<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HUTCHINSON TECHNOLOGY INCORPORATED
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-0901840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK
HUTCHINSON, MINNESOTA 55350
(320)587-3797
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------------
WAYNE M. FORTUN
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
HUTCHINSON TECHNOLOGY INCORPORATED
40 WEST HIGHLAND PARK
HUTCHINSON, MINNESOTA 55350
(320)587-3797
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
KRIS SHARPE, ESQ. JEFFREY D. SAPER, ESQ.
PEGGY STEIF ABRAM, ESQ. J. ROBERT SUFFOLETTA, ESQ.
Faegre & Benson LLP Wilson Sonsini Goodrich & Rosati,
2200 Norwest Center Professional Corporation
90 South Seventh Street 650 Page Mill Road
Minneapolis, Minnesota 55402 Palo Alto, California 94304
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock........................... 3,881,250 Shares $35.92 $139,414,500 $42,247
</TABLE>
(1) Includes 506,250 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
3,375,000 SHARES
[LOGO]
COMMON STOCK
OF THE 3,375,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,000,000 SHARES ARE
BEING SOLD BY HUTCHINSON TECHNOLOGY INCORPORATED (THE "COMPANY") AND 375,000
SHARES ARE BEING SOLD BY THE SELLING SHAREHOLDERS. THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS. SEE
"PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY'S COMMON STOCK IS TRADED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL HTCH. ON FEBRUARY 3, 1997, THE LAST
REPORTED SALE PRICE OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $35.71
PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
THE COMPANY'S BOARD OF DIRECTORS APPROVED A THREE-FOR-ONE STOCK SPLIT THAT
WILL BE DISTRIBUTED ON FEBRUARY 11, 1997 TO HOLDERS OF RECORD ON JANUARY 31,
1997 (THE "STOCK SPLIT"). SHARE AND PER SHARE DATA IN THIS PROSPECTUS HAVE BEEN
ADJUSTED TO REFLECT THE STOCK SPLIT.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
PER SHARE........... $ $ $ $
TOTAL(3)............ $ $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $450,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
506,250 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO
PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ ,
THE PROCEEDS TO COMPANY WILL TOTAL $ AND THE PROCEEDS TO SELLING
SHAREHOLDERS WILL TOTAL $ . SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1997.
-------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
DAIN BOSWORTH
INCORPORATED
, 1997
<PAGE>
[LOGO]
HUTCHINSON TECHNOLOGY
THE COMPANY ESTIMATES THAT IT PRODUCES APPROXIMATELY 70 PERCENT OF THE WORLDWIDE
SUPPLY OF SUSPENSION ASSEMBLIES FOR ALL SIZES OF DISK DRIVES PRODUCED BY ALL THE
SIGNIFICANT DISK DRIVE MANUFACTURERS.
[Picture of suspension assemblies positioned over hard disks]
SUSPENSIONS IN A DISK DRIVE--
Suspension assemblies hold the recording
heads at microscopic distances above
the spinning magnetic disks in disk drives.
[Picture of conventional suspension assemblies]
CONVENTIONAL SUSPENSIONS--
The Company currently produces over 300 variations of suspension assemblies to
meet the varied and changing requirements of its individual customers.
[Picture of TSA-TM- suspension assemblies]
TSA-TM- SUSPENSIONS--
The Company is currently shipping qualified pre-production TSA-TM- suspensions
that integrate thin electrical conductors which connect directly with the
recording head.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS COULD DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTIONS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION" AND "BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS AND OTHER INFORMATION INCORPORATED BY REFERENCE
HEREIN. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, AND (II) HAS BEEN
ADJUSTED TO REFLECT A THREE-FOR-ONE STOCK SPLIT THAT WILL BE DISTRIBUTED ON
FEBRUARY 11, 1997 TO HOLDERS OF RECORD ON JANUARY 31, 1997 (THE "STOCK SPLIT").
