other document of
a character required to be described in the Registration Statement or
Prospectuses, or to be filed as an exhibit thereto, which is not
described or filed as required."
(vii) This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms.
(viii) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act;
(ix) No consent, approval, authorization, filing with or
order of any court or governmental agency or body is required in
connection with the transactions contemplated herein, except such as
have been obtained under the Act and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the International Underwriters in the
manner contemplated herein and in the Prospectuses;
(x) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiary pursuant
to, (i) the charter or by-laws of the Company or the Subsidiary or (ii)
the terms of any material indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or the
Subsidiary is a party or bound or to which its or their property is
subject, or (iii) any statute, law, rule, regulation, judgment, order
or decree applicable to the Company or the Subsidiary of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or the
Subsidiary or any of their properties.
(xi) No holders of securities of the Company have rights
to the registration of such securities under the Registration
Statement, except as have been waived in writing.
(xii) The consolidated financial statements and schedules
of the Company and its consolidated subsidiaries included in the
Prospectuses and the Registration Statement present fairly in all
material respects the financial condition,
6
<PAGE> 7
results of operations and cash flows of the Company as of the
dates and for the periods indicated, comply as to form with the
applicable accounting requirements of the Act and the rules and
regulations thereunder and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectuses and Registration
Statement fairly present, on the basis stated in the Prospectuses and
the Registration Statement, the information included therein.
(xiii) The Company owns or has obtained licenses for the
patents, patent applications, trade and service marks, trade secrets
and other intellectual properties referenced or described in the
Prospectuses as being owned by or licensed to it (collectively, the
"Intellectual Property"). Except as set forth in the Prospectuses under
the caption "Risk Factors - Intellectual Property and Proprietary
Rights," (a) to the Company's knowledge, there are no rights of third
parties to any such Intellectual Property; (b) there is no pending or,
to the Company's knowledge, threatened action, suit, proceeding or
claim by others challenging the Company's rights in or to any such
Intellectual Property, and the Company is unaware of any facts which
would form a reasonable basis for any such claim; (c) there is no
pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others challenging the validity or scope of any
such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (d) there is no
pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of any other
fact which would form a reasonable basis for any such claim; (e) to the
Company's knowledge, there is no U.S. patent or published U.S. patent
application which contains claims that dominate or may dominate any
Intellectual Property described in the Prospectus as being owned by or
licensed to the Company or that interferes with the issued or pending
claims of any such Intellectual Property; and (f) there is no prior art
of which the Company is aware that may render any U.S. patent held by
the Company invalid or any U.S. patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office. Each of the Company and the Subsidiary owns the
Intellectual Property or has the rights to the Intellectual Property
that is necessary to conduct its business as described in the
Prospectuses.
Any certificate signed by any officer of the Company
and delivered to the International Representatives or counsel for the
International Underwriters in connection with the offering of the
Securities shall be deemed a representation and
7
<PAGE> 8
warranty by the Company, as to matters covered thereby, to each
International Underwriter.
(b) Each Selling Stockholder, severally and not jointly,
represents and warrants to, and agrees with, each International Underwriter
that:
(i) Such Selling Stockholder is the lawful owner of the
International Securities to be sold by such Selling Stockholder
hereunder and upon sale and delivery of, and payment for, such
International Securities, as provided herein, such Selling Stockholder
will convey good and marketable title to such International Securities,
free and clear of all liens, encumbrances, equities and claims
whatsoever.
(ii) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the International Securities and has not
effected any sales of shares of Common Stock which, if effected by the
issuer, would be required to be disclosed in response to Item 701 of
Regulation S-K.
(iii) Certificates in negotiable form for such Selling
Stockholder's International Securities have been placed in custody, for
delivery pursuant to the terms of this Agreement, under a Custody
Agreement duly authorized, executed and delivered by such Selling
Stockholder, in the form heretofore furnished to you (the "Custody
Agreement") with Boston EquiServe Limited Partnership as Custodian (the
"Custodian"); the International Securities represented by the
certificates so held in custody for such Selling Stockholder are
subject to the interests hereunder of the International Underwriters,
and the Company and the other Selling Stockholders; the arrangements
for custody and delivery of such certificates, made by such Selling
Stockholder hereunder and under the Custody Agreement, are not subject
to termination by any acts 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; and if any such death, incapacity
or any other such event shall occur before the delivery of such
International Securities hereunder, certificates for the International
Securities will be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Custody Agreement as if
such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian shall have received notice of such death,
incapacity or other event.
(iv) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by such Selling
8
<PAGE> 9
Stockholder of the transactions contemplated herein, except such
as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction and the securities
laws of any jurisdiction outside the United States in connection with
the purchase and distribution of the International Securities by the
International Underwriters and such other approvals as have been
obtained.
(v) Neither the sale of the International Securities
being sold by such Selling Stockholder nor the consummation of any
other of the transactions herein contemplated by such Selling
Stockholder or the fulfillment of the terms hereof by such Selling
Stockholder will conflict with, result in a breach or violation of, or
constitute a default under any law or, where applicable, the charter or
by-laws of such Selling Stockholder or the terms of any material
indenture or other agreement or instrument to which such Selling
Stockholder or any of its subsidiaries is a party or bound, or any
judgment, order or decree applicable to such Selling Stockholder or any
of its subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder or any of its subsidiaries.
