<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 25, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14709
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HUTCHINSON TECHNOLOGY INCORPORATED
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0901840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK, HUTCHINSON, MINNESOTA 55350
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(Address of principal executive offices) (Zip code)
(612) 587-3797
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(Registrant's telephone number, including area code)
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(Former name, address or fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 1995 the registrant had 5,410,295 of Common Stock issued and
outstanding.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
June 25, September 25,
1995 1994
------------ --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $25,891 $18,570
Securities available for sale 2,167 - -
Receivables, net 42,355 39,115
Inventories 14,670 9,529
Prepaid taxes and other expenses 4,461 3,611
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Total current assets 89,544 70,825
Property, plant and equipment, net 83,468 77,887
Other assets 5,734 2,436
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$178,746 $151,148
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------------- ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities of long-term debt $2,380 $2,380
Accounts payable and accrued expenses 10,873 7,327
Accrued compensation 14,426 8,686
Accrued income taxes 5,809 436
------------- ------------
Total current liabilities 33,488 18,829
Long-term debt and other 37,760 37,700
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Shareholders' investment:
Common stock, $.02 par value, 15,000,000 shares authorized,
5,362,000 and 5,333,000 issued and outstanding 107 107
Additional paid-in capital 39,677 39,215
Retained earnings 67,714 55,297
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Total shareholders' investment 107,498 94,619
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$178,746 $151,148
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------- ---------------------------
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $81,892 $62,787 $213,276 $168,380
Cost of sales 59,997 51,442 163,154 143,078
---------- ---------- ----------- -----------
Gross profit 21,895 11,345 50,122 25,302
Research and development
expenses 5,700 2,142 11,418 6,262
Selling, general and
administrative expenses 8,082 5,885 21,439 17,058
---------- ---------- ----------- -----------
Income from operations 8,113 3,318 17,265 1,982
Other income 457 176 1,090 815
Interest expense (684) (375) (2,009) (400)
---------- ---------- ----------- -----------
Income before income taxes 7,886 3,119 16,346 2,397
Provision for income taxes 1,898 811 3,929 626
---------- ---------- ----------- -----------
Net income $5,988 $2,308 $12,417 $1,771
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income per common
and common equivalent share $1.09 $0.42 $2.28 $0.33
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common and
common equivalent shares
outstanding 5,492 5,455 5,458 5,447
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
---------------------------
June 25, June 26,
1995 1994
------------ ------------
<S> <C> <C>
Operating activities:
Net income $12,417 $1,771
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 20,374 17,111
Deferred tax benefit (3,167) (1,202)
Loss on disposal of assets 260 160
Change in operating assets and liabilities
(Note 7) 6,770 (10,197)
------------ ------------
Cash provided by operating activities 36,654 7,643
------------ ------------
Investing activities:
Capital expenditures (26,188) (25,142)
Sales of marketable securities 913 3,547
Purchases of marketable securities (3,080) --
------------ ------------
Cash (used for) investing activities (28,355) (21,595)
------------ ------------
Financing activities:
Repayments of long-term debt (1,440) (14,940)
Net proceeds from issuance of long-term debt -- 43,500
Net proceeds from issuance of common stock 462 31
------------ ------------
Cash provided by (used for) financing
activities (978) 28,591
------------ ------------
Net increase in cash and cash equivalents 7,321 14,639
Cash and cash equivalents at beginning of period 18,570 4,860
------------ ------------
Cash and cash equivalents at end of
period $25,891 $19,499
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished in the condensed
consolidated financial statements include normal recurring adjustments and
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K. The quarterly results are not
necessarily indicative of the actual results that may occur for the entire
fiscal year.
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", requires impairment losses on long-lived assets to be recognized when an
asset's book value exceeds its expected future cash flows (undiscounted). The
Company anticipates adopting SFAS 121 in fiscal year 1997 and does not expect
that adoption will have a material impact on the financial position or results
of operations of the Company.
(2) BUSINESS AND CUSTOMERS
The Company is the world's leading supplier of suspension assemblies for rigid
disk drives. Suspension assemblies hold the recording heads in position above
the spinning magnetic disks in the drive and are critical to maintaining the
necessary microscopic clearance between the head and disk. The Company
developed its leadership position in suspension assemblies through research,
development and design activities coupled with a substantial investment in
manufacturing technologies and equipment. The Company is focused on continuing
to develop suspension assemblies which address the rapidly changing requirements
of the rigid disk drive industry. The Company also is evaluating other product
opportunities in the medical market and does not expect any significant medical
revenues in fiscal 1995. A breakdown of customer sales is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- ------------------------
June 25, June 26, June 25, June 26,
Percentage of Net Sales 1995 1994 1995 1994
- ----------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Five Largest Customers 86% 79% 86% 78%
Seagate Technology 35 33 36 28
Read-Rite 18 24 20 30
Yamaha 15 9 13 7
IBM 10 6 9 5
SAE Magnetics 8 7 8 8
</TABLE>
Sales returns and allowances for the thirty-nine weeks ended June 25, 1995 were
$1,994,000 compared to $2,267,000 for the comparable period in fiscal 1994.
(3) CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities
of ninety days or less.
<PAGE>
(4) SECURITIES AVAILABLE FOR SALE
Securities available for sale at June 25,1995 consisted of U.S. Treasury bills
with a market value and cost of $2,167,000. The Company follows the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
(5) INVENTORIES
All inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following:
<TABLE>
<CAPTION>
June 25, September 25,
1995 1994
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<S> <C> <C>
Raw materials $3,571 $4,339
Work in process 3,931 3,139
Finished goods 7,572 2,581
LIFO reserve (404) (530)
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$14,670 $9,529
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------------- -------------
</TABLE>
(6) NET INCOME (LOSS) PER SHARE
Net income (loss) per share, which is approximately equivalent on both a primary
and fully diluted basis, is based, to the extent dilutive, on the weighted
average number of common and common equivalent shares outstanding.
(7) INCOME TAXES
Income taxes have been provided based upon the estimated effective tax rate for
the fiscal year. On September 27, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". The cumulative effect of adopting SFAS 109 had no material effect on
the Company's consolidated results of operations.
The following table details the components of deferred tax assets:
<TABLE>
<CAPTION>
June 25, September 25,
1995 1994
------------- -------------
<S> <C> <C>
Current deferred tax assets
Related to sales and accounts
receivables $973 $687
Related to inventories 2,031 1,568
Accruals and other reserves 1,269 935
------------- -------------
4,273 3,190
Long-term deferred tax assets
Related to property, plant and
equipment 2,849 (105)
Tax credits 4,316 3,875
Valuation allowance (1,829) (1,601)
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5,336 2,169
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Total deferred tax assets $9,609 $5,359
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------------- -------------
</TABLE>
<PAGE>
The following table lists the types of tax credits available to the Company, and
their expiration dates:
<TABLE>
<CAPTION>
Year of
Carryforward Amount Expiration
- ------------ --------------- ---------------
<S> <C> <C>
Research and development $963 2009 - 2011
Alternative minimum tax 3,353 Does not expire
</TABLE>
The Company determined that the realization of certain of these tax credits did
not meet the recognition criteria under SFAS 109 and, accordingly, a valuation
allowance has been established.
(8) SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
------------------------------
June 25, June 26,
1995 1994
------------- -------------
<S> <C> <C>
Changes in operating assets and liabilities:
Receivables, net ($3,240) ($11,668)
Inventories (5,141) (2,236)
Prepaid taxes and other (1,008) (10)
Accounts payable and accrued liabilities 9,286 2,680
Accrued income taxes 5,373 1,037
Other non-current liabilities 1,500 --
------------- -------------
$6,770 ($10,197)
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------------- -------------
Cash paid for:
Interest (net of amount capitalized) $226 $15
Income taxes 2,800 1,425
</TABLE>
Capitalized interest for the thirty-nine weeks ended June 25, 1995 was $360,000
compared to $922,000 for the comparable period in fiscal 1994.
(9) ADDITIONAL LONG-TERM DEBT
On April 20, 1994 the Company obtained $30,000,000 through the placement of
senior unsecured notes bearing a fixed 7.46% interest rate and requiring
semi-annual principal payments of $1,875,000 beginning August 15, 1996. Notes
of $20,000,000, $5,000,000 and $5,000,000 were placed with Teachers Insurance
and Annuity Association of America, Central Life Assurance Company and Modern
Woodmen of America, respectively.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 25, 1995 VS. THIRTEEN WEEKS ENDED JUNE 26, 1994.
Net sales for the thirteen weeks ended June 25, 1995 increased $19,105,000 or
30% over the comparable period in fiscal 1994. The Company shipped
approximately 25 million more suspension assemblies over the comparable period
in fiscal 1994.
Gross profit for the third quarter of fiscal 1995 increased $10,550,000 or 93%
over the comparable period in fiscal 1994 and gross profit as a percent of net
sales increased from 18% to 27%. The increase in gross profit and gross profit
as a percent of net sales was primarily due to improving manufacturing
efficiencies and higher sales volume, noted above.
The majority of the research and development expenses are attributable to the
development of new suspension assembly types to meet customers' changing
requirements. Research and development expenses for the third quarter of fiscal
1995 were $5,700,000, an increase of $3,558,000 or 166% as compared to the same
period in fiscal 1994. The increase was primarily due to the technology sharing
agreement with IBM to develop trace suspension assemblies (see Liquidity and
Capital Resources below).
Selling, general and administrative expenses for the thirteen weeks ended June
25, 1995 increased $2,197,000 or 37% from the comparable period in fiscal 1994.
The increased expenses were primarily due to a $1,001,000 increase in labor
expenses and a $611,000 increase in profit sharing expense. As a percent of net
sales, selling, general and administrative expenses increased from 9% to 10%.
Other income for the thirteen weeks ended June 25, 1995 increased $281,000 from
the comparable period in fiscal 1994. The increase was primarily due to an
increase in interest income as a result of a higher average investment balance.
Interest expense increased $309,000 as a result of higher outstanding debt and
lower capitalization of interest expense.
The income tax provision for the thirteen weeks ended June 25, 1995 was based on
an estimated effective tax rate for the fiscal year of 24% which was below the
statutory federal rate primarily due to the large portion of sales that qualify
for the benefit of the Company's Foreign Sales Corporation.
Net income for the third quarter of fiscal 1995 was $5,988,000, an increase of
$3,680,000 over the comparable period in fiscal 1994. The increase was
primarily due to improving manufacturing efficiencies and higher sales volume,
noted above.
THIRTY-NINE WEEKS ENDED JUNE 25, 1995 VS. THIRTY-NINE WEEKS ENDED JUNE 26, 1994.
Net sales for the thirty-nine weeks ended June 25, 1995 increased $44,896,000 or
27% over the comparable period in fiscal 1994. The Company shipped
approximately 65 million more suspension assemblies over the comparable period
in fiscal 1994.
Gross profit for the thirty-nine weeks ended June 25, 1995 increased $24,820,000
or 98% over the comparable period in fiscal 1994 and gross profit as a percent
of net sales increased from 15% to 24%. The increase in gross profit and gross
profit as a percent of net sales was primarily due to improving manufacturing
efficiencies and higher sales volume, noted above.
<PAGE>
The majority of the research and development expenses are attributable to the
development of new suspension assembly types to meet customers' changing
requirements. Research and development expenses for the thirty-nine weeks ended
June 25, 1995 increased $5,156,000 or 82% as compared to the same period in
fiscal 1994. The higher expenses were primarily due to the technology sharing
agreement, noted above, and increased labor expenses of $1,387,000.
Selling, general and administrative expenses for the thirty-nine weeks ended
June 25, 1995 increased $4,381,000 or 26% from the comparable period in fiscal
1994. The increased expenses were primarily due to a $1,550,000 increase in
profit sharing expense and a $1,405,000 increase in labor expenses. As a
percent of net sales, selling, general and administrative expenses remained at
10%.
Other income for the thirty-nine weeks ended June 25, 1995 increased $275,000
from the comparable period in fiscal 1994. A $1,083,000 increase in interest
income, as a result of a higher average investment balance, was offset partially
by a $776,000 decrease in licensing income. Interest expense increased
$1,609,000 as a result of higher outstanding debt and lower capitalization of
interest expense.
The income tax provision for the thirty-nine weeks ended June 25, 1995 was based
on an estimated effective tax rate for the fiscal year of 24% which was below
the statutory federal rate primarily due to the large portion of sales that
qualify for the benefit of the Company's Foreign Sales Corporation.
Net income for the thirty-nine weeks ended June 25, 1995 was $12,417,000
compared to $1,771,000 for the comparable period in fiscal 1994. The increase
was primarily due to improving manufacturing efficiencies and higher sales
volume, noted above.
LIQUIDITY AND CAPITAL RESOURCES
Principal sources of liquidity are cash flow from operations, cash balances and
additional financing capacity. The Company's cash and cash equivalents
increased to $25,891,000 at June 25, 1995 compared to $18,570,000 at September
25, 1994. The Company provided $36,654,000 from operating activities during the
thirty-nine weeks ended June 25, 1995.
Cash used for capital expenditures for the thirty-nine weeks ended June 25, 1995
totaled $26,188,000, an increase of $1,046,000 from the comparable period in
fiscal 1994. The Company anticipates, but is not contractually committed to,
(i) aggregate fiscal 1995 expenditures of approximately $40,000,000 for
manufacturing and support equipment at its manufacturing facilities and for
office space at the Hutchinson site, and (ii) aggregate fiscal 1996 expenditures
of approximately $80,000,000 for manufacturing and support equipment at its
manufacturing facilities and for manufacturing space. Financing of these
capital expenditures will be principally from internally generated funds, cash
balances and/or additional financing capacity.
The Company maintains a $15,000,000 unsecured working capital line of credit
agreement with Harris Trust and Savings Bank and Norwest Bank Minnesota,
National Association. At June 25, 1995 the Company had no borrowings under this
agreement. The $1,340,000 annual principal installment of the $10,000,000
senior unsecured notes placed in fiscal 1989 was paid during the first quarter
of fiscal 1995. The $940,000 annual principal installment of the $7,000,000
senior unsecured notes placed in fiscal 1987 is due during the fourth quarter of
fiscal 1995. The first $1,875,000 semi-annual installment of the $30,000,000
senior unsecured notes placed in fiscal 1994 is due during the fourth quarter of
fiscal 1996. The Company's debt agreements contain various restrictive
covenants. As of June 25, 1995, the Company was in compliance with all such
covenants.
<PAGE>
The Company has entered into a Technology Transfer and Development Agreement
(the "Development Agreement") and a Patent License Agreement with IBM. Under
the Development Agreement, IBM will make available to the Company the results
of many years of research by IBM into a new type of suspension, called a
"trace suspension assembly" or "TSA". The Company and IBM will pursue joint
research and development efforts to complete the commercialization of TSA
designs. The Company itself already has devoted substantial efforts
independent of IBM to the research and development of TSAs, and will
contribute its existing TSA technology to the joint effort. Under the
Development Agreement the Company is required to make periodic payments over
the next four years totalling $2,500,000, all of which has been reflected as
a one-time expense in the thirteen weeks ended June 25, 1995. Upon shipment
of a specified cumulative quantity of TSAs, the Company will be required to pay
additional fixed sums totalling $5,500,000 over four years, all of which will
be charged as a one-time expense in the period the specified quantity of TSAs
are shipped.
The Company believes that its cash and cash equivalents, cash to be generated
from operations, its existing bank facilities and additional financing capacity
will be sufficient to meet the Company's current and long-term liquidity, debt
installments, and capital requirements.
MARKET TRENDS AND CERTAIN CONTINGENCIES
Due to the dynamic nature of the disk drive industry, the Company has
historically experienced significant, unforeseen increases and decreases in
demand for certain or all of its components. Also, the introduction of new
types or sizes of read/write heads and new disk drive designs tends to decrease
customers' yields with the result that the Company may experience a temporary
elevation of demand for some types of suspension assemblies. The advent of new
heads and new drive designs may require rapid development and implementation of
new suspension types which may temporarily reduce the Company's manufacturing
yields and efficiencies. There can be no assurance that such changes will not
continue to affect the Company.