THE COMPANY
Hutchinson Technology Incorporated is the world's leading supplier of
suspension assemblies for hard disk drives. Suspension assemblies are critical
components of hard disk drives that hold the recording heads in position above
the spinning magnetic disks. The Company's suspension assemblies are
manufactured with proprietary technology and processes to uniform and precise
specifications that are critical to maintaining the necessary microscopic
clearance between the head and disk. During the fiscal year ended September 29,
1996, the Company shipped approximately 539 million suspension assemblies. The
Company believes its sales to disk drive and recording head manufacturers
account for approximately 70% of the worldwide supply of suspension assemblies.
The Company is a supplier to nearly all domestic and many foreign-based users of
suspension assemblies, including Applied Magnetics, IBM, Maxtor, Quantum,
Read-Rite, SAE Magnetics/TDK, Seagate Technology, Toshiba, Western Digital and
Yamaha. 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 hard disk drive industry. The Company's current
research and development efforts are principally focused on continuing the
development and prototype production of new high-precision conventional and
TSA-TM- suspension assemblies to meet changing market demands, performance
standards and electrical connectivity requirements. During the next several
years, the Company anticipates increasing acceptance by the disk drive industry
of its TSA-TM- suspensions, which integrate into the suspension thin electrical
conductors that connect directly with the recording head. The Company also is
evaluating product opportunities in the medical devices market but does not
expect any medical-related revenues in fiscal 1997.
The Company was incorporated under the laws of the State of Minnesota in
1965. The Company's principal office is located at 40 West Highland Park,
Hutchinson, Minnesota 55350 and its telephone number is (320) 587-3797.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..... 3,000,000 shares
Common Stock offered by the Selling
Shareholders.......................... 375,000 shares
Common Stock to be outstanding after the
offering.............................. 19,374,495 shares(1)
Use of Proceeds......................... General corporate purposes, primarily for
manufacturing and support equipment and
construction of a new photoetch facility. See "Use
of Proceeds."
Nasdaq National Market Symbol........... HTCH
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED(2)
-------------------- -------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25,
1996 1995 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 106,906 $ 83,332 $ 353,186 $ 299,998 $ 238,794
Income from operations........................... 14,455 3,828 18,203 28,921 7,780
Net income....................................... 11,117 2,862 13,802 21,078 5,880
Net income per common and common equivalent
share.......................................... $ 0.66 $ 0.17 $ 0.82 $ 1.28 $ 0.36
Weighted average common and common equivalent
shares outstanding............................. 16,887 16,869 16,806 16,479 16,338
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29, 1996
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................................................... $ 92,743 $ 194,495
Total assets......................................................... 289,532 391,284
Long-term debt....................................................... 76,845 76,845
Total shareholders' investment....................................... 145,037 246,789
</TABLE>
- ------------------------
(1) Based upon the number of shares outstanding as of December 29, 1996.
Excludes 2,037,126 shares issuable upon exercise of options outstanding
under the Company's employee benefit plans as of December 29, 1996. See Note
5 of Notes to Consolidated Financial Statements.
(2) The Company operates on a 52 or 53 week fiscal year ending on the last
Sunday in September in each year. Fiscal 1996 contained 53 weeks and fiscal
1995 and 1994 contained 52 weeks.
(3) Adjusted to give effect to the issuance and sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering
price of $35.71 per share and the anticipated application of the estimated
net proceeds therefrom. See "Use of Proceeds."
4
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE CONCERNING THE COMPANY AND ITS BUSINESS, BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY--THE
COMPANY," "RISK FACTORS," "USE OF PROCEEDS," "DIVIDEND POLICY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION--OVERVIEW," "--LIQUIDITY AND CAPITAL RESOURCES" AND THE INTRODUCTION
TO "BUSINESS," "BUSINESS--INDUSTRY BACKGROUND," "--STRATEGY," "--PRODUCTS,"
"--MANUFACTURING," "--RESEARCH AND DEVELOPMENT," "--CUSTOMERS AND MARKETING,"
"--COMPETITION," "--INTELLECTUAL PROPERTIES," "--LEGAL PROCEEDINGS" AND
"--EMPLOYEES," AS WELL AS IN THE PROSPECTUS GENERALLY, INCLUDING THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS PROSPECTUS. THESE FORWARD-LOOKING STATEMENTS ARE MADE AS OF
THE DATE OF THIS PROSPECTUS AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS, OR TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.