In respect of any statements or omissions from the
Registration Statement or the Prospectuses or any supplement thereto made in
reliance upon and in conformity with information furnished in writing to the
Company by any Selling Stockholder specifically for use in connection with the
preparation thereof, such Selling Stockholder hereby makes the same
representations and warranties to each Underwriter as the Company makes to such
Underwriter under paragraph (a)(ii) of this Section.
2. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company and the Selling Stockholders (collectively, the "Sellers" and
individually, a "Seller") agree, severally and not jointly, to sell to each
International Underwriter, and each International Underwriter agrees, severally
and not jointly, to purchase from the Sellers at a purchase price of $ per
share, the amount of the International Underwritten Securities set forth
opposite such International Underwriter's name in Schedule I hereto. The amount
of International Underwritten Securities to be purchased by each Underwriter
from each Seller shall be as nearly as practicable in the same proportion to the
total amount of Securities to be purchased by such Underwriter as the total
amount of International Underwritten Securities to be sold by each Seller bears
to the total amount of International Underwritten Securities to be sold pursuant
hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company and the Selling
Stockholders hereby grant an option to the several International Underwriters to
purchase, severally and not jointly, up to 22,500 shares of the International
Option Securities at the same purchase
9
<PAGE> 10
price per share as the International Underwriters shall pay for the
International Underwritten Securities. Said option may be exercised only to
cover over-allotments in the sale of the International Underwritten Securities
by the International Underwriters. Said option may be exercised in whole or in
part at any time (but not more than once) on or before the 30th day after the
date of the International Prospectus upon written or telegraphic notice by the
International Representatives to the Company and such Selling Stockholders
setting forth the number of shares of the International Option Securities as to
which the several International Underwriters are exercising the option and the
Settlement Date. Delivery of certificates for the shares of International Option
Securities and payment therefor shall be made as provided in Section 3 hereof.
The maximum number of shares of the International Option Securities to be
purchased by each International Underwriter shall be the same percentage of the
total number of shares of the International Option Securities to be purchased by
the several International Underwriters as such International Underwriter is
purchasing of the International Underwritten Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the
International Underwritten Securities and the International Option Securities
(if the option provided for in Section 2(b) hereof shall have been exercised on
or before the third business day prior to the Closing Date) shall be made at
7:00 AM, California time, on , 1997, or at such time on such later date not more
than three Business Days after the foregoing date as the International
Representatives and the Representatives shall designate, which date and time may
be postponed by agreement among the International Representatives, the
Representatives, the Company and the Selling Stockholders or as provided in
Section 9 hereof (such date and time of delivery and payment for the
International Securities being herein called the "Closing Date"). Delivery of
the International Securities shall be made to the International Representatives
for the respective accounts of the several International Underwriters against
payment by the several International Underwriters through the International
Representatives of the respective aggregate purchase prices of the International
Securities being sold by the Company and each of the Selling Stockholders to or
upon the order of the Company and the Selling Stockholders by wire transfer
payable in same-day funds to an account specified by the Company. Delivery of
the International Underwritten Securities and the International Option
Securities shall be made through the facilities of The Depository Trust Company
unless the International Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several International
Underwriters of the International Securities to be purchased by them from such
Selling Stockholder and the respective International Underwriters will pay any
additional stock transfer taxes involved in further transfers.
10
<PAGE> 11
If the option provided for in Section 2(b) hereof is exercised
after the third business day prior to the Closing Date, the Company and the
Selling Stockholders will deliver the International Option Securities (at the
expense of the Company) to the International Representatives on the date
specified by the International Representatives (which shall be within three
Business Days after exercise of said option) against payment of the purchase
price thereof to or upon the order of the Company and the Selling Stockholders
by wire transfer payable in same-day funds to an account specified by each of
the Company and the Selling Stockholders. If settlement for the International
Option Securities occurs after the Closing Date, the Company and such Selling
Stockholders will deliver to the International Representatives on the Settlement
Date for the International Option Securities, and the obligation of the
International Underwriters to purchase the International Option Securities shall
be conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the U.S. Underwriting Agreement,
and that the Settlement Date, if any, shall occur simultaneously with the
"Settlement Date" under the U.S.
Underwriting Agreement.
4. Offering by Underwriters. It is understood that the
several International Underwriters propose to offer the International Securities
for sale to the public as set forth in the International Prospectus.
5. Agreements.
(a) The Company agrees with the several International
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectuses or any
Rule 462(b) Registration Statement unless the Company has furnished you
a copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectuses is otherwise required under Rule 424(b), the Company will
cause the Prospectuses, properly completed, and any supplement thereto
to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the International Representatives of such timely
filing. The Company will promptly advise the International
Representatives (A) when the Registration
11
<PAGE> 12
Statement, if not effective at the Execution Time, shall have become
effective, (B) when the Prospectuses, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to
Rule 424(b), or when any Rule 462(b) Registration Statement shall have
been filed with the Commission, (C) when, prior to termination of the
offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (D) of any
request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or
for any supplement to the Prospectuses or of any additional
information, (E) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which either of the Prospectuses as then supplemented
would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the light
of the circumstances under which they were made not misleading, or if
it shall be necessary to amend the Registration Statement or supplement
either of the Prospectuses to comply with the Act or the Exchange Act
or the respective rules thereunder, the Company promptly will (A)
prepare and file with the Commission, subject to the second sentence of
paragraph (a)(i) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance and
(B) supply any supplemented Prospectuses to you in such quantities as
you may reasonably request.