The Company expects that the expanding use of smaller computers, increasingly
complex software and the emergence of new applications for disk storage that
have contributed to the historical year-to-year increases in disk drive
production will continue for the foreseeable future. However, the Company
believes demand for drives will continue to be subject, as it has in the past,
to rapid short-term changes resulting from, among other things, changes in disk
drive inventory levels, responses to competitive price changes and unpredicted
high or low market acceptance of new drive models. As heads become still
smaller, as with pico-sized heads, or require more leads, as with those of
magneto-resistive (MR) design, the Company believes trace suspension assemblies
will be of increasing importance.
In August of 1988, the Company and hundreds of other corporations were informed
that they are "potentially responsible parties" under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) as generators of
hazardous waste disposed of at a waste site in Gary, Indiana. In December of
1989, the Company settled its potential liability under a cost recovery action
by paying $9,000 of the surface cleanup costs (estimated to have been more than
$2,000,000 in the aggregate). The settlement did not resolve the potential
liability, if any, of the Company for future cleanup costs relating to soil and
ground water contamination.
The United States Environmental Protection Agency (USEPA) notified the Company
in September 1993 of its further potential liability for reimbursement of the
cost of future additional cleanup of the Gary, Indiana site, in connection with
the Company's status as a "potentially responsible party" under CERCLA. The
Company responded to the USEPA that it is willing to cooperate with the agency
to resolve its potential liability regarding this site, and informing the USEPA
that the Company previously
<PAGE>
had entered into a settlement agreement with other potentially responsible
parties, under which the Company may be entitled to indemnification for some or
all of the liabilities referred to in the USEPA notice.
To the Company's knowledge, no formal investigation or assessment has been done
of the magnitude of the soil and ground water contamination at the Gary, Indiana
site and there are no formal estimates of which the Company is aware concerning
the total cleanup cost.
In October of 1992, the Company was notified that it may be liable for
investigation and remediation expenses incurred pursuant to CERCLA for a
facility located in Greer, South Carolina. The notification indicated that
nearly 600 entities shipped wastes to the site between 1987 and 1991, and
identified the Company as a "potentially responsible party" at the site. In
December of 1992, the Company joined a group of many other corporations as
"potentially responsible parties" to initiate voluntary surface cleanup at the
site. The Company's contribution to the cost of the surface cleanup
preliminarily is estimated at $8,500.
The Company and certain users of the Company's products have from time to time
received, and may in the future receive, communications from third parties
asserting patents against the Company or its customers which may relate to
certain of the Company's products or to products which include the Company's
products as a component. Although the Company has not been a party to any
material intellectual property litigation, certain of its customers have been
sued on patents having claims closely related to products sold by the Company.
In the event any third party were to make a valid infringement claim and a
license were not available on terms acceptable to the Company, the Company's
operating results could be adversely affected.
The Company is party to certain other claims arising in the ordinary course of
business. In the opinion of management, the outcome of such claims will not
materially affect the Company's current or future financial position or results
of operations.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", requires impairment losses on long-lived assets to be recognized when an
asset's book value exceeds its expected future cash flows (undiscounted). The
Company anticipates adopting SFAS 121 in fiscal year 1997 and does not expect
that adoption will have a material impact on the financial position or results
of operations of the Company.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS.
4.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Registration Statement No. 2-98270), as
amended by Articles of Amendment dated January 27, 1988 (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 27, 1987, File No. 0-14709).
4.2 Restated By-Laws of the Company (incorporated by reference to Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 27, 1988, File No. 0-14709), and amendment adopted on March 5, 1991
(incorporated by reference to Exhibit 4.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1991, File No.
0-14709).
4.3 Notes Purchase Agreement, dated July 9, 1987, providing for the placement
of $7,000,000 of senior unsecured notes with certain financial
institutions (incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1987, File
No. 0-14709), Amendment No. 1 to Notes Purchase Agreement dated October
28, 1988 (incorporated by reference to Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 25, 1988, File No.
0-14709), Amendment No. 2 to Notes Purchase Agreement dated April 30, 1990
(incorporated by reference to Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 25, 1990, File No.
0-14709), Amendment dated as of April 6, 1993 (incorporated by reference
to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 26, 1993, File No. 0-14709), and Amendment dated as
of April 18, 1994 (incorporated by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27,
1994, File No. 0-14709).
4.4 Notes Purchase Agreement, dated October 28, 1988, providing for the
placement of $10,000,000 of senior unsecured notes with certain financial
institutions (incorporated by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 25, 1988,
File No. 0-14709), Amendment No. 1 to Notes Purchase Agreement dated April
30, 1990 (incorporated by reference to Exhibit 4.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 25, 1990, File
No. 0-14709), Amendment dated as of April 6, 1993 (incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 26, 1993, File No. 0-14709), and Amendment
dated as of April 18, 1994 (incorporated by reference to Exhibit 4.4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March
27, 1994, File No. 0-14709).
4.5 Interest Rate and Currency Exchange Agreement between the Company and
Harris Trust and Savings Bank, dated as of March 26, 1992 (incorporated by
reference to Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1992, File No. 0-14709), First Amendment
to Interest Rate and Currency Exchange Agreement between the Company and
Harris Trust and Savings Bank dated as of April 8, 1993 (incorporated by
reference to Exhibit 4.8 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 28, 1993, File No. 0-14709), Amendment to
Interest Rate and Currency Exchange Agreement dated as of September 7,
1993 (incorporated by
<PAGE>
reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 26, 1993, File No. 0-14709), Second
Amendment to Interest Rate and Currency Exchange Agreement dated as of
November 30, 1993 (incorporated by reference to Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27,
1994, File No. 0-14709), and Third Amendment to Interest Rate and Currency
Exchange Agreement dated as of March 24, 1994 (incorporated by reference
to Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 27, 1994, File No. 0-14709).
4.6 Trust Indenture between the City of Hutchinson, Minnesota and National
City Bank of Minneapolis, as Trustee, dated as of March 1, 1993
(incorporated by reference to Exhibit 4.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 28, 1993, File No.
0-14709).
4.7 Loan Agreement between the City of Hutchinson, Minnesota and the Company,
dated as of March 1, 1993 (incorporated by reference to Exhibit 4.10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March
28, 1993, File No. 0-14709).
4.8 Reimbursement Agreement between the Company and Harris Trust and Savings
Bank, dated as of March 1, 1993 (incorporated by reference to Exhibit 4.11
to the Company's Quarterly Report on Form 10-Q for the quarter ended March
28, 1993, File No. 0-14709), Amendment to Reimbursement Agreement dated as
of November 30, 1993 (incorporated by reference to Exhibit 4.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27,
1994, File No. 0-14709), Amendment to Reimbursement Agreement dated as of
March 24, 1994 (incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 27, 1994, File
No. 0-14709), Third Amendment to Reimbursement Agreement effective as of
March 31, 1994 (incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 26, 1995, File
No. 0-14709), and Fourth Amendment to Reimbursement Agreement effective as
of March 27, 1995.
4.9 Credit Agreement between the Company, Harris Trust and Savings Bank and
Norwest Bank Minnesota, National Association, dated as of November 12,
1993 (incorporated by reference to Exhibit 4.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended September 26, 1993, File No.
0-14709), Amendment No. 1 to Credit Agreement effective as of March 23,
1994 (incorporated by reference to Exhibit 4.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 27, 1994, File No.
0-14709), Second Amendment to Credit Agreement effective as of March 31,
1994 (incorporated by reference to Exhibit 4.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 27, 1994, File No.
0-14709), Amendment No. 3 to Credit Agreement effective as of January 31,
1995 (incorporated by reference to Exhibit 4.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 26, 1995, File No.
0-14709), and Amendment No. 4 to Credit Agreement effective as of March
27, 1995.
4.10 Note Purchase Agreement dated as of April 20, 1994, providing for the
placement of $20,000,000 of senior unsecured notes with Teachers Insurance
and Annuity Association of America (incorporated by reference to Exhibit
4.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 27, 1994, File No. 0-14709).
<PAGE>
4.11 Note Purchase Agreement dated as of April 20, 1994, providing for the
placement of $5,000,000 of senior unsecured notes with Central Life
Assurance Company (incorporated by reference to Exhibit 4.11 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27,
1994, File No. 0-14709).
4.12 Note Purchase Agreement dated as of April 20, 1994, providing for the
placement of $5,000,000 of senior unsecured notes with Modern Woodmen of
America (incorporated by reference to Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 27, 1994, File
No. 0-14709).
10.1 Employment Agreement between the Company and Wayne M. Fortun, dated as of
April 7, 1986 (incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 16, 1986, File
No. 0-14709).
10.2 Lease with Right of First Refusal from Donald Wendorff and Laura Wendorff
to the Company dated September 18, 1990 (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990, File No. 0-14709).
10.3 Technology and Manufacturing Agreement dated as of November 12, 1992
between the Company and Suncall Corporation (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1992, File No. 0-14709), and Amendment to
Technology and Manufacturing Agreement dated as of January 8, 1994
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1993, File No.
0-14709).
10.4 Distribution Agreement dated as of November 12, 1992 between the Company
and Suncall Corporation (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
27, 1992, File No. 0-14709), and Addendum to Distribution Agreement dated
as of August 12, 1993 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
26, 1993, File No. 0-14709).
10.5 1988 Stock Option Plan (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
25, 1988, File No. 0-14709), Amendment to the 1988 Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 26, 1993, File No.
0-14709), and Amendment to the 1988 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 26, 1995, File No. 0-14709).
10.6 Building Lease dated April 1988 and Amendment to Building Lease dated
August 29, 1988 (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
25, 1988, File No. 0-14709), Second Amendment to Building Lease dated as
of September 18, 1989, relating to the Company's Sioux Falls, South Dakota
facility (incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1990,
File No. 0-14709), Third Amendment to Building Lease dated September 19,
1991, relating to the Company's Sioux Falls, South Dakota facility
(incorporated by reference
<PAGE>
to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 29, 1991, File No. 0-14709), and Fourth Amendment to
Commercial Lease dated September 29, 1992, relating to the Company's Sioux
Falls, South Dakota facility (incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 1992, File No. 0-14709).
10.7 Hutchinson Technology Incorporated 401-K Plan and related 401-K Trust
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1990, File No.
0-14709).
10.8 Directors' Retirement Plan effective as of January 1, 1992 (incorporated
by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 27, 1992, File No. 0-14709).
10.9 Description of Bonus Program for Key Employees of Hutchinson Technology
Incorporated (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 27, 1992,
File No. 0-14709).
10.10 Technology Transfer and Development Agreement, effective as of September
1, 1994, between Hutchinson Technology Incorporated and International
Business Machines Corporation.
10.11 Patent License Agreement, effective as of September 1, 1994, between
Hutchinson Technology Incorporated and International Business Machines
Corporation.
11 Statement Regarding Computation of Net Income (Loss) Per Share.
27 Financial Data Schedule.
b) REPORTS ON FORM 8-K.
No reports were filed on Form 8-K during the thirteen weeks ended June 25,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUTCHINSON TECHNOLOGY INCORPORATED
Date: July 31, 1995 By /s/Jeffrey W. Green
-------------------- ----------------------------------
Jeffrey W. Green
Chairman of the Board of Directors,
Chief Executive Officer
Date: July 31, 1995 By /s/John A. Ingleman
-------------------- ----------------------------------
John A. Ingleman
Vice President, Chief Financial
Officer,
Secretary and Treasurer
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Page
- ------- ------
4.8 Fourth Amendment to Reimbursement Agreement Electronically
Filed
4.9 Amendment No. 4 to Credit Agreement Electronically
Filed
10.10 Technology Transfer and Development Agreement Electronically
Filed
10.11 Patent License Agreement Electronically
Filed
11 Statement Regarding Computation of Net Electronically
Income (Loss) Per Share Filed
27 Financial Data Schedule Electronically
Filed
<PAGE>
FOURTH AMENDMENT TO REIMBURSEMENT AGREEMENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
RE: HUTCHINSON TECHNOLOGY INCORPORATED
Ladies and Gentlemen:
Pursuant to that certain Reimbursement Agreement dated as of March 1,
1993, as amended pursuant to that certain Amendment to Reimbursement Agreement
dated as of November 30, 1993, that certain Amendment to Reimbursement Agreement
dated as of March 24, 1994 and that certain Third Amendment to Reimbursement
Agreement effective as of March 31, 1994 (such Reimbursement Agreement as so
amended being hereinafter referred to as the "Agreement"), you (the "Bank") have
issued for the benefit of the undersigned, Hutchinson Technology Incorporated, a
Minnesota corporation (the "Applicant"), a Letter of Credit in an original
amount not to exceed $2,031,781. The Applicant hereby applies to the Bank for
certain modifications to the Agreement and the Bank is willing to agree to the
Applicant's requests on the terms and conditions set forth herein. Accordingly,
the Applicant and the Bank hereby agree as follows:
1. Section 5.9 of the Agreement shall be and hereby is amended by
deleting the amount "$3,500,000" appearing in the seventh line of said Section
and substituting therefor the amount "$6,500,000".
2. In order to induce the Bank to execute and deliver this
Amendment, the Applicant hereby represents to the Bank that as of the date
hereof and as of the time that this Amendment becomes effective, the Applicant
is in full compliance with all of the terms and conditions of the Agreement and
no Event of Default as defined in the Agreement, as amended hereby, nor any
Potential Event of Default as so defined, shall have occurred and be continuing.
3. This Amendment may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which shall constitute one and the same
instrument. Except as specifically amended and modified hereby, all of the
terms and conditions of the Agreement shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any note,
instrument or other document making reference to the Agreement, any reference to
the Agreement in any of such to be deemed to be a reference to the Agreement as
<PAGE>
amended hereby. All capitalized terms used herein without definition shall have
the same meanings herein as they have in the Agreement. The Applicant agrees to
pay all out-of-pocket costs and expenses incurred by the Bank in connection with
the preparation, execution and delivery of this Amendment and the documents and
transactions contemplated hereby. This instrument shall be construed and
governed by and in accordance with the laws of the State of Illinois.
4. This Amendment shall be deemed effective as of March 27, 1995
(the "Effective Date").
Executed as of July 13, 1995, to be effective as of the Effective
Date.
HUTCHINSON TECHNOLOGY
INCORPORATED
By: /s/ JEFFREY W. GREEN
-------------------------------------
Jeffrey W. Green
Its: Chief Executive Officer
Accepted and agreed to at Chicago, Illinois, as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ CATHERINE C. CIOLEK
---------------------------------------
Catherine C. Ciolek
Its: Vice President, Chief Financial
Officer and Treasurer
M1:0039260.01
<PAGE>
AMENDMENT NO. 4 TO CREDIT AGREEMENT
THIS AMENDMENT is effective as of the 27th day of March, 1995 by and among
HUTCHINSON TECHNOLOGY INCORPORATED, a Minnesota corporation (the "Company"),
HARRIS TRUST AND SAVINGS BANK, an Illinois state banking corporation, NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(individually, "Harris" and "Norwest", respectively, and collectively, the
"Banks") and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association, as agent for the Banks (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Administrative Agent have entered into
that certain Credit Agreement dated as of November 12, 1993, as amended by
Amendment No. 1 to Credit Agreement effective as of March 23, 1994, as amended
by Amendment No. 2 to Credit Agreement effective as of March 31, 1994, as
amended by Amendment No. 3 to Credit Agreement effective as of January 31, 1995
(collectively, the "Credit Agreement") pursuant to which the Banks agreed to
extend the Company a $15,000,000 line of credit which may be used for working
capital purposes only; and
WHEREAS, the Company has requested that the Banks amend the capital expenditure
covenant contained in the Credit Agreement; and
WHEREAS, the Banks are willing to agree to the Company's requests pursuant to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants
and agreements herein contained, it is hereby agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the meanings defined therein, unless otherwise defined herein.