FLUCTUATIONS IN OPERATING RESULTS
The Company's historical operating results have been and the Company expects
that its future quarterly and annual operating results will continue to be
subject to variations based upon a wide variety of factors, including: the
cyclical nature of the hard disk drive industry and the associated changes in
demand; the ability to develop and implement new manufacturing process
technologies; the ability to introduce new products and to achieve
cost-effective and timely high volume production; changes in product mix and
average selling prices; the availability and efficient utilization of the
Company's production capacity; manufacturing yields; prolonged disruptions of
operations at any of the Company's facilities for any reason; changes in the
cost of or limitations on availability of materials and labor; and increases in
production and engineering costs associated with initial production of new
suspension assembly products.
The Company typically allows its customers to change or cancel orders
without penalty up until approximately two weeks before scheduled production. In
the event that a major customer reduces, delays or cancels its orders, the
Company's results of operations could be materially adversely affected. Due to
the absence of substantial noncancellable backlog, the Company plans its
production and inventory based on forecasts of customer demand which often
fluctuate substantially. These factors, among others, create an environment
where demand can vary significantly from week to week. In the fourth quarter of
fiscal 1996, the Company experienced a sharp drop in net income compared to the
preceding quarter due to reduced demand for certain of its products.
The selling prices for the Company's products are subject to pricing
pressure from its customers, market pressure from its competitors, pricing
strategies of the Company and product life cycle influences. A typical life
cycle for the Company's products begins with higher pricing in the introduction
stage, decreasing prices during maturity and slightly increasing pricing during
phase-out. Selling prices also are affected by overall demand, product mix and
product development and introduction.
DEPENDENCE ON HARD DISK DRIVE INDUSTRY
Virtually all of the Company's sales are dependent on the hard disk drive
industry. Sales of suspension assemblies accounted for 99%, 98%, 97% and 97% of
net sales, respectively, for the thirteen weeks ended December 29, 1996 and for
fiscal 1996, 1995 and 1994. The hard disk drive industry is characterized by
intense competition, rapid technological change and significant fluctuations in
product demand. The hard
5
<PAGE>
disk drive industry is also highly cyclical and has experienced periods of
increased demand and rapid growth followed by periods of oversupply and
subsequent contraction. The impact of cyclical trends on suppliers to this
industry has been compounded by the tendency of hard disk drive manufacturers to
order components in excess of their needs during growth periods, followed by
sharp reductions in demand for components during periods of contraction. The
Company's results of operations have been adversely affected from time to time
during hard disk drive industry slowdowns and could be materially adversely
affected in the event of significant slowdowns in the industry in the future.
CUSTOMER CONCENTRATION
While the Company is a supplier to nearly all domestic and many
foreign-based manufacturers of hard disk drives and recording heads used in hard
disk drives, the Company's sales have remained concentrated within a small
customer base. Sales to the Company's five largest customers constituted 86% and
87% of net sales, respectively, for the thirteen weeks ended December 29, 1996
and for fiscal 1996. See "Business--Customers and Marketing." Over the years,
the disk drive industry has experienced numerous consolidations. This has
resulted in fewer, but larger, customers for the Company's products. The loss of
one or more of the Company's major customers for any reason could have a
material adverse effect on the Company's results of operations.
CAPITAL EXPANSION AND MANAGEMENT OF GROWTH
The Company's business is highly capital intensive. The Company has made a
substantial investment in sophisticated manufacturing technologies and automated
production equipment and anticipates continued substantial capital expenditures
in the future. In an effort to enable the Company's business to grow with the
market, the Company has at times invested in additional capacity and
infrastructure to support anticipated market demand. Anticipated demand,
however, has not always materialized as rapidly as expected, which has resulted
in periodic underutilization of resources and decreased profitability. If the
Company is unable in the future to fund its capital expenditures from internally
generated funds or from other sources, its results of operations could be
materially adversely affected. See "Use of Proceeds," "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Liquidity and
Capital Resources," "Business--Manufacturing" and "--Facilities."