(iii) As soon as practicable, the Company will make
generally available to its security holders and to the International
Representatives an earnings statement or statements of the Company and
the Subsidiary which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act.
(iv) The Company will furnish to the International
Representatives and counsel for the International Underwriters, without
charge, signed copies of the Registration Statement (including exhibits
thereto) and to each other International Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as
delivery of a prospectus by an International Underwriter or dealer may
be required by the Act or otherwise required, as many copies of each
International Preliminary Prospectus and the International Prospectus
and any supplement thereto
12
<PAGE> 13
as the International Representatives may reasonably request. The
Company will pay the expenses of printing or other production of all
documents relating to the offering.
(v) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the International Representatives may designate, will
maintain such qualifications in effect so long as required for the
distribution of the securities and will pay any fee of the National
Association of Securities Dealers, Inc., in connection with its review
of the offering; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action that would subject it to service
of process in suits, other than those arising out of the offering or
sale of the Securities, in any jurisdiction where it is not now so
subject.
(vi) The Company will not, for a period of 90 days
following the Execution Time, without the prior written consent of
Salomon Brothers International Limited (which consent shall not be
unreasonably withheld) , offer, sell or contract to sell, pledge or
otherwise dispose of, or file a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act with respect to, any shares
of capital stock, the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly
announce an intention to effect any such transaction (except for the
shares offered hereby); provided, however, that the Company may grant
options and other rights and issue and sell Common Stock pursuant to
any employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time and
the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution
Time.
(b) Each International Underwriter agrees that (i) it is not
purchasing any of the International Securities for the account of any United
States or Canadian Person, (ii) it has not offered or sold, and will not offer
or sell, directly or indirectly, any of the International Securities or
distribute any International Prospectus to any person in the United States or
Canada, or to any United States or Canadian Person, and (iii) any dealer to whom
it may sell any of the International Securities will represent that it is not
purchasing for the account of any United States or Canadian Person and agree
that it will not offer or resell, directly or indirectly, any of the
International Securities in the United States or Canada, or to any United States
or Canadian Person or to any other dealer who does not so represent and agree;
provided, however, that the foregoing shall not restrict (A) purchases and sales
between the U.S. Underwriters on the one hand and the International Underwriters
on the other hand pursuant to the Agreement Between U.S.
13
<PAGE> 14
Underwriters and International Underwriters, (B) stabilization transactions
contemplated under the Agreement Between U.S. Underwriters and International
Underwriters, conducted through Salomon Brothers International Limited (or
through the Representatives and International Representatives) as part of the
distribution of the Securities, and (C) sales to or through (or distributions of
International Prospectuses or International Preliminary Prospectuses to) persons
not United States or Canadian Persons who are investment advisors, or who
otherwise exercise investment discretion, and who are purchasing for the account
of any United States or Canadian Person.
(c) The agreements of the International Underwriters set forth
in paragraph (b) of this Section 5 shall terminate upon the earlier of the
following events:
(i) a mutual agreement of the Representatives and the
International Representatives to terminate the selling restrictions
set forth in paragraph (b) of this Section 5 and in Section 5(b) of
the U.S. Underwriting Agreement; or
(ii) the expiration of a period of 30 days after the Closing
Date, unless (A) the International Representatives shall have given
notice to the Company and the Representatives that the distribution of
the International Securities by the International Underwriters has not
yet been completed, or (B) the Representatives shall have given notice
to the Company and the International Underwriters that the
distribution of the U.S. Securities by the U.S. Underwriters has not
yet been completed. If such notice by the Representatives or the
International Representatives is given, the agreements set forth in
such paragraph (b) shall survive until the earlier of (1) the event
referred to in clause (i) of this subsection (c) or (2) the expiration
of an additional period of 30 days from the date of any such notice.
(d) Each International Underwriter severally represents and
agrees that:
(i) it has not offered or sold and, prior to the
expiration of six months from the Closing Date, will not offer or sell,
any International Securities in the United Kingdom, other than to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (whether as principal or agent)
for the purposes of their businesses or otherwise in circumstances
which have not resulted in an offer to the public within the meaning of
the Public Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable
provisions of The Financial Services Act 1986 with respect to anything
done by it in relation to the International Securities, in, from or
otherwise involving the United Kingdom; and
14
<PAGE> 15
(iii) it has only issued or passed on and will only issue
or pass on to any person in the United Kingdom any document received by
it in connection with the issue of the International Securities if that
person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or a person to whom the document may otherwise lawfully be issued or
passed on.
(e) Each Selling Stockholder agrees with the several
International Underwriters that such Selling Stockholder will not during the
period of 90 days following the Execution Time, without the prior written
consent of Salomon Brothers Inc, offer, sell, pledge or contract to sell, or
otherwise dispose of, or file a registration statement with the Commission in
respect of, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Exchange Act with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction (except
for the shares offered hereby subject to certain limitations set forth in the
"Lockup Agreement" attached as Exhibit A).