2. The Credit Agreement is hereby amended as follows:
A. Section 5.8(c) of the Credit Agreement is hereby amended to
correct a typographical error contained therein by deleting the number
"5.7" contained therein and substituting the number "5.8" thereof.
-2-
<PAGE>
B. The last full paragraph of Section 5.19 of the Credit Agreement
is hereby amended by deleting the same in its entirety and substituting the
following therefor:
Not enter into any or commit to enter into any new operating
leases or capital leases during any fiscal year of the
Company where the value of the equipment which is the
subject of such leases exceeds $6,500,000 in the aggregate.
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any Advance thereunder. Without limiting the generality of the
foregoing, the proceeds of all Revolving Credit Advances may only be used for
working capital purposes.
4. This Amendment shall be effective upon receipt by the Banks of an executed
original hereof, together with each of the following, each in substance and form
acceptable to the Banks in their sole discretion:
Certificate of the Secretary of the Company certifying as to (i) the
fact that the Articles of Incorporation and Bylaws of the Company, which
were certified and delivered to the Banks pursuant to the Secretary's
Certificate dated as of November 12, 1993 in connection with the execution
and delivery of the Credit Agreement continue in full force and effect and
have not been amended or otherwise modified except as set forth in the
Certificate to be delivered; and (ii) certifying that the officers and
agents of the Company who have executed and delivered the Amendment and the
documents related thereto are authorized to sign and to act on behalf of
the Company.
All of the representations and warranties contained in Section 4 of the
Credit Agreement are correct on and as of the date hereof as though made on and
as of such date, except to the extent that such representations and warranties
relate solely to an earlier date and all references to the term "Loan Documents"
contained in the Credit Agreement shall be deemed to include the Credit
Agreement as amended by this Amendment.
5. All references in the Credit Agreement to "this Agreement" shall be deemed
to refer to the Credit Agreement as amended hereby.
6. The execution of this Amendment and any documents related thereto shall not
be deemed to be a waiver of any Unmatured Event of Default or Event of Default
under the Credit Agreement or breach, default or event of default under any
other document held by the Banks, whether or not known to the Banks and whether
or not existing on the date of this Amendment.
7. The Company hereby absolutely and unconditionally releases and forever
discharges the Banks and the Administrative Agent, and any and all participants,
parent corporations, subsidiary
-3-
<PAGE>
corporations, affiliated corporations, insurers, indemnitors, successors and
assigns thereof, together with all of the present and former directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal law or
otherwise, which the Company has had, now has or has made claim to have against
any such person for or by reason of any act, omission, matter, cause or thing
whatsoever, arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
8. The Company hereby reaffirms its agreement under the Credit Agreement to
pay or reimburse the Banks on demand for all costs and expenses incurred by the
Banks in connection with the Credit Agreement and all other documents
contemplated thereby, including without limitation, all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the
foregoing, the Company specifically agrees to pay all fees and disbursements of
counsel to the Banks for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental thereto. The Company hereby agrees that the Banks may, at any time
and from time to time in their sole discretion and without further authorization
by the Company, make a loan to the Company under the Credit Agreement, or apply
the proceeds of a new loan, for the purposes of paying any such fees,
disbursements, costs and expenses.
9. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
HUTCHINSON TECHNOLOGY INCORPORATED
By: /s/ JEFFREY GREEN
-------------------------------
Its: CEO
--------------------------
-4-
<PAGE>
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Administrative Agent
By: /s/ Jeffrey A. Ruehle
-----------------------------
Its: Vice President
------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Bank
By: /s/ Jeffrey A. Ruehle
-----------------------------
Its: Vice President
------------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ Catherine C. Ciolek
-------------------------------
Its: Vice President
--------------------------
-5-
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF MCLEOD )
The foregoing instrument was acknowledged before me this 14 day of July, 1995,
by Jeffrey Green, the CEO of Hutchinson Technology Incorporated; for and on
behalf of said corporation.
/s/ Rhonda Lynn Manderscheid
-------------------------------------
Notary Public
STATE OF MINNESOTA )
) ss
COUNTY OF )
The foregoing instrument was acknowledged before me this 17th day of July,
1995, by Jeffrey A. Ruehle, the Vice President of Norwest Bank Minnesota,
National Association, as Administrative Agent; for and on behalf of said
association.
/s/ Denise I. Harder
-----------------------------
Notary Public
STATE OF MINNESOTA )
) ss
COUNTY OF )
The foregoing instrument was acknowledged before me this 17th day of July,
1995, by Jeffrey A. Ruehle, the Vice President of Norwest Bank Minnesota,
National Association, as Bank; for and on behalf of said association.
/s/ Denise I. Harder
-----------------------------
Notary Public
-6-
<PAGE>
STATE OF ILLINOIS )
) ss
COUNTY OF COOK )
The foregoing instrument was acknowledged before me this 14th day of July,
1995, by Catherine C. Ciolek, the Vice President of Harris Trust and Savings
Bank; for and on behalf of said association.
/s/ Christine Boyd
-----------------------------
Notary Public
MPLS52236_5
M1:0041742.01
< -7-
<PAGE>
********************************************************************************
*****CONFIDENTIAL TREATMENT REQUESTED FOR INDICATED PORTIONS*****
********************************************************************************
06/12/95
TECHNOLOGY TRANSFER AND DEVELOPMENT AGREEMENT
This Technology Transfer And Development Agreement ("TTDA") is effective as of
September 1, 1994 between Hutchinson Technology Incorporated ("HTI"), and
International Business Machines Corporation ("IBM").
WHEREAS, IBM and HTI are entering into a Patent License Agreement ("PLA")
contemporaneously herewith.
WHEREAS, HTI designs, develops, manufactures and markets transducer head
suspensions ("suspensions") for disk drives, and has shown exceptional
competency in this area of technology; and
WHEREAS, IBM develops, manufactures and markets information processing and
storage products, such as disk drives and other forms of Rotating Magnetic
Memory Product ("RMM Product"), which utilize suspensions, and has knowledge of
the necessary design, performance characteristics, testing and qualification
methodology of such suspensions, and has experience in the development of
suspensions; and
WHEREAS, commercially available suspensions to date have been made with many
separate parts, including separately strung
<PAGE>
electrical wiring, which necessitated numerous separate manufacturing steps; and
WHEREAS, prior to this Agreement, IBM has designed and developed an advanced
suspension which uses fewer parts and has integrated electrical lead lines, and
IBM has valuable inventions, information and know-how relating thereto which was
developed separately and independently of HTI; and
WHEREAS, prior to this Agreement, HTI has also conducted research and
development of improved suspensions, including aspects of the design and
manufacture of suspensions with integrated electrical leads, and HTI also has
valuable inventions, information and know how related thereto which was
developed separately and independently of IBM; and
WHEREAS, each of IBM and HTI has patents filed and each is in the process of
filing patent applications relating to various aspects of their respective
advanced suspension system designs; and
WHEREAS, HTI has the manufacturing abilities to make and the marketing abilities
to sell advanced suspensions; and
WHEREAS, IBM and HTI wish to enter into a development project in order to bring
suspensions with integrated electrical leads (as further defined herein,
"Integrated Lead Suspensions") to the
2
<PAGE>
market utilizing the complementary abilities of both parties; and
WHEREAS, IBM wishes to be the first to market with competitively priced RMM
Product which incorporate Integrated Lead Suspension technology; and
WHEREAS, IBM wishes to have a highly capable and reliable source of supply for
Integrated Lead Suspensions for use in RMM Product; and
WHEREAS, IBM wishes to receive compensation for its design and development of
the IBM advanced suspension and for its contribution to the development of the
Integrated Lead Suspensions; and
WHEREAS, HTI wishes to be a leading supplier of Integrated Lead Suspensions for
the RMM Product market; and
WHEREAS, HTI wishes to provide state of the art technology to its customers; and
WHEREAS, IBM and HTI intend to work together in a manner that optimizes the
contribution of each party according to its unique strengths; and
WHEREAS, IBM and HTI wish to do a better job in the development
3
<PAGE>
and manufacture of the Integrated Lead Suspensions than either party could do
independently.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
1.1 "Confidential Information" means HTI Confidential Information and/or IBM
Confidential Information and/or IBM/HTI Confidential Information.
1.2 "Deliverables" shall have the meaning set forth in Section 2.4.
1.3 "Engineering Changes", or "EC's", shall have the meaning set forth in
Section 4.1.
1.4 "HTI Confidential Information" shall mean information identified as such in
Appendix A, and in addition, any information designated as HTI Confidential
Information according to Section 8 or under the Prior Confidential Disclosure
Agreements, subject in all cases to the exclusions set forth in Section 8.7.
1.5 "HTI Royalty Product" shall mean an Integrated Lead Suspension sold, leased
or otherwise transferred by or for HTI to another [*******CONFIDENTIAL
TREATMENT
4
<PAGE>
REQUESTED *************] HTI Royalty Product shall include, but not be limited
to, an Integrated Lead Suspension which is similar to Prototypes, including
variations in size and/or configuration, or any Integrated Lead Suspension sold,
leased or otherwise transferred by or for HTI that uses or used IBM Confidential
Information or IBM/HTI Confidential Information in its development or
manufacture. Royalties and fixed payments paid by HTI for HTI Royalty Product
shall be for compensation for use of IBM Confidential Information, know-how and
assistance and are not to be construed as compensation for IBM patent licenses.
1.6 "IBM Advanced Suspension" shall mean the preexisting IBM designs for an
Integrated Lead Suspension.
1.7 "IBM Confidential Information" shall mean information transferred to HTI
relating to the IBM Advanced Suspension, including the IBM Product
Specifications and information identified as such in Appendix A, and in
addition, any information designated as IBM Confidential Information according
to Section 8 or under the Prior Confidential Disclosure Agreements, subject in
all cases to the exclusions set forth in Section 8.7.
1.8 "IBM/HTI Confidential Information" shall mean information developed by IBM
and HTI, wherein information of both parties
5
<PAGE>
is combined, and wherein one of the parties designates (or has designated) the
information provided by it as confidential, and none of the exclusions set forth
in Section 8.7 is applicable (or if any such exclusion is applicable IBM and HTI
nonetheless concur in writing that such information shall be deemed to be
IBM/HTI Confidential Information). IBM Confidential Information, such as the IBM
Advanced Suspension and IBM Product Specifications, or HTI Confidential
Information, which is preexisting or developed independently from the other
party, and which can be separated conceptually and physically from the IBM/HTI
Confidential Information shall not be considered to be IBM/HTI Confidential
Information.
1.9 "Patent License Agreement" ("PLA") shall mean the separate agreement of
even date herewith entered into between IBM and HTI, wherein IBM and HTI will
grant each other patent licenses.
1.10 "IBM Product Specifications" shall mean data, techniques, technical
information inherent in samples, equipment specifications, equipment
performance, or other information, related to the IBM Advanced Suspension and
which is provided to HTI.
1.11 "Invention" and "Inventing Party" shall have the meaning set forth in
Section 9.1.
6
<PAGE>
1.12 "Joint Invention" shall have the meaning set forth in Section 9.1.
1.13 "Managing Coordinator" shall mean the person(s) effecting or supervising
the transfer of information between the parties. The identity of the Managing
Coordinator for each party is defined in Section 5.
1.14 "Prior Confidential Disclosure Agreements" shall mean the IBM/HTI
Confidential Disclosure Agreement dated June 10, 1992 (and extensions thereof),
the Agreement For Exchange Of Confidential Information dated September 6, 1994
and the IBM/HTI Two Way Confidential Disclosure Agreement dated July 26, 1994.
1.15 "Project" shall mean the Prototypes and the design and process
development thereof undertaken by IBM and HTI pursuant to this Agreement.
1.16 "Prototypes" shall mean limited quantities of functional Integrated Lead
Suspensions as more fully described in Appendix A (or subsequent Appendices
added pursuant to Section 2.7), designed by IBM and/or HTI and/or designed and
developed by IBM and HTI pursuant to this Agreement, produced for preliminary
experimental and evaluation purposes hereunder.
1.17 "Rotating Magnetic Memory Product" or "RMM Product" shall
7
<PAGE>
mean any product primarily designed for recording and/or reproducing in magnetic
form information which is in digital form during motion of a rotating cylinder
or disk having a magnetizable surface, or any instrumentality or aggregate of
instrumentalities primarily designed for incorporation in a RMM Product.
1.18 "Slider" shall mean a structure primarily designed for supporting one or
more magnetic transducers in a transducing relationship with a moving storage
medium by having a surface maintained in contact with a surface of such moving
storage medium or in combination with a fluid flow generated by the movement of
such moving storage medium in close proximity above the surface of the moving
storage medium.
1.19 "Subsidiary" as to each company shall mean a corporation, company or
other entity:
1) more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are, now or hereafter, owned or
controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists; or
8
<PAGE>
2) which does not have outstanding shares or securities, as may be the
case in a partnership, limited liability company, joint venture or
unincorporated association, but more than fifty percent (50%) of whose
ownership interest representing the right to make the decisions for
such corporation, company or other entity is, now or hereafter, owned
or controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
1.20 "Integrated Lead Suspension" shall mean a cantilever member which is used
for supporting one or more transducers, wherein the cantilever member is located
between said transducer (with or without Slider) and a supporting member
(typically an actuator or actuator arm), and wherein the cantilever member has
electrical leads (other than flex cables or wires, whose only function is to
carry electrical current, which are separately attached) etched, plated or
otherwise patterned into or on the surface of one or more components of the
cantilever member. Integrated Lead Suspension does not include the Slider, the
transducer, the supporting member, the actuator, the actuator arm,
[****CONFIDENTIAL TREATMENT REQUESTED ***************].
9
<PAGE>
1.21 "Technology Transfer And Development Agreement" or "TTDA" shall refer to
the present Agreement.
1.22 "Work Product" shall have the meaning set forth in Section 11.
1.23 "IBM Royalty Product" shall mean an Integrated Lead Suspension sold,
leased or otherwise transferred as a separate unit by or for IBM to another
without attachment of a Slider or a transducer head thereto. IBM Royalty
Product shall include, but not be limited to, an Integrated Lead Suspension
which is similar to Prototypes, including variations in size and/or
configuration, or any Integrated Lead Suspension sold, leased or otherwise
transferred by or for IBM that uses or used HTI Confidential Information or
IBM/HTI Confidential Information in its development or manufacture.
1.24 "Coupon" shall mean an electrically functional model of an Integrated Lead
Suspension which is used for electrical testing, but which is not
aerodynamically functional and which is not capable of being used in combination
with a Slider and a moving storage medium.
[*****************************************************************************
******************CONFIDENTIAL TREATMENT REQUESTED ***************************
*****************************************************************************]
10
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[****************************************************************************
*****************CONFIDENTIAL TREATMENT REQUESTED ******************
****************************************************************************].
2. SCOPE OF WORK
2.1 IBM has disclosed and will disclose and transfer to HTI IBM Confidential
Information, trade secrets, know how and other items relating to the IBM
Advanced Suspension, including IBM Product Specifications, certain of the
information described in Appendix A and the purchase orders issued thereunder,
samples, materials requirements, manufacturing process information, and test
data in addition to the information transferred under the Prior Confidential
Disclosure Agreements. This initial disclosure and transfer of technology forms
the principal basis for the Project. HTI has also disclosed certain information
relating to the design and manufacture of Integrated Lead Suspensions under the
Prior Confidential Disclosure Agreements which constitutes a
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significant portion of the basis for the Project.
2.2 The primary object of the Project is to develop high performance
Integrated Lead Suspensions capable of operating in RMM Product. After the
initial disclosure and transfer of Confidential Information, trade secrets, and
know-how, as set forth in Section 2.1, IBM and HTI will work together to develop
such Integrated Lead Suspensions. IBM agrees that HTI can supply HTI Royalty
Product to the market, subject to the royalty payments of Section 12 and other
restrictions of this TTDA, and the terms of the separate Patent License
Agreement.