The Company has recently been operating at a high level of production.
Growth in the Company's net sales depends, in part, on the successful expansion
by the Company of its manufacturing capacity, manufacturing workforce and
corporate infrastructure. The Company currently anticipates spending
approximately $100 million during fiscal 1997 for expansion of production
capacity, primarily for manufacturing and support equipment and construction of
the Company's Eau Claire, Wisconsin photoetch facility. The Company continues to
make substantial investments in its corporate infrastructure to support growth,
including investments in equipment and facilities, research and development,
selling, general and administrative support and manufacturing support. These
expansion plans involve a number of risks. The Company faces the task of
identifying, recruiting, training and integrating a large number of new
employees quickly enough to keep pace with its growth. The Company's growth also
may strain the Company's management, manufacturing, information systems,
financial and other resources. Any failure to expand these areas in an efficient
manner could have a material adverse effect on the Company. The Company has
significantly increased its operations to support increased revenues, including
the hiring of additional personnel, and has made and expects to continue to make
substantial investments in research, development and engineering and in sales
and marketing to support product development. There can be no assurance that the
Company will be able to achieve a rate of growth or level of sales in any future
period commensurate with its level of expenses.
6
<PAGE>
MANUFACTURING RISKS
The Company manufactures a wide variety of suspension assemblies having
different selling prices and manufacturing costs. The product mix varies from
week to week as market demand changes. Any substantial variation in product mix
can lead to changes in utilization of equipment and tooling, inventory
obsolescence and overstaffing in certain areas, all of which may adversely
impact Company profitability.
Rapid technological change within the disk drive industry has led to
numerous suspension assembly design changes and tighter performance
specifications. The resulting suspension assemblies initially are more difficult
to manufacture and can require additional capital expenditures and increased
development and support expenses. Manufacturing yields and efficiencies also
vary from product to product. Newer products typically have lower initial
manufacturing yields and efficiencies. As the Company grows, production of
certain suspension assemblies may need to be transferred from one manufacturing
site to another. At times, this transfer has lowered initial yields and/or
manufacturing efficiencies, resulting in higher manufacturing costs.
The Company's manufacturing facilities are located in Minnesota, South
Dakota and Wisconsin, all of which can experience severe weather. Severe weather
has at times resulted in lower production and decreased Company profitability.
The Company's ability to conduct business would be impaired if its work
force were to be unionized or if a significant number of its specialized
employees were to leave and could not be replaced by comparable personnel. The
locations of the Company's facilities and the broad span and technological
complexity of the Company's products and processes limit the number of
satisfactory engineering and other candidates for key positions.
PRODUCT DEVELOPMENT AND INTRODUCTION
The Company's continued success depends upon its ability to develop and
rapidly bring to volume production new product platforms or suspension
assemblies having increasingly higher performance specifications. A number of
risks are inherent in this process. Increasingly higher or tighter performance
specifications, as well as transitions to new product platforms, initially can
have the effect of lowering the Company's overall yields and manufacturing
efficiencies. This in turn can cause product shipments to be delayed or missed.
Higher manufacturing costs also may be incurred. Manufacturing processes may
need to be changed, new processes developed and equipment replaced, modified or
designed, built and installed, thus requiring additional capital. Increased
research and development and engineering expenses also may be required to
support technological advances and the introduction and manufacture of new
product platforms.
The Company has invested a substantial amount of financial, management,
engineering and manufacturing resources in the development of its new TSA-TM-
suspension assemblies. If the commercial acceptance and/or production of the
Company's TSA-TM- suspension assemblies were delayed for any reason or if
TSA-TM- suspension assemblies cannot be produced profitably in the quantities
and to the specifications required by customers, the Company's results of
operations could be materially adversely affected. In addition, there can be no
assurance that the Company's TSA-TM- suspensions will gain market acceptance in
lieu of alternative interconnection technologies such as conventional wiring,
deposition circuitry and flexible circuitry. See "Business--Competition." In the
event that the Company were to fail to introduce successfully new products on a
regular and timely basis, demand for the Company's existing products could
decline, which could have a material adverse effect on the Company's results of
operations. See "Business--Products."