6. Conditions to the Obligations of the International
Underwriters. The obligations of the International Underwriters to purchase the
International Underwritten Securities and the International Option Securities,
as the case may be, shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders contained
herein as of the Execution Time, the Closing Date and any Settlement Date
pursuant to Section 3 hereof, to the accuracy of the statements of the Company
and the Selling Stockholders made in any certificates pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives and the International
Representatives agree in writing to a later time, the Registration Statement
shall have become effective not later than (i) 3:00 PM California time on the
date of determination of the public offering price, if such determination
occurred at or prior to 12:00 Noon California time on such date or (ii) 6:30 AM
on the Business Day following the day on which the public offering price was
determined, if such determination occurred after 12:00 Noon California time on
such date; if filing of either of the Prospectuses, or any supplement thereto,
is required pursuant to the applicable paragraph of Rule 424(b), the
Prospectuses, and any such supplement, will be filed in the manner and within
the time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
15
<PAGE> 16
(b) The Company shall have furnished to the International
Representatives the opinion of Cooley Godward LLP, counsel for the Company,
dated the Closing Date, 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 in which it is chartered or organized, with full
corporate power and authority to own its properties and conduct its
business as described in the Prospectuses, and, to the best of such
counsel's knowledge, is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
wherein it owns or leases material properties or conducts material
business, except where the failure to be so qualified would not have a
material adverse effect on the financial condition, earnings,
operations or business of the Company and the Subsidiary, taken as a
whole;
(ii) all the outstanding shares of capital stock of the
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the Subsidiary
are owned of record by the Company free and clear of, to the knowledge
of such counsel, any security interests, claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is as
set forth in the Prospectuses under the caption "Capitalization"; the
capital stock of the Company conforms in all material respects to the
description thereof contained in the Prospectuses under the caption
"Description of Capital Stock"; the outstanding shares of Common Stock
(including the Securities being sold hereunder by the Selling
Stockholders) have been duly and validly authorized and issued and are
fully paid and nonassessable; the Securities being sold hereunder by
the Company have been duly and validly authorized, and, when issued and
delivered to and paid for by the International Underwriters pursuant to
this Agreement and by the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, will be fully paid and nonassessable; the
Securities being sold hereunder are duly authorized for listing,
subject to official notice of issuance and evidence of satisfactory
distribution; the certificates for the "Common Stock" in the form filed
as an exhibit to the Company's Registration Statement on Form 8-A filed
with the Commission on January 19, 1996 are in valid and sufficient
form; and the holders of outstanding shares of capital stock of the
Company are not entitled to preemptive or, to the best of such
counsel's knowledge, other rights to subscribe for the Securities; and,
to the best of such counsel's knowledge, except as set forth in the
Prospectuses, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any
16
<PAGE> 17
obligations into or exchange any securities for, shares of capital
stock of the Company are outstanding;
(iv) to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator involving
the Company or the Subsidiary of a character required to be disclosed
in the Registration Statement which is not adequately disclosed in the
Prospectuses, and there is no franchise, contract or other document of
a character required to be described in the Registration Statement or
Prospectuses, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements in the Prospectuses
under the heading "Risk Factors--Intellectual Property and Proprietary
Rights" fairly summarize the matters therein described;
(v) the Registration Statement has become effective
under the Act; any required filing of the Prospectuses, and any
supplements thereto, pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and each of the Prospectuses (other than the financial
statements and other financial information contained therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
rules thereunder;
(vi) this Agreement and the U.S. Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(vii) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or
order of any court or governmental agency or body is required by the
Company in connection with the transactions contemplated herein, except
such as have been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Underwriters in the
manner contemplated in this Agreement and the U.S. Underwriting
Agreement and in the Prospectuses and such other approvals (specified
in such opinion) as have been obtained;
17
<PAGE> 18
(ix) neither the issue and sale of the Securities, nor
the consummation of any other of the transactions herein or in the U.S.
Underwriting Agreement contemplated nor the fulfillment of the terms
hereof or thereof will conflict with, result in a breach or violation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiary pursuant to, (i) the charter or
by-laws of the Company or the Subsidiary or (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Subsidiary is a party or bound
or to which its property is subject and that would be required to be
filed with the Commission in connection with a registration statement
of the Company on Form S-1 filed as of the date hereof, or (iii) any
statute, law, rule or regulation (except that such counsel need not
opine as to requirements under the blue sky laws of any jurisdiction
in connection with the purchase and distribution of the Securities by
the Underwriters), or, to the knowledge of such counsel, judgment,
order or decree applicable to the Company or the Subsidiary of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or
the Subsidiary or any of its or their properties; and
(x) to the knowledge of such counsel, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement except for such rights of
persons identified in such opinion, which have been effectively waived.
In addition, such opinion shall state that in connection with the
preparation of the Registration Statement and the Prospectuses, 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 conference the
contents of the Registration Statement and Prospectuses and related matters were
discussed and, although they have not verified the accuracy of completeness of
the statements contained in the Registration Statement or the Prospectuses,
nothing has come to their attention which leads them to believe that on the
Effective Date, the Registration Statement (other than the financial statements
including supporting schedules and other financial and statistical information
contained therein, as to which they make 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, the
Prospectuses as of their date or as of the Closing Date (other than the
financial statements including supporting schedules and other financial and
statistical information contained therein as to which they make no comment),
contained or contains 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.