2.3 The scope of work, including the planned schedule of work activities and
detailed objectives for the Project, is set forth in Appendix A which forms an
integral part of this TTDA. The parties understand and agree that the
activities to be undertaken in each phase must be substantially completed to the
satisfaction of the individual Managing Coordinator prior to the commencement of
any subsequent phase. The Managing Coordinator of each party must mutually
agree in writing that the activities of each phase have been satisfactorily
completed unless such agreement cannot be reached. If such agreement cannot be
reached, the subsequent phase, if any, shall not be undertaken until written
agreement of an appropriate action plan therefor is reached by the Managing
Coordinators.
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2.4 Subsequent to the initial disclosure and technology transfers as set forth
in Section 2.1, each party shall, subject to the limitations as set forth in
Section 8.2, supply to the other all technical and engineering information and
data relating to the design, development, manufacture, testing, operation and
maintenance of the Prototypes and all related items, which information, data or
items have been developed pursuant to this TTDA by the personnel directly
assigned by the parties and who are directly involved in the Prototype
development project hereunder, including Prototypes and data relating thereto
collected (all hereinafter called "Deliverables"). IBM and HTI will each
evaluate Prototypes. Each party shall provide the other with the results of its
evaluation of such Prototypes to enable successful qualification of such
Prototypes.
2.5 IBM may, but is not obligated to, provide training and/or consulting
services to HTI. When requesting any such training and/or consulting services,
HTI shall submit a written request to the IBM Managing Coordinator. With respect
to any additional training and/or consulting services requested in writing by
HTI and provided by IBM, HTI shall pay IBM at the IBM rate in effect at the time
of the request. Further, HTI shall reimburse all reasonable travel and living
expenses which may be incurred by IBM in providing such excess services.
2.6 Changes to any specification, procedure, process,
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mechanical, electrical, design or other information, or condition or work scope
set forth in the Appendices to this TTDA or substantial changes to the Scope of
Work of Section 2 of this TTDA may be requested in writing by the Managing
Coordinator of either IBM or HTI, and may be made only by mutual written
agreement between them as hereinafter provided.
2.7 The parties may wish to develop other Prototypes in addition to those as
previously specified in Appendix A, but which are substantially similar to the
existing Prototypes. For example, it may be desirable to build smaller or larger
sized Integrated Lead Suspensions which use similar technology as the existing
Prototypes. In such case, either party may suggest to the other party such
additional Prototype development work. Neither party will be under any
obligation to accept any such suggestion. However, if both parties agree, then
IBM will submit a purchase order to HTI for such additional Prototypes. Such
purchase orders may be issued and accepted under this TTDA during the term of
this TTDA. The purchase orders shall state that they are being issued pursuant
to this TTDA and shall be considered to be incorporated into Appendix A. To the
extent that any of the terms of such purchase orders conflict with this TTDA,
the terms of this TTDA will control.
2.8 In the case of each particular Prototype design specified in Appendix A or
any additional Prototype designs which may be
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added, HTI will provide[****************CONFIDENTIAL TREATMENT REQUESTED
**************]of each particular Prototype design prior to the time the
particular Prototype design is qualified for use in a RMM Product. After a
particular Prototype design is qualified, IBM may obtain additional evaluation
units of the qualified Prototype design by issuing a purchase order to HTI. The
price for the additional post qualification evaluation units will be negotiated
at the time of the issuance of the purchase order, and shall be reasonably
related to the incremental cost of production.
2.9 If, at any time during the initial five (5) year term of this Agreement
(or such shorter period as the joint development portions of the Agreement
remain in effect), HTI proposes to commence, within the following three (3)
months, further research and development of Integrated Lead Suspensions which
products contain major design features (including but not limited to means of
integrating the electrical leads) that are substantially different from the
designs employed in any such products (including Prototypes) theretofore
produced by HTI, and if the idea for such proposed research and development
substantially originated with employees of HTI and HTI is not prohibited by its
obligations of confidentiality to one or more third parties (for example,
because the proposed research and development is related to proprietary features
of the products of such third parties), then HTI will give IBM written notice of
the proposed research
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and development, and IBM will have the option for thirty (30) days to elect to
participate with HTI in such research and development by including such
additional research and development in the work scope under this TTDA. If IBM
desires to participate, it shall give HTI preliminary written notice thereof
within such thirty (30) day period and the parties shall thereafter attempt for
thirty (30) days to agree upon an Appendix to this Agreement setting forth the
work scope of, a reasonable and equitable allocation of project costs and
contributions, and other material details concerning, the proposed further
research and development. If the parties are unable to reach final agreement as
to such Appendix within such thirty (30) day negotiating period, then HTI shall
be free to proceed with the subject research and development without further
obligation to allow IBM to participate.
3. RESPONSIBILITIES OF THE PARTIES TO EMPLOYEES
3.1 Each party will be responsible for its own employees and in no event shall
any employee of either party be deemed an employee of the other party. Matters
governing the terms and conditions of the employment of any employee, such as
supervision, work schedules, wage rate, income tax withholding, FICA
withholding, disability benefits and other benefits, are exclusively the
responsibility of the respective party.
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4. ENGINEERING CHANGES
4.1 The term "Engineering Changes", (hereinafter called "EC's") shall mean
those mechanical, process or electrical design and/or specification changes
referred to in Section 2 hereof, or otherwise within the scope of this TTDA
which, if made to the Prototypes to be delivered hereunder, in the reasonable
opinion of IBM or HTI, would affect the development schedule, performance,
reliability, availability, serviceability, appearance, dimensions, tolerance,
safety or cost of such Prototypes or which, in IBM's or HTI's reasonable opinion
would eventually require additional qualification approvals.
4.2 Each party agrees to inform the other of any necessary EC's which would be
applicable to the Prototypes in general. The informing party agrees that in no
event shall it make any EC's or incorporate any modification to the Prototypes
without the prior written agreement of the other party's Managing Coordinator.
IBM or HTI may, at their respective election, propose EC's to the processes
and/or specifications of the Prototype(s), in which event the other party will
be notified of such proposals in writing. Each party agrees that IBM or HTI
shall have the right to request the incorporation of such EC's. The
nonrequesting party shall, within ten (10) days of such notification, give to
the requesting party a written evaluation of the EC's, stating
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the additional cost or cost savings to the Prototype(s). In addition, this
evaluation shall include, but is not limited to, the nonrequesting party's
evaluation of the EC's effect on the delivery schedules, function, reliability,
performance, and tooling of Prototype(s) incorporating such EC's. If such
evaluation cannot be completed within such ten (10) day period, notice to this
effect shall be given to the requesting party as soon as it is learned that such
evaluation cannot be completed and in no event after the ten (10) day period.
The requesting party will be given a future completion date and reason for delay
in such notice.
Upon completion of such evaluation, the IBM Managing Coordinator and the HTI
Managing Coordinator will agree in writing to: (1) have the EC's implemented,
stating agreement with the costs, schedules and other information submitted by
the nonrequesting party; or (2) have each or either party provide additional
information that the other party may require to further evaluate the EC's; or
(3) cancel the EC's.
4.3 Notwithstanding any other statement herein, unless expressly set forth in
the agreement to implement any EC or any change in work scope or other change,
such agreement shall not obligate either party to contribute funds or equipment
or make additional payments for expenses or unplanned commitments.
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5. MANAGING COORDINATORS
Each party hereto will promptly designate a Managing Coordinator under this
TTDA.
The Managing Coordinators for the parties are:
For IBM: [***CONFIDENTIAL TREATMENT REQUESTED***]
International Business Machines Corporation
5600 Cottle Road, Dept. [***CONFIDENTIAL TREATMENT REQUESTED***]
San Jose, California 95193
For HTI: [***CONFIDENTIAL TREATMENT REQUESTED***]
Hutchinson Technology Incorporated
[***CONFIDENTIAL TREATMENT REQUESTED***]
40 West Highland Park
Hutchinson, MN 55350-9784
Each party may change its Managing Coordinator (or designate a temporary acting
Managing Coordinator) at any time and from time to time during the term of this
TTDA by notifying the Managing Coordinator for the other party in writing at
the above designated address.
The Managing Coordinator or his designated alternate will solely be authorized
to:
a) submit and receive change requests, proposals, responses and/or
authorization of Engineering Changes and approve the same;
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b) schedule and coordinate visits by personnel of each party to
facilities of the other party, its Subsidiaries and its
subcontractors, in connection with activities under this TTDA;
c) supervise and record the exchange of Confidential Information in
accordance with Section 8;
d) monitor schedules and progress of the design and development pursuant
to this TTDA;
e) agree or disagree as to successful completion of each phase.
The Managing Coordinator is not authorized to amend, alter or extend this TTDA
in any way other than specified above.
6. REPORTING
During the term of this TTDA, HTI and IBM will meet and will furnish each other
with timely progress reports which will be written. The meetings shall be held
approximately once every three (3) months. A final written report shall be
generated within thirty (30) days following conclusion of all work hereunder or
termination of this TTDA as described in Section 16.
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Subject to Section 8.2 such reports shall include, but shall not be limited to,
the following:
a) progress of work to date, including technical results which may affect
schedules, development costs, targeted unit costs or performance;
b) technical difficulties encountered and their solutions;
c) anticipated or potential difficulties that may adversely impact
schedules, development costs, or targeted unit costs or performance;
d) action recommended or plans to overcome such anticipated or potential
difficulties; and
e) details pertaining to successful execution of exit criteria for each
phase.
Such final report shall include, but not be limited to, a summary of the entire
performance hereunder, including a process description sufficient (subject to
Section 8.2) for each party to understand and evaluate the manufacturability of
the Prototypes.
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7. EXPENSES
7.1 In order to compensate IBM for its expenses incurred in developing and
transferring technology to HTI after the execution date of this Agreement, HTI
shall make periodic nonrefundable development funding payments to IBM. These
payments shall be due regardless of whether or not the agreement is terminated
prior to its termination date.
HTI shall make to IBM the following five hundred thousand dollar ($500,000)
payments within fifteen (15) days of each date for a total of two and one-half
million dollars ($2,500,000):
Five hundred thousand dollars ($500,000) on June 15, 1995;
Five hundred thousand dollars ($500,000) on [*****CONFIDENTIAL TREATMENT
REQUESTED*****];
Five hundred thousand dollars ($500,000) on [*****CONFIDENTIAL TREATMENT
REQUESTED*****];
Five hundred thousand dollars ($500,000) on [*****CONFIDENTIAL TREATMENT
REQUESTED*****];
Five hundred thousand dollars ($500,000) on [*****CONFIDENTIAL TREATMENT
REQUESTED*****];
7.2 Each party shall bear its own expenses incurred in connection with this
Project, including those expenses incurred prior to the effective date of the
TTDA, except as provided in
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Section 7.1 or otherwise provided for in this TTDA.
7.3 The expenses for Prototype evaluation units shall be as provided in Section
2.8.
7.4 [**************CONFIDENTIAL TREATMENT REQUESTED *************].
8. INFORMATION EXCHANGE
8.1 Subject to Section 8.2, it is the intention of IBM and HTI to transfer
and/or exchange information as may be essential for the accomplishment of the
objectives of the Project. Information may be disclosed in oral or written form,
from either party to the other, and will include only HTI information and IBM
information (i.e., will include only information to which the disclosing party
has a right to disclose). Such information may include data, techniques,
technical information inherent in samples, know-how, equipment specifications,
equipment performance, or other information essential to the Project.
8.2 Notwithstanding any other provision whatsoever contained in this Agreement
or the PLA (or any of the Exhibits or Appendices to either of them), HTI will
not be required to disclose to IBM, either during the conduct of the Project or
thereafter, any information about HTI's manufacturing processes and
manufacturing
23
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know how, except for the following types of information developed in performance
of the Project (which information will be subject to such disclosure and
licensing in accordance with the provisions of this Agreement): (a) information
about ability to achieve [*************CONFIDENTIAL TREATMENT REQUESTED
**************]actual and projected volume tolerance intervals with respect to
product specifications, (b) general process flow information and (c) quality
control techniques. However, if such information about HTI's manufacturing
processes and manufacturing know how is disclosed by HTI to IBM, either
intentionally or unintentionally, then it shall be considered to be HTI
Confidential Information and shall be treated as such pursuant to the terms of
this Section 8.
8.3 All disclosures of information, subsequent to the Confidential Information
initially disclosed and transferred by the parties pursuant to Section 2.1,
shall be deemed to be nonconfidential unless specifically designated (as
provided for in Section 8.4) as including the Confidential Information of IBM or
the Confidential Information of HTI, as the case may be. With respect to all
such information disclosed by one party (the "Disclosing Party") to the other
party (the "Receiving Party"), except such information as is specifically
designated as the Confidential Information of the Disclosing Party, the
Disclosing Party grants to the Receiving Party, to the extent, if any, of the
Disclosing Party's interest therein, an irrevocable,
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<PAGE>
nonexclusive, unrestricted, and worldwide right to use, have used, disclose to
others, to make copies in the case of documents and to dispose of, all without
limitation, such nonconfidential information in the development, manufacturing,
marketing and maintenance of products and services which incorporate such
information, subject to any applicable patent rights, copyrights and other
intellectual property rights which are capable of being registered, of the
Disclosing Party.
8.4 Except for subject matter described in Appendix A and each Party's initial
disclosure and technology transfer to the other (which shall be treated as the
Confidential Information of such Disclosing Party), information of HTI or IBM to
be disclosed hereunder shall be considered confidential only:
a) when such information is disclosed in writing (including such
information recorded in a medium, such as tape or disk), and such
writing states the date of disclosure, that the information contained
therein is confidential, and such writing contains the appropriate
legend "IBM Confidential" or "HTI Confidential" or other similar
language which clearly denotes that it is confidential information of
the Disclosing Party; or
b) when such disclosure is orally and/or visually made, and it is
confirmed in a written resume which is
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physically or electronically sent to the Receiving Party within thirty
(30) days following such disclosure, and such resume specifically
recites that information which is confidential, and the resume itself
is clearly marked with the appropriate legend "IBM Confidential" or
"HTI Confidential," as the case may be, or other similar language
which clearly denotes that it is confidential information of the
Disclosing Party.
8.5 Subject to the provisions of Sections 8.6, 8.7, 8.8 and 12, for a period
of five (5) years from the date of termination or expiration of this TTDA as
provided in Section 16, whichever occurs first, the Receiving Party agrees to
use the same care and discretion (but not less than a reasonable degree of care)
to avoid disclosure, publication or dissemination of the Confidential
Information of the Disclosing Party, outside of those employees of the Receiving
Party and its Subsidiaries who have a need to know, as the Receiving Party
employs with similar information of its own which it does not desire to
disclose, publish or disseminate outside a group of its own employees, or those
of its Subsidiaries, who have such a need to know.
The Receiving Party and its Subsidiaries shall be free to use any such
Confidential Information provided by the Disclosing Party, any reports and
written documentation prepared by the Receiving
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Party, and any ideas, know-how, concepts and/or techniques contained in any such
Confidential Information for any purpose, including the use of such Confidential
Information in the development, manufacture, marketing and maintenance of its
products and services, subject only to the obligations not to disclose, publish
or disseminate such Confidential Information during the period of
confidentiality specified in this Section 8.5, the provisions of Section 12, and
subject to any applicable patent rights or copyrights of the Disclosing Party .
It is understood that receipt of Confidential Information under this TTDA shall
not create any obligation in any way limiting or restricting the assignment
and/or reassignment of IBM employees within IBM and HTI employees within HTI.
The Receiving Party may make a reasonable number of copies of any writings or
resumes containing Confidential Information of the other Party, but only for
purposes authorized pursuant to this TTDA.
Following such period of confidentiality specified in this Section 8.5, and
subject to the provisions of Section 12, and to any applicable patent rights or
copyrights of the Disclosing Party, no obligation of any kind is assumed by, or
is to be implied against the Receiving Party or its Subsidiaries, with respect
to any Confidential Information, and the Receiving Party
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<PAGE>
and/or its Subsidiaries shall be free to disclose, publish and disseminate such
Confidential Information to others without limitation and shall have all the
rights relative to such Confidential Information as are set forth in Section
8.3 as if it had been transferred as nonconfidential information.