If a competitor were to introduce a new suspension assembly design to which
the Company could not effectively respond, and such a new design gained wide
acceptance by the disk drive industry, the Company's results of operations could
be materially adversely affected.
7
<PAGE>
INTELLECTUAL PROPERTIES
Although the Company attempts to protect its intellectual property rights
through patents, copy-rights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
The Company believes that although the patents it holds and may obtain will be
of value, they will not independently determine the Company's success. Moreover,
patents may not be issued with respect to the Company's pending patent
applications, and its issued patents may not be sufficiently broad to protect
the Company's technology. There can be no assurance that any patent issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide adequate protection to the Company's
technology. In addition, the Company has only limited patent rights outside the
United States, and the laws of certain foreign countries may not protect the
Company's intellectual property rights to the same extent as do the laws of the
United States.
The Company 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 manufacturing equipment or products or to products
which include the Company's products as a component. Although the Company to
date 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 that 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 results of operations could be adversely affected.
The Company expects that, as the number of patents issued continues to increase,
and as the Company grows, the volume of intellectual property claims could
increase. See "Business--Intellectual Properties."
AVAILABILITY OF CERTAIN MATERIALS
Certain types of photoresist, a liquid compound used in the photoetching
process, and the stainless steel, copper and polyamide materials that meet the
Company's strict specifications, are each currently available from only one
supplier. If for any reason the Company were unable to continue to obtain these
materials in the necessary quantities and at reasonable prices, the Company's
results of operations would be adversely affected. See
"Business--Manufacturing."
VOLATILITY OF STOCK PRICE
The Company's stock price, like that of other companies in the disk drive
industry, is subject to significant volatility. If revenues or earnings in any
quarter fail to meet the investment community's expectations for any reason,
there could be an immediate adverse impact on the Company's stock price. The
stock price also may be affected by broader market trends unrelated to the
Company's performance. Such volatility may limit the Company's ability in the
future to raise additional capital.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
3,000,000 shares of Common Stock offered by it hereby are estimated to be $101.8
million ($119.0 million if the Underwriters over-allotment option is exercised
in full), based on an assumed public offering price of $35.71 per share and
after deducting the underwriting discount and estimated offering expenses. The
Company intends to use the net proceeds from the sale of the shares offered
hereby for general corporate purposes, primarily for manufacturing and support
equipment and construction of the Company's photoetch facility at the Eau
Claire, Wisconsin site. The Company anticipates fiscal 1997 expenditures of
approximately $75 million for such equipment and approximately $25 million for
the photoetch facility. Pending such uses, the Company expects to invest the net
proceeds from the offering in short-term income-producing investments. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources," "Business--Manufacturing" and
"--Facilities."
The Company will not receive any of the proceeds from the sale of shares by
the Selling Shareholders.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future. Certain of
the Company's financing agreements contain restrictive covenants which, among
other things, impose limitations on the payment of dividends. See Note 2 of
Notes to Consolidated Financial Statements.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company trades on the Nasdaq National Market under
the symbol HTCH. The following table sets forth for the periods indicated the
range of high and low closing sale prices of the Common Stock as reported on the
Nasdaq National Market, which prices reflect the Stock Split.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
Quarter ended December 25, 1994........................... $ 9.58 $ 7.67
Quarter ended March 26, 1995.............................. 10.58 8.08
Quarter ended June 25, 1995............................... 14.67 9.50
Quarter ended September 24, 1995.......................... 29.67 14.08
FISCAL 1996
Quarter ended December 24, 1995........................... 21.83 15.17
Quarter ended March 24, 1996.............................. 17.16 12.17
Quarter ended June 23, 1996............................... 19.46 12.75
Quarter ended September 29, 1996.......................... 14.38 10.25
FISCAL 1997
Quarter ended December 29, 1996........................... 26.79 12.75
Quarter ending March 30, 1997 (through February 3,
1997)................................................... 38.38 25.33
</TABLE>
On February 3, 1997 the last reported sale price of the Common Stock on the
Nasdaq National Market was $35.71 per share. As of February 3, 1997, there were
658 holders of record of the Company's Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 29, 1996 and as adjusted to reflect the sale of 3,000,000 shares of
Common Stock by the Company at an assumed public offering price of $35.71 per