18
<PAGE> 19
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
State of California, the Delaware General Corporation Law or the Federal laws of
the United States, to the extent they deem proper and specified in such opinion,
upon the opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the International Underwriters
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials. References to the
Prospectuses in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) Each of the Selling Stockholders shall have furnished to
the International Representatives the opinion of counsel for such Selling
Stockholder acceptable to the Representatives, dated the Closing Date, to the
effect that:
(i) this Agreement, the U.S. Underwriting Agreement, the
Custody Agreement and the Power-of-Attorney have been duly authorized,
executed and delivered by or on behalf of such Selling Stockholders,
the Custody Agreement is valid and binding on such Selling Stockholders
subject to applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general principles of equity and to
limitations or availability of equitable relief, including specific
performance; and such Selling Stockholder has full legal right, and in
the case of each Selling Stockholder that is an entity, power and
authority under its organizational documents, to sell, transfer and
deliver, in the manner provided in this Agreement, the U.S.
Underwriting Agreement and the Custody Agreement, the Securities being
sold by such Selling Stockholder hereunder;
(ii) the delivery by such Selling Stockholder to the
several International Underwriters of certificates for the Securities
being sold hereunder with due endorsement for transfer by such Selling
Stockholder against payment therefor as provided herein, will pass
valid title to such Securities to the several International
Underwriters, free and clear of all liens, encumbrances, equities and
claims whatsoever;
(iii) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency or
body is required for the consummation by such Selling Stockholder of
the transactions contemplated herein, except such as may have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the International Underwriters and
such other approvals (specified in such opinion) as have been obtained;
and
19
<PAGE> 20
(iv) neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by such Selling Stockholder or the
fulfillment of the terms hereof by such Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a
default under any law (except that such counsel need not opine as to
requirements under the blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
Underwriters) or, where applicable, the organizational documents of
such Selling Stockholder or the terms of any indenture or other
agreement or instrument known to such counsel and to which such Selling
Stockholder or any of its subsidiaries is a party or bound, or any
judgment, order or decree known to such counsel to be applicable to
such Selling Stockholder or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder or any of its
subsidiaries.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than those
in which such counsel is expert (which jurisdictions shall be disclosed in such
opinion), to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for the International Underwriters, and (B) as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Selling Stockholders and public officials.
(d) The International Representatives shall have received from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
International Underwriters, such opinion or opinions, dated the Closing Date,
with respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectuses (together with any supplement thereto) and other
related matters as the International Representatives may reasonably require, and
the Company and each Selling Stockholder shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such matters.
(e) The Company shall have furnished to the International
Representatives a certificate of the Company, signed by the Chairman of the
Board or the President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplements to the Prospectuses and this Agreement and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing Date
and the Company has complied
20
<PAGE> 21
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectuses (exclusive of any supplement
thereto), there has been no material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and the Subsidiary, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
(f) Each Selling Stockholder shall have furnished to the
International Representatives a certificate, signed by or on behalf of such
Selling Stockholder or, where applicable, the Chairman of the Board or the
President and the principal financial or accounting officer of such Selling
Stockholder, dated the Closing Date, to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and correct in
all material respects on and as of the Closing Date to the same effect as if
made on the Closing Date.
(g) At the Execution Time and at the Closing Date, Coopers and
Lybrand L.L.P. shall have furnished to the International Representatives
letters, dated respectively as of the Execution Time and as of the Closing Date,
in form and substance satisfactory to the International Representatives,
confirming that they are independent accountants within the meaning of the Act
and the Exchange Act and the respective applicable published rules and
regulations thereunder and [that they have performed a review of the unaudited
interim financial information of the Company for the six-month period ended June
30, 1997, and as at June 30, 1997, in accordance with Statement on Accounting
Standards No. 71 and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated in the
Registration Statement and the Prospectuses and reported on by them
comply in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and the Subsidiary;
their review, in accordance with standards established under Statement
on Auditing Standards No. 71, of the unaudited interim financial
information as indicated in their reports
21
<PAGE> 22
incorporated in the Registration Statement and the Prospectus;
carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors and executive, finance and
audit committees of the Company and the Subsidiaries; and inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters of the Company and the Subsidiary as to
transactions and events subsequent to June 30, 1997, nothing came to
their attention which caused them to believe that:
(1) any unaudited financial statements included or
incorporated in the Registration Statement and the
Prospectuses do not comply in form in all material respects
with applicable accounting requirements and with the published
rules and regulations of the Commission with respect to
financial statements included or incorporated in quarterly
reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated in the Registration
Statement and the Prospectus;
(2) with respect to the period subsequent to June 30,
1997, there were any changes, at a specified date not more
than five days prior to the date of the letter, in the
long-term liabilities of the Company and the Subsidiary or
capital of the Company or decreases in the stockholders'
equity of the Company or decreases in working capital of the
Company and the Subsidiary as compared with the amounts shown
on the June 30, 1997 consolidated balance sheet included or
incorporated in the Registration Statement and the
Prospectuses, or for the period from July 1, 1997 to such
specified date there were any decreases, as compared with the
six-month period ended June 30, 1996 in net sales or income or
in total or per share amounts of net income of the Company and
the Subsidiary, or in income (loss) before income taxes
provision (benefit) and extraordinary debt extinguishment
costs, income tax provision (benefit), net income (loss)
before extraordinary debt extinguishment costs, or in
extraordinary debt extinguishment costs, net of income taxes,
except in all instances for changes or decreases set forth in
such letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the
Representatives;
(3) if the information included in the Registration
Statement and Prospectus in response to Regulation S-K, Item
301 (Selected Financial Data), Item 302 (Supplementary
Financial Information), Item 402 (Executive
22
<PAGE> 23
Compensation) and Item 503(d) (Ratio of Earnings to Fixed
Charges) is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived
from the general accounting records of the Company and the Subsidiary)
set forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business" in the Prospectuses, the information included or
incorporated in Items 1, 2, 6, 7 and 11 of the Company's Annual Report
on Form 10-K (or incorporated by reference therein), incorporated in
the Registration Statement and the Prospectus, and the information
included in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included or incorporated in the
Company's Quarterly Reports on Form 10-Q, incorporated in the
Registration Statement and the Prospectus, agrees with the accounting
records of the Company and the Subsidiary, excluding any questions of
legal interpretation.