8.6 Disclosure of Confidential Information shall not be precluded if such
disclosure is:
a) in response to a valid order of a court or other governmental body to
which a party hereto may be subject or otherwise required by law;
provided, however, that in the case of disclosure by the Receiving
Party, such party shall first have given as much notice to the
Disclosing Party as practical and made a reasonable effort to obtain a
protective order requiring that the Confidential Information and/or
documents so disclosed be used only for the purposes for which the
order was issued; or
b) necessary to establish contract rights under this TTDA; or
c) necessary to establish patent rights, copyrights or other intellectual
property rights which are capable of being registered, but only after
receiving the written
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consent of the Disclosing Party, which consent shall not be unreasonably
withheld.
8.7 Notwithstanding any other provisions of this TTDA, the obligations
specified in Section 8.5 above will not apply to any information that:
a) is in the possession of the Receiving Party or any of its Subsidiaries
prior to the date of the TTDA without obligation of confidence;
b) is independently developed by the Receiving Party or any of its
Subsidiaries;
c) is or becomes publicly available without breach of this TTDA;
d) is rightfully received by the Receiving Party or any of its
Subsidiaries from a third party without obligation of confidence; or
e) the Disclosing Party or any of its Subsidiaries provides written
consent for the disclosure (but only to the extent expressly set forth
in such written consent).
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8.8 Subject to the provisions of Section 12, the marketing and sale of any
product or service, including the customary and necessary supporting
documentation therefor, which inherently discloses the Confidential Information
of either party shall not in itself be prohibited.
8.9 Except for the subject matter described in Appendix A and IBM's initial
disclosure and technology transfer to HTI pursuant to Section 2.1 (which shall
be treated as IBM Confidential Information), and any other preexisting materials
(which shall be treated as the Confidential Information of the party hereto
supplying such preexisting materials if such preexisting materials are
transferred as Confidential Information pursuant to Section 8.4 hereof), all
Deliverables shall be treated as the Confidential Information of both parties.
Each party will label such Deliverables with the legend "IBM/HTI Confidential
Information" and shall treat such items as the Confidential Information of the
other party in accordance with the provisions of this Section 8.
8.10 Notwithstanding any other provision of this Section 8, no copyright
license is granted in this Section 8 by either party to the other with respect
to (I) any program code or microcode or (ii) any document or other media
containing a notice of copyright which may be included in the information
exchanged hereunder.
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8.11 IBM Confidential Information and HTI Confidential Information relating to
the Integrated Lead Suspensions which was transferred under a Prior Confidential
Disclosure Agreement shall be treated henceforth as having been transferred
under this Section 8 as Confidential Information. With respect to the
Integrated Lead Suspensions and the Project and all other activities and matters
covered by this Agreement, the provisions of this Section 8 shall supersede and
replace the provisions and restrictions contained in the Prior Confidential
Disclosure Agreements in all respects and such Prior Confidential Disclosure
Agreements shall have no further application to such activities and matters.
9. INVENTIONS/INVENTION RIGHTS
9.1 "Invention" shall mean any Integrated Lead Suspension idea, design,
concept, technique, invention, discovery or improvement whether or not
patentable or registerable, either conceived or first actually reduced to
practice during the term of the joint development relationship under this TTDA
and in the performance of services under this TTDA, solely by one or more
employees of one of the parties or its Subsidiaries (such party is hereinafter
called the "Inventing Party"), or jointly by one or more employees of both of
the parties or their respective Subsidiaries (such an Invention is hereinafter
called a "Joint Invention"). To the extent it has not done so in any written
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report, the Inventing Party, except as otherwise set forth in Section 8.2 shall
make a written disclosure to the other party of each Invention within a
reasonable time after such conception or reduction to practice, specifically
pointing out the features or concepts which are believed to be new or different.
9.2 Ownership of Inventions
Each Invention, other than a Joint Invention, shall be the Inventing Party's
property subject to a patent license which the Inventing Party hereby grants to
the other party. The Inventing Party shall notify the other party within a
reasonable time as to each country in which the Inventing Party elects to seek
protection by obtaining patent rights. The Inventing Party shall have complete
discretion in seeking and/or maintaining any patent or other protection and
shall bear any and all expenses incurred with respect thereto.
A party filing a patent application covering any Invention shall promptly
provide to the other party a copy of the abstract of each application so filed,
subject to the patent laws and procedures of the relevant jurisdiction. If the
Inventing Party elects to seek protection on an Invention in any country, it
shall grant and hereby grants to the other party a license under any and all
patents issuing on applications it files on said Invention. The Inventing Party
shall have the unrestricted right
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to grant licenses (including the right for any licensees to grant sublicenses)
to a third party under such patents without accounting to the other party.
All licenses granted or agreed to be granted to IBM or HTI under this Section
9.2 shall be world-wide, nonexclusive, nontransferable (subject to Section 19),
and fully paid up; shall include the right to make, have made, use, have used,
lease, sell and/or otherwise transfer any apparatus and to practice and have
practiced any process; and shall include the right of IBM and HTI to grant
sublicenses to their respective Subsidiaries under the terms and conditions
described in Section 18; and shall be subject to expiration or termination in
accordance with Section 16 of this Agreement.
9.3 Joint Inventions
Joint Inventions shall be jointly owned, title to all patents issued thereon
shall be joint and equal, all expenses incurred in obtaining and maintaining
such patents shall be jointly and equally shared (except as provided
hereinafter), and each party shall have the unrestricted right to grant licenses
(including the right for any licensees to grant sublicenses) to a third party
thereunder without accounting to the other party and with any necessary consent
hereby given by the other party as may be required by any country law in
granting such licenses to a third
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party.
With respect to any Joint Inventions, where one party elects not to seek or
maintain such protection thereon in any particular country or not to share
equally in the expenses thereof, the other party shall have the right to seek or
maintain such protection at its own expense and shall have full control over the
prosecution and maintenance thereof even though title to any patent issuing
thereon shall be joint.
9.4 Assistance
In connection with the obtaining of patent protection by a party hereto, each
party agrees to give the other party all reasonable assistance in connection
with the preparation and prosecution of any patent application filed by the
other party and shall cause to be executed all assignments and other instruments
and documents as may be reasonably necessary or appropriate to carry out the
intent of this Section 9. HTI and IBM (and their respective Subsidiaries) shall
be solely liable for any compensation which may be due to any of their
respective employees who make Inventions which are subject to the provisions of
this Section 9.
9.5 No party shall be liable for any payments to employees of, or others whose
services are utilized hereunder by, the other
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party who conceives or reduces to practice Inventions.
9.6 In performing the obligations under this TTDA, the parties hereto agree to
avoid knowingly designing or developing any item that infringes one or more
patents, copyrights or other intellectual property rights of any third party,
except for such items which the parties after consultation believe to be invalid
or as to which each believes it can obtain an appropriate license. If either
party is or becomes aware of any third party intellectual property rights (or
alleged rights) which may be relevant to the Project (including items possibly
within the scope of the foregoing exception) during the course of its
performance, it agrees to notify the other party hereto of such rights in
writing within a reasonable time (not exceeding thirty (30) days), unless it is
prohibited by doing so by a confidentiality obligation to a third party. If
either party is or becomes aware of any such items which appear to be outside
the scope of such exception, the parties will jointly decide on an appropriate
course of action.
9.7 If an Invention is not patented, it may be designated as the Inventing
Party's Confidential Information as provided in Section 8.
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10. PATENT CLEARANCE INVESTIGATIONS
Before the completion of this TTDA and within thirty (30) days of request by
either party (requestor), the other party will promptly disclose to the
requestor sufficient technical information, including (subject to Section 8.2)
process manufacturing information, as is reasonably necessary, to enable the
requestor to conduct third party patent clearance investigations with respect to
the Prototypes.
Said other party shall make a reasonable effort to promptly notify the requestor
in writing (a) of any patents of third parties of which it is now or hereafter
becomes aware, which patents may be pertinent to any of the Prototypes or to any
Integrated Lead Suspensions manufactured by HTI for IBM or sold to IBM or any of
its Subsidiaries, (b) of any suits or claims of patent infringement which may
have been made against said other party or any of its Subsidiaries,
distributors, or dealers in respect of any Prototype or any such Integrated Lead
Suspension or any of its products similar thereto in any respect material to the
infringement claim, and (c) of any licenses under patents of third parties which
have been granted to said other party and which may be relevant to any of the
Prototypes or to any such Integrated Lead Suspensions.
It is understood, however, that any patent clearance
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investigation shall be solely at the discretion of the requestor for its
internal purposes and that it shall incur no liability to the other party
through making or failing to make any such investigation.
Neither party shall be required by the Agreement to indemnify the other for the
infringement of any patent rights of any third party.
11. COPYRIGHTS IN DATA
Except for preexisting materials protectable or protected by copyright that are
included in the Deliverable items, the copyrights in the Deliverable items, and
any related documentation or information containing media developed under this
Agreement (hereinafter "Work Product") shall be jointly and equally owned, and
subject to Section 8 each party shall have the unrestricted right to grant
licenses (including the right for any sublicensee to grant sublicenses) to a
third party thereunder without accounting and with necessary consent hereby
given to the other party as may be required by any country law in granting such
licenses to a third party.
Each party shall have the right to obtain and to hold in the joint owners' name
copyrights, registrations and such other statutory and common law protection as
may be available, and any
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extensions and renewals thereof, in the Work Product referred to in this Section
11 in which it has joint ownership. Each party agrees to give the other party,
and any person designated by the other party, at such other party's expense, all
assistance reasonably required to perfect the rights defined in this Section 11.
Subject to Section 8, to the extent that any preexisting materials, other than
program code or microcode, of one party are contained in the Work Product which
is owned solely or jointly by the other party, the party providing the
preexisting materials agrees to grant and hereby grants to the owner of the Work
Product a nonexclusive, worldwide, and fully paid-up (subject to Section 12)
right and license under copyright to use, execute, reproduce, display, perform,
distribute copies of, and prepare derivative works of, such preexisting
materials, and to authorize others to do any, some, or all of the foregoing.
Notwithstanding any other provision of this TTDA, no program code or microcode
is licensed under this TTDA.
The notice of copyright shall reflect the respective ownership of the materials.
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<PAGE>
12. FOLLOW-ON PRODUCTION LICENSE RIGHTS
12.1 Manufacturing Agreement
The parties presently contemplate that HTI may eventually manufacture
commercially viable models of Integrated Lead Suspensions based on the IBM
Advanced Suspension designs which are the principal foundation of this TTDA. In
consideration of IBM's contribution, HTI hereby grants to IBM the option to
purchase Integrated Lead Suspensions from HTI in quantities sufficient to
support shipment of IBM products at a competitive price. [********
**************** CONFIDENTIAL TREATMENT REQUESTED *****************
********************************************].
12.2 IBM License To HTI Confidential Information
Subject to the other terms and conditions of this Agreement, HTI agrees to grant
and hereby grants to IBM a worldwide, nonexclusive, fully paid up (except as to
IBM Royalty Product) license of HTI Confidential Information and joint IBM/HTI
Confidential Information developed under the project or disclosed to IBM under
Section 2.1 or Section 8 hereof, and of Work Products set forth in Section 11
(other than licenses under HTI trademarks), the license being sufficient
(subject to Section
39
<PAGE>
8.2) to enable IBM to manufacture Integrated Lead Suspensions itself or procure
them from sources other than HTI and market them to third parties. IBM may
disclose such HTI Confidential Information and IBM/HTI Confidential Information
to such other sources only if such other sources agree to receive such
information under an appropriate confidential disclosure agreement with terms
substantially as protective as those in Section 8 in the present TTDA (except
that such other sources may use such HTI Confidential Information and IBM/HTI
Confidential Information solely for the purpose of supplying Integrated Lead
Suspensions to IBM and its Subsidiaries).
As consideration for HTI's initial disclosure and technology transfer to IBM as
described in Section 2.1, the grant of the licenses described above in this
Section 12.2, and for HTI's further contributions to the Project as described
herein, if IBM or any IBM Subsidiary sells the IBM Royalty Product as a separate
unit, then IBM will pay to HTI, for a royalty period of [****CONFIDENTIAL
TREATMENT REQUESTED****]from the date of the first sale of an IBM Royalty
Product (after which [****CONFIDENTIAL TREATMENT REQUESTED****] period the
licenses granted under this Section 12.2 shall be deemed fully paid-up), a
royalty of [****CONFIDENTIAL TREATMENT REQUESTED ****]. IBM Royalty Product
does not include an Integrated Lead Suspension which is sold, leased or
otherwise transferred by or for IBM or its Subsidiaries in combination with a
Slider, transducer, actuator arm and/or
40
<PAGE>
actuator, or as a component or subassembly in a Rotating Magnetic Memory
Product, and therefore, such sales, leases or transfers are not subject to the
royalty payment by IBM to HTI. Royalties paid by IBM for IBM Royalty Product
shall be compensation for use of HTI Confidential Information, know-how and
assistance as provided for herein and are not to be construed as royalties in
compensation for any HTI patent licenses. All royalties shall accrue, be
reported and paid in accordance with Appendix B to this Agreement.
[***************************************************************************
*****************CONFIDENTIAL TREATMENT REQUESTED **************************
****************************************************************************]
41
<PAGE>
[**************************************************************************
********************CONFIDENTIAL TREATMENT REQUESTED **********************
***************************************************************************]
42
<PAGE>
[**************************************************************************] to
*********************CONFIDENTIAL TREATMENT REQUESTED *********************
***************************************************************************]
12.4 HTI License To IBM Confidential Information
[*****CONFIDENTIAL TREATMENT REQUESTED *****]
43
<PAGE>
[****CONFIDENTIAL TREATMENT REQUESTED ****], and subject to the other terms and
conditions of this Agreement, IBM agrees to grant and hereby grants to HTI a
worldwide, nonexclusive license of IBM Confidential Information (including the
IBM Advanced Suspension and IBM Product Specifications) and joint IBM/HTI
Confidential Information developed under the Project or disclosed to HTI under
Section 2.1 or Section 8 hereof, and of Work Product set forth in Section 11
(other than licenses under IBM trademarks), the licenses being sufficient to
enable HTI to manufacture Integrated Lead Suspensions and improvements thereto
itself or procure them from sources other than IBM, and market them to third
parties. HTI may disclose such IBM Confidential Information and IBM/HTI
Confidential Information to such other sources only if such other sources agree
to receive such information under an appropriate confidential disclosure
agreement with terms substantially as protective as those of Section 8 in the
present TTDA (except that such other sources may use such IBM Confidential
Information and IBM/HTI Confidential Information solely for the purposes of
supplying Integrated Lead Suspension to HTI and its Subsidiaries).
12.5 HTI Royalty Payments to IBM
As consideration for IBM's initial disclosure and technology transfer to HTI as
described in Section 2.1, the grant of the licenses described in Section 12.4,
and for IBM's further
44
<PAGE>
contributions of know-how to the Project as described herein, HTI shall make to
IBM a combination of fixed dollar payments and variable royalty dollar payments.
In the event that HTI ships (to IBM and/or to others) [**CONFIDENTIAL TREATMENT
REQUESTED ***] cumulative volume units of Integrated Lead Suspension (of any
combination of types), then HTI shall make to IBM the following payments within
fifteen (15) days of each specified date for a total of five and one half
million dollars ($5,500,000):
Five hundred thousand dollars ($500,000) upon the date on which the
[**CONFIDENTIAL TREATMENT REQUESTED ***] cumulative unit shipment is first
achieved;
One and one half million dollars ($1,500,000) upon the one year anniversary of
the [**CONFIDENTIAL TREATMENT REQUESTED ***] shipment date;
One and one half million dollars ($1,500,000) upon the two year anniversary of
the [**CONFIDENTIAL TREATMENT REQUESTED ***] shipment date;
Two million dollars ($2,000,000) upon the three year anniversary of the
[**CONFIDENTIAL TREATMENT REQUESTED ***] shipment date.