share, after deducting the underwriting discount and estimated offering
expenses, and the application of the proceeds therefrom. This table should be
read in conjunction with the Consolidated Financial Statements of the Company,
including the related notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 29, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt................................................. $ 76,845 $ 76,845
--------- -----------
Shareholders' investment:
Common Stock, $.01 par value; 45,000,000 shares authorized;
16,374,495 shares issued and outstanding, actual; and
19,374,495 shares issued and outstanding, as adjusted(1)... 164 194
Additional paid-in capital................................... 43,579 145,301
Retained earnings............................................ 101,294 101,294
--------- -----------
Total shareholders' investment............................. 145,037 246,789
--------- -----------
Total capitalization..................................... $ 221,882 $ 323,634
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes 2,037,126 shares issuable upon exercise of options outstanding
under the Company's employee benefit plans as of December 29, 1996.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of September 29, 1996,
September 24, 1995, September 25, 1994, September 26, 1993 and September 27,
1992, and for the fiscal years then ended, has been derived from the Company's
Consolidated Financial Statements which have been audited by Arthur Andersen
LLP. The information as of December 29, 1996 and December 24, 1995, and for the
thirteen weeks then ended, is unaudited. However, in the opinion of management
of the Company, such unaudited financial data includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's results of operations for the periods then ended and the Company's
financial position as of such dates. Operating results for the thirteen weeks
ended December 29, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year. The selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements,
related notes and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED(1)
-------------------- ---------------------------------------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25, SEPT. 26, SEPT. 27,
1996 1995 1996 1995 1994 1993 1992
--------- --------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................... $ 106,906 $ 83,332 $ 353,186 $ 299,998 $ 238,794 $ 198,734 $ 160,340
Cost of sales................................ 75,794 61,888 273,616 226,235 199,548 154,311 120,079
--------- --------- ----------- ----------- ----------- ----------- -----------
Gross profit............................... 31,112 21,444 79,570 73,763 39,246 44,423 40,261
Research and development expenses............ 5,739 9,053 27,651 15,041 8,626 9,846 5,770
Selling, general and administrative
expenses................................... 10,918 8,563 33,716 29,801 22,840 24,616 20,910
--------- --------- ----------- ----------- ----------- ----------- -----------
Income from operations..................... 14,455 3,828 18,203 28,921 7,780 9,961 13,581
Other income................................. 306 321 1,158 1,462 1,171 1,403 1,465
Interest expense............................. (858) (480) (2,108) (2,636) (995) (254) (1,216)
--------- --------- ----------- ----------- ----------- ----------- -----------
Income before income taxes................. 13,903 3,669 17,253 27,747 7,956 11,110 13,830
Provision for income taxes................... 2,786 807 3,451 6,669 2,076 2,556 981
--------- --------- ----------- ----------- ----------- ----------- -----------
Net income................................. $ 11,117 $ 2,862 $ 13,802 $ 21,078 $ 5,880 $ 8,554 $ 12,849
--------- --------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- -----------
Net income per common and common equivalent
share...................................... $ 0.66 $ 0.17 $ 0.82 $ 1.28 $ 0.36 $ 0.53 $ 0.91
--------- --------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- -----------
Weighted average common and common equivalent
shares outstanding......................... 16,887 16,869 16,806 16,479 16,338 16,227 14,163
</TABLE>
<TABLE>
<CAPTION>
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25, SEPT. 26, SEPT. 27,
1996 1995 1996 1995 1994 1993 1992
--------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................. $ 92,743 $ 51,395 $ 62,102 $ 54,284 $ 51,996 $ 26,238 $ 49,018
Total assets................................. 289,532 205,531 238,983 190,898 151,148 116,639 109,126
Current liabilities.......................... 62,117 44,298 46,563 36,208 18,829 17,870 18,287
Long-term debt............................... 76,845 32,105 53,185 33,445 37,700 10,080 12,995
Total shareholders' investment............... 145,037 122,628 133,684 119,745 94,619 88,689 77,025
</TABLE>
- ------------------------------
(1) The Company operates on a 52 or 53 week fiscal year ending on the last
Sunday in September in each year. Fiscal 1996 contained 53 weeks and fiscal
1995, 1994, 1993 and 1992 contained 52 weeks.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ABOVE IN
"RISK FACTORS," AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company derives virtually all of its revenue from the sale of suspension
assemblies to a small number of customers. Suspension assemblies are a critical
component of hard disk drives and the Company's results of operations are highly
dependent on the hard disk drive industry. The hard disk drive industry is
intensely competitive and highly cyclical and the Company's results of
operations have been adversely affected from time to time during hard drive
industry slowdowns.