References to the Prospectuses in this paragraph (g) include
any supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectuses (exclusive of any supplement thereto),
there shall not have been (i) any change specified in the letter or letters
referred to in paragraph (g) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto) the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the sole judgment of the
International Representatives, so material and adverse as to make it impractical
or inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment thereof)
and the Prospectuses (exclusive of any supplement thereto).
(i) At the Execution Time, the Company shall have furnished to
the International Representatives a letter substantially in the form of Exhibit
A hereto from each officer and director of the Company and certain stockholders
of the Company addressed to the International Representatives, in which each
such person agrees not to offer, sell, contract to sell, pledge or otherwise
dispose of, or file a registration statement with the Commission
23
<PAGE> 24
in respect of, or establish or increase a put equivalent position or liquidate
or decrease a call equivalent position within the meaning of Section 16 of the
Exchange Act with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction (except
the shares offered hereby and by the U.S. Underwriting Agreement), for a period
of 90 days after the Execution Time, other than as set forth therein.
(j) Subsequent to the Execution Time, there shall not have
been any decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act) or any notice given of any intended or potential
decrease in any such rating or of a possible change in any such rating that does
not indicate the direction of the possible change.
(k) The Company shall have caused the Securities to be
eligible for trading on the Nasdaq National Market upon issuance.
(l) Prior to the Closing Date, the Company and each Selling
Stockholder shall have furnished to the International Representatives such
further information, certificates and documents as the International
Representatives may reasonably request.
(m) The closing of the purchase of the U.S. Underwritten
Securities to be issued and sold by the Company and sold by the Selling
Stockholders pursuant to the U.S. Underwriting Agreement shall occur
concurrently with the closing described herein.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the International Representatives and
counsel for the International Underwriters, this Agreement and all obligations
of the International Underwriters hereunder may be canceled at, or at any time
prior to, the Closing Date by the International Representatives. Notice of such
cancellation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cooley Godward LLP, counsel for the Company, at
Five Palo Alto Square, 3000 El Camino Real, Palo Alto, California, on the
Closing Date.
7. Reimbursement of International Underwriters' Expenses. If
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the International Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability
24
<PAGE> 25
or failure on the part of the Company or the Selling Stockholder to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the International Underwriters, the Company will reimburse the
International Underwriters severally through Salomon Brothers International
Limited on demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities. If the Company is
required to make any payments to the International Underwriters under this
Section 7 because of any Selling Stockholder's refusal, inability or failure to
satisfy any condition to the obligations of the International Underwriters set
forth in Section 6, the Selling Stockholders pro rata in proportion to the
percentage of Securities to be sold by each shall reimburse the Company on
demand for all amounts so paid.
8. Indemnification and Contribution. (a) The Company, jointly and
severally, and Summit Ventures III, L.P., Summit Ventures IV, L.P., Summit
Investors II. L.P. and Summit Subordinated Debt Fund (collectively"Summit"),
severally, agree to indemnify and hold harmless each International Underwriter,
the directors, officers, employees and agents of each International Underwriter
and each person who controls any International Underwriter within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Securities
as originally filed or in any amendment thereof, or in any U.S. or International
Preliminary Prospectus or in either of the Prospectuses, or in any amendment
thereof 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 not misleading in light of the
circumstances under which they were made, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action (provided that Summit shall not be liable
under such indemnity for any untrue statement or alleged untrue statement or any
omission or alleged omission in the Preliminary Prospectus if Summit provided
corrected information in writing to the Company or its counsel for inclusion in
the final Prospectuses and the corrected information was not so included or such
final Prospectuses were not properly delivered by the Company and/or the
International Underwriters); provided, however, that the Company and Summit will
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 such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any International Underwriter through the International
Representatives specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Company
25
<PAGE> 26
or Summit may otherwise have. Notwithstanding the foregoing, each U.S.
Underwriter agrees that it shall not make demand on Summit for indemnification
hereunder until, and except to the extent that, such Underwriter shall have made
demand on the Company for indemnification hereunder and the Company shall not
have paid the same within 30 days after such demand.