These payments are nonrefundable and shall be due regardless of whether or not
the Agreement is terminated prior to its
45
<PAGE>
scheduled expiration date.
In addition to the preceding payments, HTI shall pay to IBM, for a royalty
period of [**CONFIDENTIAL TREATMENT REQUESTED ***] from the date of the first
sale of any HTI Royalty Product to IBM or third parties (after which
[**CONFIDENTIAL TREATMENT REQUESTED ***] period the licenses granted under
Section 12.4 shall be deemed fully paid-up), a royalty for each HTI Royalty
Product sold by or for HTI or its Subsidiaries through the end of such
[**CONFIDENTIAL TREATMENT REQUESTED***] period (subject to adjustment as set
forth in the following paragraphs). Royalties and fixed payments paid by HTI for
HTI Royalty Product shall be compensation for use of IBM Confidential
Information, and know-how as provided for herein and are not to be construed as
royalties in compensation for any IBM patent licenses.
The royalty rate which HTI shall pay IBM for each HTI Royalty Product sold
during a calendar year is [**CONFIDENTIAL TREATMENT REQUESTED ***]
In the event that the TTDA is terminated by HTI without cause (as defined in
Section 16) prior to [**CONFIDENTIAL TREATMENT REQUESTED ***], for the
remainder of the [****CONFIDENTIAL TREATMENT REQUESTED
**************************]. royalty period, HTI shall pay royalties to IBM
using an increased royalty rate equal to [**CONFIDENTIAL TREATMENT REQUESTED
***].
In the event that the TTDA is terminated by IBM without cause (as
46
<PAGE>
defined in Section 16) prior to [**CONFIDENTIAL TREATMENT REQUESTED ***] for
the remainder of the [**CONFIDENTIAL TREATMENT REQUESTED ***] royalty period,
HTI shall pay royalties to IBM using a reduced royalty rate equal to
[**CONFIDENTIAL TREATMENT REQUESTED ***].
[******************************************CONFIDENTIAL TREATMENT REQUESTED
**********].
All Royalties shall accrue, be reported and paid in accordance with Appendix B.
12.6 Patent License
Other than as provided in Section 9, no license or immunity of any patents is
granted under this TTDA by either party to the other, either directly or by
implication, estoppel, or otherwise. The grant of any patent licenses other than
as provided in Section 9, is the subject of the separate Patent License
Agreement.
13. WARRANTIES
13.1 Each party represents and warrants that it is under no obligation or
restriction, nor will it assume any such obligation or restriction which would
in any way interfere or be
47
<PAGE>
inconsistent with, the activities to be undertaken pursuant to this TTDA.
13.2 Each party covenants that, regarding any information to be disclosed to the
other party under this TTDA, it has or will have the full right and power to
disclose same and that the use of any such information by the other party will
not constitute a misuse or misappropriation of any trade secret or any other
type of confidential information of any third party.
13.3 OTHER THAN AS EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, EACH PARTY MAKES NO
WARRANTIES NOR ASSUMES ANY LIABILITIES IN CONNECTION WITH THIS PROJECT,
INCLUDING BUT NOT LIMITED TO THE ACCOMPLISHMENT OR COMPLETION OF ANY PORTION OF
THE PROJECT. ANY EQUIPMENT, SOFTWARE PROGRAMS, MATERIALS OR SERVICES FURNISHED
BY ANY PARTY PURSUANT TO THIS AGREEMENT ARE ON AN "AS IS" BASIS.
13.4 It is understood by the parties that entry into this TTDA and the
performance of any acts or activities hereunder shall not constitute a guarantee
or assurance that IBM or HTI will procure, announce or otherwise offer for lease
or sale a product which contains or utilizes the technology or products, or any
portion thereof, developed under this TTDA or any extension of this TTDA.
Each party understands and agrees that entry into this TTDA by the other is not
conditioned upon an extension of this TTDA upon
48
<PAGE>
its expiration, or the issuance by IBM of a purchase order for the procurement
of products or technology developed pursuant to this TTDA, or any other
agreement for the further development, manufacture or sale of products or
technology developed pursuant to this TTDA, other than as provided in Section
12.
13.5 The parties understand that there are no oral or written collateral
promises, representations, agreements, or understandings, except as provided
herein and in the PLA, and each party warrants that there were no inducements,
express or implied, relied upon as a condition of entry into this TTDA and the
PLA.
13.6 Neither party shall be liable to the other party for any lost revenue, lost
profits or other consequential damages, even if advised of the possibility of
such damages, which may result from its failure to perform its obligations under
this TTDA and neither party shall be liable for any claim against the other
party by any third party. Notwithstanding this limitation of liability clause,
nothing in this TTDA will limit either party's payment obligation of remitting
any payments or royalties due to the other party or impede either party's
recovery of direct compensatory damages if the other party fails to pay such
payments or royalties due.
49
<PAGE>
14. COMPLIANCE WITH LAWS AND REGULATIONS
Each party shall do whatever is reasonably necessary and appropriate, in
connection with the Project and any Integrated Lead Suspensions or other
products or technology developed under this TTDA, to enable itself and the other
party to comply with all applicable laws including those laws related to the
export of technical data.
15. AGREEMENTS WITH EMPLOYEES AND OTHERS
Each party has or will obtain appropriate agreements with its employees or
others, including subcontractors, whose services it may require, sufficient to
enable such party to comply with all the provisions of this TTDA.
16. TERM AND TERMINATION
16.1 Subject to Section 8.11, this TTDA is effective as of the date written
above (September 1, 1994) and shall expire [***CONFIDENTIAL TREATMENT
REQUESTED***] thereafter unless earlier termination is invoked as provided
hereinafter. Prior to the expiration of such period the parties may extend the
term of this TTDA by a mutually signed amendment.
16.2 IBM shall have the right to terminate this TTDA for cause by
50
<PAGE>
giving written notice to HTI, if HTI shall: (a) fail to pay when due any amount
required to be paid to IBM hereunder and such a failure shall not be cured and
any interest due should not be paid within thirty (30) days after written notice
by IBM to HTI of such failure; or (b) knowingly sell, lease or otherwise
transfer Integrated Lead Suspensions to any third parties other than those to
which the sale, lease or transfer is authorized under this TTDA and the PLA; or
(c) otherwise materially breach this TTDA or the PLA. Such termination shall
become effective thirty (30) days after such written notice is given by IBM to
HTI, unless HTI cures the default prior to the effective date of the
termination.
In the event this TTDA is terminated by IBM pursuant to this Section 16.2: all
licenses to HTI hereunder shall terminate; all licenses to IBM hereunder shall
continue; and if the period specified in Section 8 of this TTDA with respect to
Confidential Information has not expired, then the obligation of non-disclosure
with respect to such Confidential Information shall survive and remain in effect
and binding on the parties.
16.3 HTI shall have the right to terminate this TTDA for cause by giving
written notice to IBM, if IBM shall: (a) fail to pay when due any amount
required to be paid to HTI hereunder and such a failure shall not be cured
and any interest due should not be paid within thirty (30) days after written
notice by HTI to IBM
51
<PAGE>
of such failure; or (b) knowingly sell, lease or otherwise transfer Integrated
Lead Suspensions to any third parties other than those to which the sale, lease
or transfer is authorized under this TTDA and the PLA; or (c) otherwise
materially breach this TTDA or the PLA. Such termination shall become effective
thirty (30) days after such written notice is give by HTI to IBM, unless IBM
cures the default prior to the effective date of the termination.
In the event this TTDA is terminated by HTI pursuant to this Section 16.3: all
licenses to IBM hereunder shall terminate; all licenses to HTI hereunder shall
continue; and if the period specified in Section 8 of this TTDA with respect to
Confidential Information has not expired, then the obligation of non-disclosure
with respect to such Confidential Information shall survive and remain in effect
and binding on the parties.
16.4 In the event that this TTDA has not been terminated (or termination notice
given) pursuant to Section 16.2 or Section 16.3, then either party may terminate
this TTDA without cause at any time upon 30 days written notice.
16.5 If this Agreement terminates as provided in Section 16.1 or 16.4, then all
licenses and payment obligations granted under this TTDA shall continue; and if
the period specified in Section 8 of this TTDA with respect to Confidential
Information has not
52
<PAGE>
expired, then the obligation of non-disclosure with respect to such Confidential
Information shall survive and remain in effect and binding on the parties.
[****************************************************************************
**************CONFIDENTIAL TREATMENT REQUESTED ******************************
*****************************************************************************]
[****************************************************************************
****************CONFIDENTIAL TREATMENT REQUESTED ****************************
***********************************************************************]. IBM
thereafter may terminate the license granted to HTI for cause on thirty (30)
days written notice if HTI shall: (a) fail to pay when due any amount required
to be paid hereunder and failure shall not be cured and any interest due shall
not be paid within thirty (30) days after written notice by IBM to HTI of such
53
<PAGE>
failure; or (b) knowingly sell, lease or otherwise transfer Integrated Lead
Suspensions to any third parties other than those to which the sale, lease or
transfer is generally authorized under this TTDA and the PLA; or (c) otherwise
materially breach this TTDA or the PLA.
17. PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Payments shall be made in U.S. Dollars by electronic funds transfer. Other than
as provided for in Section 5 above, any notice or other communication required
or permitted to be made or given to a party pursuant to this TTDA shall be sent
to such party by facsimile or by registered airmail (except that registered or
certified mail may be used where delivery is in the same country as mailing),
postage prepaid, addressed to it at its address set forth below, or to such
other address as it shall designate by written notice. Payments shall be deemed
to be made on the date of electronic fund transfer. Notices or other
communications shall be deemed to have been given or provided on the date of
mailing. The addresses are as follows:
54
<PAGE>
For the electronic funds transfer of payments:
The Bank of New York
48 Wall Street
New York, New York 10286
United States of America
Credit Account No. [******CONFIDENTIAL TREATMENT REQUESTED ******]
ABA No. 0210-0001-8
For mailing to IBM:
IBM Director of Licensing
International Business Machines Corporation
500 Columbus Ave.
Thornwood, NY 10594
United States of America
For facsimile transmission to IBM:
(914) 742-6729
For mailing to HTI:
President
Hutchinson Technology Incorporated
40 West Highland Park
Hutchinson, MN 55350
55
<PAGE>
For facsimile transmission to HTI:
(612) 587-1810
Either party shall be liable for interest on any overdue payment required to be
made to the other party under this TTDA commencing on the date such payment
becomes due, at an annual rate which is the greater of ten percent (10%) or one
percentage point higher than the prime interest rate quoted by the head office
of Citibank N.A., New York, at the close of banking on such date, or on the
first business day thereafter if such date falls on a non-business day. If such
interest rate exceeds the maximum legal rate in the jurisdiction where a claim
therefor is being asserted, the interest rate shall be reduced to such maximum
legal rate.
18. SUBLICENSING RIGHTS
18.1 The licenses granted herein shall include the right of the parties hereto
to sublicense their respective Subsidiaries and the right of such sublicensed
Subsidiaries to sublicense other Subsidiaries of the respective parties. Each
sublicensed Subsidiary shall be bound by the terms and conditions of this TTDA
as if it were named herein in the place of the party with whom the sublicense
originated. If a Subsidiary ceases to be a Subsidiary and holds any patents or
patent applications under which a party hereto is licensed, such licenses will
continue for
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<PAGE>
the life of such patents or patent applications. Any sublicense granted to a
Subsidiary shall terminate on the date such Subsidiary ceases to be a
Subsidiary.
18.2 In the event a sublicensed Subsidiary of one party hereto is an Operating
Subsidiary (as hereinafter defined) at the time it ceases to be a Subsidiary,
and, with the written approval of said one party, requests in writing, within
one hundred and eighty (180) days after ceasing to be a Subsidiary, a license
agreement with the other party hereto upon terms and conditions substantially
identical to the terms and conditions of this TTDA (except as hereinafter
provided), the other party hereto agrees that it will enter into such license
agreement forthwith. An Operating Subsidiary shall be any Subsidiary of one
party hereto which at the time it ceases to be a Subsidiary has all of the
following:
18.2.1 a line of marketable products;
18.2.2 patents or other intellectual property relating to the line of
marketable products;
18.2.3 tangible assets at least equivalent in value to the lesser of one
hundred million U.S. dollars ($100,000,000) or twenty percent (20%) of
the total assets of the party of which it was formerly a Subsidiary;
and
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<PAGE>
18.2.4 at the time of entry into such license agreement it is not a
corporation, company or other entity:
1) more than fifty percent (50%) of whose outstanding shares
or securities (representing the right to vote for the election of
directors or other managing authority) are; or
2) which does not have outstanding shares or securities, as may
be the case in a partnership, limited liability company, joint
venture or unincorporated association, but more than fifty percent
(50%) of whose ownership interest representing the right to make
the decisions for such corporation, company or other entity is;
owned or controlled, directly or indirectly, by a third party.
Any such agreement with an Operating Subsidiary shall differ from this TTDA in
the following respects:
18.2.5 This Section 18.2 and Sections 2 through 6 shall be omitted;
18.2.6 The payment requirements under Section 7.1 shall be omitted unless the
Operating Subsidiary is a Subsidiary of HTI which theretofore carried
on substantially all of
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<PAGE>
HTI's business of manufacturing and selling Integrated Lead
Suspensions;
18.2.7 The name of the Operating Subsidiary shall be substituted for the name
of the party hereto of which it was formerly a Subsidiary; and
18.2.8 In the event that such Operating Subsidiary is or becomes organized
under the laws of a country different from that of the party hereto of
which it was formerly a Subsidiary, such license agreement shall
contain such additional terms and conditions (other than royalty
provisions) as may be required in intellectual property license
agreements between the licensing party and other entities organized
under the laws of the same country.
19. ASSIGNMENTS, SUBCONTRACTS AND ACQUISITIONS
19.1 This TTDA shall be binding on and inure to the benefit of the parties
hereto, their Subsidiaries and their respective successors and assigns. Neither
party shall assign any of its rights or privileges hereunder without the prior
written consent of the other party.
19.2 The parties agree that no right to subcontract any of the work set forth
in Section 2 is granted under this TTDA, except as
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<PAGE>
may otherwise be agreed to in writing by the parties. Notwithstanding the
foregoing, the parties understand that no right to subcontract shall be granted
or approved by either party unless any such subcontractor is made subject to
provisions of confidentiality which are no less restrictive than those set forth
in this TTDA, and unless the provisions of Section 15 are complied with by the
party desiring to subcontract.
19.3 In the event that more than fifty percent (50%) of HTI's outstanding
shares or securities (representing the right to vote for election of
directors or other managing authority) hereafter become owned or controlled,
directly or indirectly, by a third party or any transaction is proposed that
if consummated would lead to a majority ownership or control of HTI, HTI's
obligations with respect to disclosure of IBM Confidential Information shall
not apply to any disclosure to said acquiring (or proposed acquiring) third
party provided, however, that said third party agrees to be bound by the
provisions of this TTDA as if it were named as a party herein in the place of
HTI.
19.4 In the event that more than fifty percent (50%) of the outstanding shares
or securities (representing the right to vote for the election of directors or
other managing authority) of one party hereto (the "Acquired Party") hereafter
become owned or controlled, directly or indirectly, by a third party, said
Acquired Party shall promptly give notice of such acquisition to
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<PAGE>
the other party. If said Acquired Party does not have outstanding shares or
securities, such acquisitions shall be deemed to occur if more than fifty
percent (50%) of its ownership interest representing the right to make decisions
for the said party is acquired by said third party. All rights granted
hereunder to said one party together with any sublicenses theretofore granted by
said one party shall terminate on a termination date one hundred and eighty
(180) days after the date of such acquisition.