The Company's gross margins have fluctuated and will continue to fluctuate
quarterly and annually based upon a variety of factors such as the level of
utilization of the Company's production capacity, changes in demand, product
mix, average selling prices and manufacturing yields, increases in production
and engineering costs associated with initial production of new products and
changes in the cost of or limitations on availability of materials. The
Company's ability to introduce new products on a timely basis is an important
factor in its continued success. New products initially have lower manufacturing
yields and are produced in lower quantities than more mature products.
Manufacturing yields generally improve as the product matures and production
volumes increase. Manufacturing yields also vary depending on the complexity and
uniqueness of product specifications. Because the Company's business is capital
intensive and requires a high level of fixed costs, gross margins are also
extremely sensitive to changes in volume. Assuming fixed product prices, small
variations in capacity utilization or manufacturing yields generally have a
significant impact on gross margins. The Company typically allows its customers
to change or cancel orders without penalty up until approximately two weeks
before scheduled production. Due to the absence of substantial noncancellable
backlog, the Company plans its production and inventory based on forecasts of
customer demands, which often fluctuate substantially. These factors, among
others, create an environment where demand can vary significantly from week to
week.
The Company has recently been operating at a high level of production and is
currently expanding its operations at its Eau Claire, Wisconsin facility. Growth
in the Company's net sales depends, in part, on the successful expansion by the
Company of its manufacturing capacity, manufacturing workforce and corporate
infrastructure. If the Company is not able to complete its current expansion
plans in a timely manner and within acceptable budgets, its quarterly and annual
results of operations will be materially and adversely affected.
The Company expends significant resources on research and development in an
effort to anticipate and respond to changing technologies, performance standards
and electrical connectivity required for hard disk drives. The Company's current
research and development efforts are principally directed to high-precision
conventional and TSA-TM- suspension assemblies. In fiscal 1995, the Company
entered into a Technology Transfer and Development Agreement (the "Technology
Sharing Agreement") and a Patent License Agreement with IBM related to the
Company's TSA-TM- suspension development efforts. As of December 29, 1996, the
Company had made payments totalling $1,500,000 to IBM and will make additional
payments over the next three fiscal years totalling $6,500,000, all of which
have been expensed and a related liability has been recorded by the Company.
Certain royalties have been paid and may be payable in the future by the Company
to IBM under the Technology Sharing Agreement. See "Business-- Research and
Development."
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the Company's consolidated statements of
operations as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25,
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100% 100% 100% 100% 100%
Cost of sales..................................... 71 74 77 75 84
--- --- --- --- ---
Gross profit.................................... 29 26 23 25 16
Research and development expenses................. 5 11 8 5 4
Selling, general and administrative expenses...... 10 10 10 10 9
--- --- --- --- ---
Income from operations.......................... 14 5 5 10 3
Other income...................................... -- -- -- -- --
Interest expense.................................. (1) (1) -- (1) --
--- --- --- --- ---
Income before income taxes...................... 13 4 5 9 3
Provision for income taxes........................ 3 1 1 2 1
--- --- --- --- ---
Net income...................................... 10% 3% 4% 7% 2%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
COMPARISON OF QUARTERS ENDED DECEMBER 29, 1996 AND DECEMBER 24, 1995
Net sales for the thirteen weeks ended December 29, 1996 were $106,906,000,
an increase of $23,574,000 or 28% compared to the comparable period in fiscal
1996. This increase was attributable primarily to increased suspension assembly
volume.