(b) Each Selling Stockholder other than Summit severally and
not jointly agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who signs the Registration Statement, each
International Underwriter, the directors, officers, employees and agents of each
International Underwriter and each person who controls the Company or any
International Underwriter within the meaning of either the Act or the Exchange
Act and each other Selling Stockholder to the same extent as the foregoing
indemnity from the Company to each International Underwriter, but only with
reference to written information furnished to the Company by or on behalf of
such Selling Stockholder specifically for use in the preparation of the
documents referred to in the foregoing indemnity (provided that no Selling
Stockholder shall be liable under such indemnity for any untrue statement or
alleged untrue statement or any omission or alleged omission in the Preliminary
Prospectus if such Selling Stockholder provided corrected information in writing
to the Company or its counsel for inclusion in the final Prospectuses and the
corrected information was not so included or such final Prospectuses were not
properly delivered by the Company and/or the International Underwriters). This
indemnity agreement will be in addition to any liability which any Selling
Stockholder may otherwise have.
(c) Each International Underwriter severally agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act and each
Selling Stockholder and each person who controls such Selling Stockholder within
the meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity to each International Underwriter, but only with reference
to written information relating to such International Underwriter furnished to
the Company by or on behalf of such International Underwriter through the
International Representatives specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which any International Underwriter may otherwise
have. The Company and each Selling Stockholder acknowledge that the
statements set forth in the last paragraph of the cover page regarding delivery
of the International Securities, the stabilization legend in block capital
letters on page 2 and, under the heading "Underwriting", (i) the sentences
related to concessions and reallowances and (ii) the paragraph related to
stabilization in any U.S. or International Preliminary Prospectus and the
Prospectuses constitute the only information furnished in writing by or on
behalf of the several International Underwriters for inclusion in any U.S. or
International Preliminary Prospectus or the Prospectuses.
26
<PAGE> 27
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a), (b) or (c) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a), (b) or (c) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, 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, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. It is understood, however, that the Company
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such International Underwriters and controlling
persons, which firm shall be designated in writing by Salomon Brothers
International Limited. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
27
<PAGE> 28
(e) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Selling Stockholders
and the International Underwriters agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively
"Losses") to which the Company, one or more of the Selling Stockholders and one
or more of the International Underwriters may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and by the International Underwriters on
the other from the offering of the International Securities; provided, however,
that in no case shall any International Underwriter (except as may be provided
in any agreement among underwriters relating to the offering of the
International Securities) be responsible for any amount in excess of the
underwriting discount or commission applicable to the Securities purchased by
such International Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company, the
Selling Stockholders and the International Underwriters shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and of the International Underwriters on the other in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company and the
Selling Stockholders shall be deemed to be equal to the total net proceeds from
the offering (before deducting expenses) received by it, and benefits received
by the International Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the International Prospectus. Relative fault shall be determined by
reference to, among other things, whether any untrue or any alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company, the Selling
Stockholders on the one hand or the International Underwriters on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the International Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (e), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an International Underwriter within the
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of an International Underwriter shall have the same rights to
contribution as such International Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have
28
<PAGE> 29
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (e).
(f) The liability of each Selling Stockholder other than
Summit under such Selling Stockholder's representations and warranties contained
in Section 1 hereof and under the indemnity and contribution agreements
contained in this Section 8 shall be limited to an amount equal to the initial
public offering price of the International Securities sold by such Selling
Stockholder to the International Underwriters (before deducting expenses). The
liability of Summit under its representations and warranties contained in
Section 1 hereof and under the indemnity and contribution agreements contained
in this Section 8 shall be limited to the lesser of (i) an amount equal to the
net initial public offering price of the U.S. Securities sold by Summit to the
International Underwriters (before deducting expenses), and (ii) Summit's
proportionate share of the aggregate liability, based on the number of shares
sold by it. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the International Underwriters
under this Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
9. Default by an International Underwriter. If any one or more
International Underwriters shall fail to purchase and pay for any of the
International Securities agreed to be purchased by such International
Underwriter or International Underwriters hereunder and such failure to purchase
shall constitute a default in the performance of its or their obligations under
this Agreement, the remaining International Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the amount
of International Securities set forth opposite their names in Schedule I hereto
bears to the aggregate amount of International Securities set forth opposite the
names of all the remaining International Underwriters) the International
Securities which the defaulting International Underwriter or International
Underwriters agreed but failed to purchase; provided, however, that in the event
that the aggregate amount of International Securities which the defaulting
International Underwriter or International Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of International Securities
set forth in Schedule I hereto, the remaining International Underwriters shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of the International Securities, and if such nondefaulting
International Underwriters do not purchase all the International Securities,
this Agreement will terminate without liability to any nondefaulting
International Underwriter, the Selling Stockholders or the Company. In the event
of a default by any International Underwriter as set forth in this Section 9,
the Closing Date shall be postponed for such period, not exceeding five Business
Days, as the International Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectuses or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting International
29
<PAGE> 30
Underwriter of its liability, if any, to the Company, the Selling Stockholders
and any nondefaulting International Underwriter for damages occasioned by its
default hereunder.