In the event of such acquisition,
19.4.1 All licenses granted herein to said other party under this
TTDA shall terminate; and
19.4.2 Said one party shall be entitled, upon request made within
thirty (30) days before or one hundred and eighty (180) days
after the date of such acquisition to a license agreement
with the other party hereto upon terms and conditions
substantially identical to the terms and conditions of this
TTDA (accept as hereinafter provided), the other party
hereto agrees that it will enter into such license agreement
forthwith. Such license agreement shall differ from this
TTDA in the following respects:
19.4.2.1 A license grant to said one party shall be
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limited in amount to annual sales equal to two (2) times
sales of Royalty Products (IBM Royalty Products if IBM is
said Acquired Party or HTI Royalty Products if HTI is said
Acquired Party) by said one party and its sublicensed
Subsidiaries which are included in such acquisition in the
consecutive 12 month period that immediately precedes the
date of such acquisition; and
19.4.2.2 The licensee shall be relieved of any payment
obligations under Sections 7.1 and 12.5 that have already
been actually paid by HTI.
For purposes of this Section 19.4.2, the term "Royalty Products" means IBM
Royalty Products in the case where IBM is the Acquired Party and means HTI
Royalty Products in the case where HTI is the Acquired Party.
20. NONEXCLUSIVE RELATIONSHIP
Neither this TTDA nor any development activities hereunder will impair the right
of either party or its Subsidiaries, without breach of this TTDA, to develop,
make, use, procure and/or market products and services related to such products
now or in the future, individually or jointly with others, which may be
compatible or competitive with those developed under this TTDA,
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<PAGE>
nor require either party to disclose any planning information to the other
except as provided in Section 2.
21. SURVIVAL
Except as specifically provided in Section 16, the rights and obligations of
Sections 6, 7, 8, 9, 11, 12, 13, 14, 15, 16, 17, 18, 19, 21, 22, 23, 24, 25, 26
and 27 of this TTDA shall survive and continue after expiration or termination
of this TTDA and shall bind the parties and their legal representatives,
successors and assigns.
22. TRADEMARKS
Nothing contained in this TTDA shall be construed as conferring on either party
any rights to use in advertising, publicity or other marketing activities any
name, trademark, or other designation of the other party hereto, including any
contraction, abbreviation, or simulation of any of the foregoing, and each
party hereto agrees not to use the existence of this TTDA in any marketing,
promotion or publicity activity without the express written approval of the
other party.
23. PUBLICITY
For a period of five (5) years from the date of this TTDA,
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<PAGE>
neither of the parties shall disclose the terms and conditions and subject
matter of this TTDA (other than to confirm the existence and scope of the
licenses contained herein upon inquiry by a bone fide customer or potential
customer), except as may be required by law, judicial order, government rule or
regulation, without the prior written consent of the other party.
24. [*******************************************************************
**********************CONFIDENTIAL TREATMENT REQUESTED*******************
************************************************************************]
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<PAGE>
[************************************************************************
*****************CONFIDENTIAL TREATMENT REQUESTED*************************
************************************************************************]
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<PAGE>
25. ENTIRE AGREEMENT
25.1 This TTDA and the PLA (and the Appendices attached hereto and thereto)
embody the entire agreement of the parties with respect to the subject matter
contained herein (and therein) and shall supersede all previous communications,
representations or understandings, either oral or written, between the parties
relating to the Project; and neither party shall be bound by any conditions,
definitions, warranties, understandings or representations with respect to the
subject matter hereof (or thereof) other than as expressly set forth herein (or
therein). In the event that any of the provisions of this Agreement (or the PLA)
shall be found to be in conflict with any such other agreement(s), however, this
Agreement (or the PLA) shall prevail.
Except for those changes identified in Section 2, SCOPE OF WORK, and in Section
4, ENGINEERING CHANGES, no amendment or modification of this Agreement shall be
valid or binding upon the parties unless made in writing and executed on behalf
of each of such parties by their respective duly authorized representative
thereunto.
25.2 This TTDA will not be binding upon the parties until it has been signed by
or on behalf of each party, in which event it shall be effective as of the date
first set forth above (September 1, 1994).
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26. SEVERABILITY
If any Section of the TTDA is found by competent authority to be invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such Section in every other respect and remainder of
this TTDA shall continue in effect so long as the TTDA still provides the
essential benefit of the bargain to both parties. If the benefit of the bargain
cannot be substantially preserved, this TTDA shall be either renegotiated or
terminated.
27. APPLICABLE LAW
The validity, construction and performance of this TTDA will be governed by the
substantive law of the State of New York.
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IN WITNESS WHEREOF, the parties have caused this TTDA to be signed by their duly
authorized representatives as of the day and year first above written.
INTERNATIONAL BUSINESS MACHINES CORPORATION
By: /s/ Robert A. Scranton
--------------------------------------------------------
Title: Director Recording Heads
-----------------------------------------------------
Date: June 15, 1995
-----------------------------------------------------
Witness: /s/ Lori Marshall
----------------------------------------------------
HUTCHINSON TECHNOLOGY INCORPORATED
By: /s/ Wayne M. Fortun
--------------------------------------------------------
Title: President
-----------------------------------------------------
Date: June 13, 1995
-----------------------------------------------------
Witness: /s/ Wayne M. Fortun
----------------------------------------------------
/s/ Richard Myers
----------------------------------------------------
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******************************************************************************
**CONFIDENTIAL TREATMENT REQUESTED FOR INDICATED PORTIONS**
******************************************************************************
06/12/95
PATENT LICENSE AGREEMENT ("PLA") effective as of
September 1,1994, between INTERNATIONAL BUSINESS
MACHINES CORPORATION, a New York Corporation
(hereinafter called "IBM"), and HUTCHINSON
TECHNOLOGY INCORPORATED, a Minnesota Corporation
(hereinafter called "HTI").
Whereas IBM and HTI are entering into a Technology Transfer and Development
Agreement ("TTDA") contemporaneously herewith.
Whereas each of IBM and HTI could require licenses under certain patents to
practice the technology of the TTDA.
Whereas each of IBM and HTI has, and expects to continue to have, the right
(as GRANTOR herein) to grant licenses to the other party (as GRANTEE herein)
under certain of these patents and each desires to acquire a nonexclusive
license under such patents of the other party.
Whereas each of IBM and HTI expects to continue research and development
which will produce further patents and each may require a nonexclusive license
under such patents of the other party.
In consideration of the premises and mutual covenants herein contained, IBM
and HTI agree as follows:
-1-
<PAGE>
Section 1. DEFINITIONS
1.1 "Information Handling System" shall mean any instrumentality or
aggregate of instrumentalities primarily designed to compute, classify, process,
transmit, receive, retrieve, originate, switch, store, display, manifest,
measure, detect, record, reproduce, handle, or utilize any form of information,
intelligence, or data for business, scientific, control or other purposes.
1.2 "IHS Product" shall mean an Information Handling System, any Supply or
any instrumentality or aggregate of instrumentalities (including, without
limitation, any component or subassembly) designed for incorporation in an
Information Handling System; provided, however, that a Manufacturing Apparatus
shall not be considered to be an IHS Product.
1.3 "Manufacturing Apparatus" shall mean, as to each party hereto, any
instrumentality primarily designed for use in the fabrication of an IHS Product
licensed herein to that party.
1.4 "Supply" shall mean, as to each party hereto, any article or matter
designed for use in or by, and designed to be effectively consumed in the course
of operation of another IHS Product licensed herein to that party.
-2-
<PAGE>
1.5 "Program" shall mean a plurality of instructions capable of being
compiled, executed or interpreted by an IHS Product, whether or not such
instructions are in a machine-readable form.
1.6 "Inductive Head" shall mean any magnetic transducer apparatus
including an inductive coil arranged in an inducing relationship with a magnetic
core structure primarily designed for reproducing, recording or erasing
information on, in or from a magnetic storage medium by transducing certain of
the magnetic characteristics of such medium to electrical signals, or vice
versa, which characteristics and signals are indicative of such information.
For the avoidance of doubt, Inductive Head shall not mean or include
Magnetoresistive Technology.
1.7 "Integrated Lead Suspension" shall mean a cantilever member which is
used for supporting one or more transducers, wherein the cantilever member is
located between said transducer (with or without Slider) and a supporting member
(typically an actuator or actuator arm), and wherein the cantilever member has
electrical leads (other than flex cables or wires, whose only function is to
carry electrical current, which are separately attached) etched, plated or
otherwise patterned into or on the surface of one or more components of the
cantilever member. Integrated Lead Suspension does not include the Slider, the
transducer, the supporting member, the actuator, the actuator arm,
[****CONFIDENTIAL TREATMENT REQUESTED *************************].
-3-
<PAGE>
1.8 "Slider" shall mean a structure primarily designed for supporting one
or more magnetic transducers in a transducing relationship with a moving storage
medium by having a surface maintained in contact with a surface of such moving
storage medium or in combination with the fluid flow generated by the movement
of such moving storage medium in close proximity above the surface of such
moving storage medium.
1.9 "Magnetoresistive Technology" shall mean any magnetic transducer
apparatus including a magnetic field sensor which exhibits a change in
electrical resistance as a function of the change in magnetic flux of a magnetic
field applied to the sensor, primarily designed for reproducing, recording, or
erasing information on, in or from a magnetic storage medium by transducing
certain of the magnetic characteristics of such medium to electrical signals, or
vice versa, which characteristics and signals are indicative of such
information. "Magnetoresistive Technology" shall also include any electrical or
electronic circuit primarily designed for use with such magnetic field sensor.
1.10 "Head Gimbal Assembly" shall mean the combination of an Integrated
Lead Suspension and at least one magnetic transducer (with or without a Slider),
wherein the magnetic transducer is interconnected with and supported by said
Integrated Lead Suspension in a manner allowing some degree of movement of the
-4-
<PAGE>
magnetic transducer about one or more orthogonal axes of rotation of the
Integrated Lead Suspension and movement of the Integrated Lead Suspension in a
plane perpendicular to the recording surface of a magnetic storage medium.
1.11 "Head Stack Assembly" shall mean the combination of one or more Head
Gimbal Assemblies (with or without a mounted Integrated Lead Suspension)
attached to at least one arm for use as or as part of an actuator for a Rotating
Magnetic Memory Product.
1.12 "Rotating Magnetic Memory Products" or "RMM Products" shall mean any
product primarily designed for recording and/or reproducing in magnetic form
information which is in digital form during motion of a rotating cylinder or
disk having a magnetizable surface, or any instrumentality or aggregate of
instrumentalities primarily designed for incorporation in a RMM Product.
1.13 "IBM Licensed Patents" shall mean the US patents and any patents
issuing or issued on the patent applications listed in Exhibit A, and any and
all non-US counterparts corresponding thereto and divisions, continuations,
reissues or extensions of such patents and patent applications; and the U.S.
patents licensed to HTI pursuant to Section 5.2 of this PLA, and any and all
non-US counterparts corresponding thereto and divisions, continuations, reissues
or extensions of such patents.
-5-
<PAGE>
1.14 "HTI Licensed Patents" shall mean all patents throughout the world,
including utility models and design patents issued or issuing on applications
entitled to an effective filing date prior to [***CONFIDENTIAL TREATMENT
REQUESTED ***] under which patents or the applications therefor HTI or any of
its Subsidiaries now has, or hereafter obtains, the right to grant licenses to
IBM of or within the scope granted herein without such grant or the exercise of
rights thereunder resulting in the payment of royalties or other consideration
by HTI or its Subsidiaries to third parties (except for payments between HTI and
Subsidiaries of HTI, and payments to third parties for inventions made by said
third parties while employed by HTI or any of its Subsidiaries). The term "HTI
Licensed Patents" shall also include any divisions, continuations, reissues or
extensions on any of the aforesaid patents.
1.15 "IBM Licensed Products" shall mean RMM Products.
1.16 "HTI Licensed Products" shall mean Integrated Lead Suspensions.
1.17 "Subsidiary" as to each company shall mean a corporation, company or
other entity:
1.17.1 more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority) are, now
-6-
<PAGE>
or hereafter, owned or controlled, directly or indirectly, by a party
hereto, but such corporation, company or other entity shall be deemed to be
a Subsidiary only so long as such ownership or control exists; or
1.17.2 which does not have outstanding share or securities, as may be
the case in a partnership, limited liability company, joint venture or
unincorporated association, but more than fifty percent (50%) of whose
ownership interest representing the right to make the decisions for such
corporation, company or other entity is, now or hereafter, owned or
controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.18 "Technology Transfer and Development Agreement" or "TTDA" shall mean
the agreement between IBM and HTI effective as of September 1, 1994 which
describes the relationship between IBM and HTI where the parties will cooperate
in the fields of development and manufacturing Integrated Lead Suspensions and
other fields as the parties otherwise agree.
1.19 "IBM/HTI License Agreements" shall mean the Technology Transfer and
Development Agreement and Patent License Agreement between IBM and HTI.
-7-
<PAGE>
[*****************************************************************************
****************CONFIDENTIAL TREATMENT REQUESTED *********************
*****************************************************************************].
Section 2. LICENSES
2.1 Subject to the provisions of Sections 2.3, 2.4 and 2.5, IBM on behalf
of itself and its Subsidiaries grants to HTI a worldwide, fully paid-up,
nonexclusive license under the IBM Licensed Patents:
2.1.1 to make, use, lease, sell and otherwise transfer HTI Licensed
Products and to practice any method or process involved in the
manufacture or use thereof; and
2.1.2 to make and use Head Gimbal Assemblies and Head Stack Assemblies
solely for research, development, design and testing purposes.
-8-
<PAGE>
In the event that neither IBM nor any of its Subsidiaries has the right to grant
a license under any particular IBM Licensed Patent of the scope set forth above
in this Section 2, then the license granted herein under said IBM Licensed
Patent shall be of the broadest scope which IBM or any of its Subsidiaries has
the right to grant within the scope set forth above.
2.2 HTI on behalf of itself and its Subsidiaries grants to IBM a
worldwide, fully paid-up, nonexclusive license under the HTI Licensed Patents:
2.2.1 to make, use, lease, sell and otherwise transfer IBM Licensed Products
and to practice any method or process involved in the manufacture or use
thereof; and
2.2.2 to have made IBM Licensed Products by another manufacturer for the
use, lease, sale or other transfer by IBM.
In the event that neither HTI nor any of its Subsidiaries has the right to grant
a license under any particular HTI Licensed Patent of the scope set forth above
in this Section 2, then the license granted herein under said HTI Licensed
Patent shall be of the broadest scope which HTI or any of its Subsidiaries has
the right to grant within the scope set forth above.
2.3 Except as expressly set forth in Section 2.1.2, no license or immunity
is granted by IBM to HTI or its Subsidiaries, directly or by implication,
estoppel or otherwise for the
-9-
<PAGE>
combination of items licensed hereunder with other items or for the use of such
combination.
2.4 Except as expressly set forth in 2.1.2, no license is granted herein
to HTI or its Subsidiaries, directly or by implication, estoppel or otherwise,
to make, use, lease, sell and otherwise transfer, Inductive Heads, Head Gimbal
Assemblies, Magnetoresistive Technology, Head Stack Assemblies,
[****CONFIDENTIAL TREATMENT REQUESTED****************************************]
nor to practice any method or process involved in the manufacture or use
thereof.
2.5 No license or immunity is granted by IBM to any third parties
acquiring items from HTI or its Subsidiaries, directly or by implication,
estoppel or otherwise for the combination of items licensed hereunder with other
items or for the use of such combination.
2.6 HTI hereby grants to IBM an option, at any time, to obtain a royalty-
bearing license under any patents owned or licensable by HTI which are entitled
to an effective filing date prior to [***CONFIDENTIAL TREATMENT REQUESTED***],
to make, have made, use, lease, sell or otherwise transfer IHS Products, other
than RMM Products, under IBM's then standard licensing practice and on such
standard terms and conditions, including royalty rates, as IBM is then generally
offering royalty-bearing licensees of IBM's patents at the time such a license
is requested, provided, however, the
-10-
<PAGE>
royalty rate shall be applied to and paid for only those portions of an IHS
Product sold by IBM that are covered by the claims of a patent licensed by HTI
pursuant to this option.
Section 3. EXTENSION OF LICENSE TO SUBSIDIARIES
3.1 The licenses granted herein shall include the right of the parties
hereto to sublicense their respective Subsidiaries and the right of such
sublicensed Subsidiaries to sublicense other Subsidiaries of the respective
parties. Each sublicensed Subsidiary shall be bound by the terms and conditions
of this PLA as if it were named herein in the place of the party with whom the
sublicense originated. If a Subsidiary ceases to be a Subsidiary and holds any
patents or patent applications under which a party hereto is licensed, such
licenses will continue for the life of such patents or patent applications. Any
sublicense granted to a Subsidiary shall terminate on the date such Subsidiary
ceases to be a Subsidiary.
3.2 In the event a sublicensed Subsidiary of one party hereto is an
Operating Subsidiary (as hereinafter defined) at the time it ceases to be a
Subsidiary, and, with the written approval of said one party, requests in
writing, within one hundred and eighty (180) days after ceasing to be a
Subsidiary, a license agreement with the other party hereto upon terms and
conditions substantially identical with the terms and conditions of this PLA
(except as hereinafter provided), the other party hereto agrees
-11-
<PAGE>
that it will enter into such license agreement forthwith. An Operating
Subsidiary shall be any Subsidiary of one party hereto which at the time it
ceases to be a Subsidiary has all of the following:
3.2.1 a line of marketable products;
3.2.2 patents or other intellectual property relating to the line of
marketable products;
3.2.3 tangible assets at least equivalent in value to the lesser of one
hundred million U.S. dollars ($100,000,000) or twenty percent (20% of the
total assets of the party of which it was formerly a Subsidiary; and
3.2.4 at the time of entry into such license agreement, it is not a
corporation, company or other entity:
3.2.4.1 more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority) are; or
3.2.4.2 which does not have outstanding shares or securities, as may be
the case in a partnership, limited liability company, joint venture or
unincorporated association, but more than fifty percent (50%) of whose
ownership interest representing the right to make the decisions for such
corporation, company or other entity is; owned or controlled, directly or
indirectly, by a third party.
Any such agreement with an Operating Subsidiary shall differ from this PLA in
the following respects:
-12-
<PAGE>
3.2.5 this Section 3.2 shall be omitted;
3.2.6 the name of the Operating Subsidiary shall be substituted for the
name of the party hereto of which it was formerly a Subsidiary; and
3.2.7 in the event that such Operating Subsidiary is or becomes
organized under the laws of a country different from that of the party
hereto of which it was formerly a Subsidiary, such license agreement
shall contain such additional terms and conditions (other than royalty
provisions) as may exist in patent license agreements between the
other party hereto and other entities organized under the laws of the
same country.
Section 4. TERM OF AGREEMENT
4.1 Except as provided for in Sections 4.2 and 4.3, the term of the PLA
and any licenses granted hereunder shall be from the effective date of this PLA
until the last to expire IBM Licensed Patents and HTI Licensed Patents.
4.2 In the event that more than fifty percent (50%) of the outstanding
shares or securities (representing the right to vote for the election of
directors or other managing authority) of one party hereto (the "Acquired
Party") hereafter become owned or controlled, directly or indirectly, by a third
party, said Acquired Party shall promptly give notice of such acquisition to the
other party. If said Acquired Party does not have
-13-
<PAGE>
outstanding shares or securities, such acquisition shall be deemed to occur if
more than fifty percent (50%) of its ownership interest representing the right
to make decisions for said party is acquired by said third party. All rights
granted hereunder to said one party together with any sublicenses theretofore
granted by said one party shall terminate on a termination date one hundred and
eighty (180) days after the date of such acquisition.
In the event of such acquisition,
4.2.1 all licenses granted herein to said other party under any patents
issuing on patent applications having an effective filing date subsequent
to said termination date and under said patent applications shall
terminate; and
4.2.2 said one party shall be entitled, upon request made within thirty
(30) days before or one hundred and eighty (180) days after the date of
such acquisition to a nontransferable, nonexclusive, royalty free license
under said other party's Licensed Patents (including the right to
sublicense its Subsidiaries) to make, use, lease and sell only Licensed
Products except that any such license agreement shall differ from this PLA
in the following respects:
4.2.2.1 the license grant to said one party in Section 2.1 or 2.2, as
the case may be, shall be limited in amount to annual sales equal to two
(2) times the sales of Licensed Products (IBM Licensed Products if IBM is
said Acquired Party or HTI Licensed Products if HTI is said Acquired
-14-
<PAGE>
Party) by said one party and its sublicensed Subsidiaries which are
included in such acquisition in the consecutive twelve-month period that
immediately precedes the date of such acquisition.
For purposes of Section 4.2.2, the term "Licensed Products" means Integrated
Lead Suspensions in the case where HTI is the Acquired Party and means RMM
Products in the case where IBM is the Acquired Party.
4.3 If either party shall fail to pay when due any amount required to be
paid under the TTDA and such failure shall not be cured as provided under said
TTDA, then the licenses granted to said party under this PLA are terminated as
of the effective date of said termination of the TTDA.
Section 5. WARRANTY
5.1 Each party represents and warrants that it has the full right and
power to grant the licenses set forth in Section 2 and that there are no
outstanding agreements, assignments or encumbrances inconsistent with the
provisions of said Sections or with any other provision of this PLA. Each party
(as a GRANTOR) further represents and warrants that prior to the execution of
this PLA it has informed the other party, in writing, of any patent or patent
application originating from inventions made by employees of GRANTOR or its
Subsidiaries, which patent or patent
-15-
<PAGE>
application is now owned by GRANTOR or its Subsidiaries and which patent or
patent application, owing to prior arrangements with third parties, does not, or
will not, qualify as a Licensed Patent, under which licenses are granted of the
full scope set forth in Section 2. Neither party makes any other
representations or warranties, express or implied, nor does either party assume
any liability in respect of any infringement of patents or other rights of third
parties owing to the other party's operation under the license herein granted.
5.2 If any patent applications [************************************
******************** CONFIDENTIAL TREATMENT REQUESTED *********************
**************************************************************************
*******************]owned by IBM are filed on or after the date of this PLA,
but no later than [**CONFIDENTIAL TREATMENT REQUESTED **] or are pending, but
not published, as of the date of this PLA and such patent applications
subsequently issue into patents; and
5.2.1 such patents have at least one claim which would be directly
infringed by the making, using or selling of an HTI Licensed Product; and
5.2.2 such claims do not cover the combination of such HTI Licensed
Product with other elements or products; then
5.2.3 upon written request from HTI to the IBM Director of Licensing at
any time prior to the later of [**CONFIDENTIAL TREATMENT REQUESTED **] or
sixty (60) days after HTI is notified by IBM that
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<PAGE>
such patent has issued, IBM will add such claims of such patent to Exhibit
A effective as of the effective date of such patent.
Section 6. COMMUNICATIONS
6.1 Any notice or other communication required or permitted to be made or
given to either party hereto pursuant to this PLA shall be sent to such party by
registered airmail (except that registered or certified mail may be used where
delivery is in the same country as mailing), postage prepaid, addressed to it at
its address set forth below, or to such other address as it shall designate by
written notice given to the other party and shall be deemed to have been made or
given on the date of mailing.
The addresses are as follows:
6.1.1 For mailing to IBM,
IBM Director of Licensing
International Business Machines Corporation
500 Columbus Avenue
Thornwood, NY 10594
6.1.2 For HTI,
President
Hutchinson Technology Incorporated
40 West Highland Park
Hutchinson, MN 55350
Section 7. ASSIGNMENTS
7.1 Neither party shall assign, or grant any right under, any of its
patents, or the applications therefor, which qualify as
-17-
<PAGE>
Licensed Patents unless such assignment or grant is made subject to the terms
and conditions of this PLA. Subject to the provisions of Section 3, neither
party shall assign any of its rights or privileges hereunder without the prior
written consent of the other party. Any attempted assignment in derogation of
the foregoing shall be void.
Section 8. KNOW-HOW AND TRADE SECRETS
8.1 No license or other right is granted herein to either party, directly
or by implication, estoppel or otherwise, with respect to any trade secrets or
know-how, except as specifically provided for in the TTDA and no such license or
other right shall arise from the consummation of this PLA or from any acts,
statements or dealings leading to such consummation. In addition, except as
specifically provided herein and under the TTDA and the Prior Confidential
Disclosure Agreements neither party is required hereunder to furnish or disclose
to the other party any technical or other information.
Section 9. APPLICABLE LAW
9.1 This PLA shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the law of the State of
New York, United States of America.
Section 10. MISCELLANEOUS
10.1 Nothing contained in this PLA shall be construed as a
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<PAGE>
warranty or representation by either party as to the validity or scope of any of
its Licensed Patents and either party is free to contest in any proceeding said
validity or scope.
10.2 Nothing contained in this PLA shall be construed as conferring any
right to use in advertising, publicity, or other promotional activities any
name, trade name, trademark, or other designation of either party hereto
(including any contraction, abbreviation or simulation of any of the foregoing);
and each party hereto agrees not to use or refer to this PLA or any provision
thereof in any promotional activity associated with apparatus licensed hereunder
(other than to confirm the existence and general scope of such licenses upon
inquiry by a bona fide customer or potential customer), without the express
written approval of the other party. To the extent that there is any
inconsistency or contradiction in terms between the PLA and the TTDA (other than
Section 9 thereof) on any issue related to patents, the terms and conditions of
the PLA shall govern and to the extent that there is any inconsistency or
contradiction in terms between the PLA and the TTDA on issues related to
confidential information and know-how, the terms and conditions of the TTDA
shall govern.
10.3 Nothing contained in this PLA shall be construed as conferring on
either party any license or other right under the design patents of the other
party.
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<PAGE>
10.4 Nothing contained in this PLA shall be construed as conferring any
rights by implication, estoppel or otherwise, to or under copyrights or mask
work or similar rights, or with respect to Programs under any form of statutory
protection now existing or hereafter enacted, in any country or countries,
wherein the copying of a Program is a requisite of infringement under such form
of protection.
10.5 Nothing contained in this PLA shall be construed as limiting the
rights which the parties have outside the scope of the licenses granted
hereunder, or restricting the right of either party or any of its Subsidiaries
to make, have made, use, lease, sell or otherwise dispose of any particular
product or products not herein licensed.
10.6 Each party shall, upon request from the other party sufficiently
identifying any patent or patent application, inform the other party as to the
extent to which said patent or patent application is subject to the licenses and
rights granted hereunder. If such licenses or rights under said patent or
patent application are restricted in scope, copies of all pertinent provisions
of any contract or other arrangement creating such restrictions shall, upon
request, be furnished to the party making such request, unless such disclosure
is prevented by such contract, and in that event a statement of the nature of
such restriction will be provided.
-20-
<PAGE>
10.7 Neither of the parties hereto, nor any of their respective
Subsidiaries shall be required under this PLA to file any patent application, or
to secure any patent or patent rights, or to maintain any patent in force, or to
provide copies of patent applications to the other party or its Subsidiaries, or
to disclose any inventions described or claimed in such patent applications.
10.8 Neither party shall have any obligation hereunder to institute any
action or suit against third parties for infringement of any of its Licensed
Patents or to defend any action or suit brought by a third party which
challenges or concerns the validity of any of its Licensed Patents. In
addition, neither party shall have any right to institute any action or suit
against third parties for infringement of any of the other party's Licensed
Patents.
10.9 Licensed Products leased, sold or otherwise transferred by a party
hereto or its sublicensed Subsidiary shall be considered to be licensed under
any Licensed Patent which at any time covers such Licensed Products,
notwithstanding that the Licensed Product has been re-leased, re-sold or re-
transferred by any entity in the same or another country.
10.10 Each party shall pay all taxes (including, without limitation, sales
and value added taxes) imposed by the national
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<PAGE>
government, including any political subdivision thereof, of any country in which
said party is doing business, as the result of said party's furnishing
consideration hereunder. In the event such a tax becomes payable as a result of
a party's furnishing consideration in respect of a sublicense granted to any of
its Subsidiaries pursuant to Section 3.1, said sublicensing party shall be
responsible for determining the amount of and paying, or causing said
sublicensed subsidiary to pay, said tax.
10.11 This PLA will not be binding upon the parties until it has been signed
hereinbelow by or on behalf of each party, in which event it shall be effective
as of the date first above written. No amendment or modification hereof shall be
valid or binding upon the parties unless made in writing and signed as
aforesaid. This PLA (together with the TTDA) embodies the entire understanding
of the parties with respect to the subject matter hereof (and thereof) and
merges all prior discussions between them, and neither of the parties shall be
bound by an conditions, definitions, warranties, understandings or
representations with respect to the subject matter hereof (or thereof) other
than as expressly provided herein (or therein).
10.12 If any Section of this PLA is found by competent authority to be
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such Section in every other respect and the
remainder of this PLA
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<PAGE>
shall continue in effect so long as the PLA still expresses the intent of the
parties. If the intent of the parties cannot be preserved, this PLA shall be
either renegotiated or terminated.
10.13 The headings of the several Sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this PLA.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this PLA to be duly
signed as of the date first above written.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
By /s/ M.C.Phelps, Jr.
--------------------------------
Witness: M. C. Phelps, Jr.
Vice President
/s/ Robert A. Myers
- ------------------------------------
HUTCHINSON TECHNOLOGY INC.
Witness: By /s/ Wayne M. Fortun
---------------------------------
/s/ Richard Myers
- -----------------------------------
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<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
STATEMENT REGARDING COMPUTATION
OF NET INCOME (LOSS) PER SHARE - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------- ----------------------------------
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET INCOME $5,988 $2,308 $12,417 $1,771
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER SHARE -
PRIMARY:
Weighted average common
shares outstanding 5,352 5,333 5,341 5,332
Dilutive effect of stock options
outstanding after application
of treasury stock method 140 122 117 115
------------- ------------- ------------- -------------
5,492 5,455 5,458 5,447
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PRIMARY
NET INCOME PER SHARE $1.09 $0.42 $2.28 $0.33
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER SHARE -
FULLY DILUTED:
Weighted average common
shares outstanding 5,352 5,333 5,341 5,332
Dilutive effect of stock options
outstanding after application
of treasury stock method 176 122 175 115
------------- ------------- ------------- -------------
5,528 5,455 5,516 5,447
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
FULLY DILUTED
NET INCOME PER SHARE $1.08 $0.42 $2.25 $0.33
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations of
Hutchinson Technology Incorporated for the thirty-nine weeks ended June 25,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-24-1995
<PERIOD-START> SEP-26-1994
<PERIOD-END> JUN-25-1995
<CASH> 25,891,000
<SECURITIES> 2,167,000
<RECEIVABLES> 44,981,000
<ALLOWANCES> 2,626,000
<INVENTORY> 14,670,000
<CURRENT-ASSETS> 89,544,000
<PP&E> 193,124,000
<DEPRECIATION> 109,656,000
<TOTAL-ASSETS> 178,746,000
<CURRENT-LIABILITIES> 33,488,000
<BONDS> 36,260,000
<COMMON> 107,000
0
0
<OTHER-SE> 107,391,000
<TOTAL-LIABILITY-AND-EQUITY> 178,746,000
<SALES> 213,276,000
<TOTAL-REVENUES> 213,276,000
<CGS> 163,154,000
<TOTAL-COSTS> 163,154,000
<OTHER-EXPENSES> 11,418,000<F1>
<LOSS-PROVISION> 1,994,000
<INTEREST-EXPENSE> 2,009,000
<INCOME-PRETAX> 16,346,000
<INCOME-TAX> 3,929,000
<INCOME-CONTINUING> 12,417,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,417,000
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.25
<FN>
<F1>Other Expenses includes research and development expenses.
</FN>
</TABLE>