10. Effective Date of Agreement and Termination.
This Agreement shall become effective at such time (after
notification of the effectiveness of the Registration Statement has been
released by the Commission) as the International Underwriters, the Selling
Stockholders and the Company shall agree on the initial public offering price
and underwriting discount per share, unless prior to such time such of the
Underwriters as have agreed to purchase in the aggregate 50% or more of the
Securities shall have given notice to the Company that such International
Underwriters elect that this Agreement and the U.S. Underwriting Agreement shall
not become effective; provided, however, that the provisions of this Section 10
and of Section 8 hereof shall at all times be effective. If this Agreement shall
not have become effective prior to 2:00 PM, California time, on the seventh full
business day after the Effective Date, this Agreement shall not thereafter
become effective unless such period is extended by agreement among the
International Underwriters, the Selling Stockholders and the Company.
This Agreement shall be subject to termination in the absolute
discretion of the International Representatives, by notice given to the Company
prior to delivery of and payment for the International Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission or the Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or limited or minimum prices shall have been
established on such Exchange or National Market, (ii) a banking moratorium shall
have been declared either by Federal or New York State authorities or (iii)
there shall have occurred any outbreak or escalation of hostilities, declaration
by the United States of a national emergency or war or other calamity or crisis
the effect of which on financial markets is such as to make it, in the
reasonable judgment of the International Representatives, impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the International Prospectus (exclusive of any supplement
thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the International
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
International Underwriter, any Selling Stockholder or the Company or any of the
officers, directors or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the International Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
30
<PAGE> 31
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the International
Representatives, will be mailed, delivered or telefaxed to the Salomon Brothers
International Limited General Counsel (fax no.: (212) 783-1752) and confirmed to
the General Counsel, care of Salomon Brothers International Limited, at Victoria
Plaza, 111 Buckingham Palace Road, London SW1W 0SB ENGLAND, Attention: General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
(408) 623-9750 and confirmed to it at 1055 Page Avenue, Fremont, California
94538, attention of Peter S. Norris, Chief Financial Officer, with a copy to
James C. Kitch, Esq., Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino
Real, Palo Alto, California 94306 (fax no: (650) 857-0063); or if sent to the
Selling Stockholders, will be mailed, delivered or telegraphed and confirmed to
them at the addresses set forth in Schedule II hereto.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City or the State of California.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
31
<PAGE> 32
"International Preliminary Prospectus" shall have the
meaning set forth under "U.S. Preliminary Prospectus."
"Preliminary Prospectus" shall have the meaning set forth
under "U.S. Preliminary Prospectus."
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as
the case may be. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule
430A.
"Rule 424," "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration statement.
"U.S. Preliminary Prospectus" and the "International
Preliminary Prospectus," respectively, shall mean any preliminary
prospectus with respect to the offering of the U.S. Securities and the
International Securities, as the case may be, referred to in the first
paragraph set forth above and any preliminary prospectus with respect
to the offering of the U.S. Securities and the International
Securities, as the case may be, included in the Registration Statement
at the Effective Date that omits Rule 430A Information; and the U.S.
Preliminary Prospectus and the International Preliminary Prospectus are
hereinafter collectively called the "Preliminary Prospectuses."
"United States or Canadian Person" shall mean any person who
is a national or resident of the United States or Canada, any
corporation, partnership, or other entity created or organized in or
under the laws of the United States or Canada or of any political
subdivision thereof, or any estate or trust the income of which is
subject to United States or Canadian Federal income taxation,
regardless of its source (other than any non-United States or
non-Canadian branch of any United States or Canadian Person), and
shall include any United States or Canadian branch of a person other
32
<PAGE> 33
than a United States or Canadian Person. "U.S." or "United States"
shall mean the United States of America (including the states thereof
and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
33
<PAGE> 34
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several International Underwriters.
Very truly yours,
HMT Technology Corporation
By:
---------------------------------
[Title]
Selling Stockholders
By:
----------------------------------
Attorney-in-fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers International Limited
Alex. Brown & Sons International
Hambrecht & Quist LLC
Robertson, Stephens & Company LLC
By: Salomon Brothers International Limited
By:
----------------------------------------
[Title]
34
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Shares-to-be
Underwriters Purchased
- ---------------------------------------------------------------------------------- -------------
<S> <C>
Salomon Brothers International Limited...........................................
Alex. Brown & Sons International.................................................
Hambrecht & Quist LLC............................................................
Robertson, Stephens & Company LLC................................................
---------
Total.......................................................... 1,500,000
=========
</TABLE>
35
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Number of Underwritten
Securities to be
Selling Stockholders Sold
- -------------------- -----------------------
<S> <C>
Summit Ventures III, L.P.
[Address]
Summit Ventures IV, L.P.
[Address]
Summit Investors II. L.P.
[Address]
Summit Subordinated Debt Fund L.P.
[Address]
Hitachi Metals, Ltd.
[Address]
Ronald L. Schauer
[Address]
Michael A. Russak
[Address]
George J. Hall
[Address]
Ronald J. Buschur
[Address]
Peter S. Norris
[Address]
Crossroads SF Limited Partnership
[Address]
Joseph E. Haefele
[Address]
Crossroads Capital II Limited Partnership
[Address]
Bruce C. Edwards
[Address]
Crossroads DPT Limited Partnership
[Address]
---------
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
Total . . . . . . . . . 1,350,000
=========
</TABLE>
37
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement on Form S-3 of our report dated April 22, 1997, on our
audits of the consolidated financial statements and financial statement
schedule of HMT Technology Corporation and its subsidiary, as of March 31, 1997
and 1996 and for each of the three years in the period ended March 31, 1997. We
also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
San Jose, California
August 13, 1997