Gross profit for the thirteen weeks ended December 29, 1996 was $31,112,000,
an increase of $9,668,000 or 45% compared to the comparable period in fiscal
1996, and gross profit as a percent of net sales increased from 26% to 29%,
primarily due to higher sales volume and improved manufacturing efficiencies.
Research and development expenses for the thirteen weeks ended December 29,
1996 were $5,739,000 compared to $9,053,000 for the thirteen weeks ended
December 24, 1995. The expenses for the first quarter of fiscal 1996 included a
$5,500,000 charge related to the Technology Sharing Agreement with IBM.
Excluding the charge, research and development expenses for the fiscal 1997
period increased mainly due to increased development efforts on TSA-TM-
suspensions.
Selling, general and administrative expenses for the thirteen weeks ended
December 29, 1996 were $10,918,000, an increase of $2,355,000 or 28% compared to
the comparable period in fiscal 1996. The increased expenses were due primarily
to a $1,451,000 increase in labor expenses and increased profit sharing expenses
of $1,136,000. As a percent of net sales, selling, general and administrative
expenses remained at 10%.
Interest expense for the thirteen weeks ended December 29, 1996 increased
$378,000 from the comparable period in fiscal 1996, primarily due to higher
average outstanding debt.
The income tax provision for the thirteen weeks ended December 29, 1996 was
based on an estimated effective tax rate for the fiscal year of 20% which was
below the statutory federal rate primarily due to the large portion of sales
that qualifies for the benefit of the Company's Foreign Sales Corporation.
Net income for the thirteen weeks ended December 29, 1996 was $11,117,000,
an increase of $8,255,000 compared to the comparable period in fiscal 1996. As a
percent of net sales, net income
13
<PAGE>
increased from 3% to 10% primarily due to the higher sales volume, improved
manufacturing efficiencies and decreased research and development expenses,
noted above.
COMPARISON OF FISCAL YEARS 1996 AND 1995
Net sales for 1996 were $353,186,000, an increase of $53,188,000 or 18%
compared to 1995. This increase was attributable primarily to the Company
shipping approximately 36% more suspension assemblies during 1996 than 1995,
partially offset by a lower average selling price due to selling higher volumes
of lower-priced suspensions.
Gross profit for 1996 was $79,570,000, an increase of $5,807,000 or 8%
compared to 1995, and gross profit as a percent of net sales decreased from 25%
to 23%. In addition to the sales volumes of lower-priced suspensions noted
above, the decrease in gross profit as a percent of net sales was also due to
reduced shipments during the fourth quarter resulting in an increase in fixed
costs as a percent of sales.
Research and development expenses for 1996 were $27,651,000, an increase of
$12,610,000 or 84% compared to 1995. The majority of the higher expenses were
due to increased TSA-TM- suspensions development efforts of approximately
$7,100,000 and a charge of $5,500,000 related to the Technology Sharing
Agreement with IBM, compared to a $2,500,000 charge for the Technology Sharing
Agreement during 1995.
Selling, general and administrative expenses for 1996 were $33,716,000, an
increase of $3,915,000 or 13% compared to 1995. The increased expenses were due
primarily to an increase in recruitment and relocation expenses of $1,722,000,
mainly related to the start-up of the Eau Claire assembly manufacturing
facility, increases in professional services of $1,418,000 and labor of
$1,141,000, partially offset by reduced profit sharing expenses of $1,167,000.
As a percent of net sales, selling, general and administrative expenses remained
at 10%.
The income tax provision for 1996 was based on an effective tax rate for the
year of 20% which was below the statutory federal rate primarily due to the
large portion of sales that qualifies for the benefit of the Company's Foreign
Sales Corporation.
Net income for 1996 was $13,802,000, a decrease of $7,276,000 compared to
1995. As a percent of net sales, net income decreased from 7% to 4% primarily
due to lower gross profit margins, noted above, and increased research and
development efforts.
COMPARISON OF FISCAL YEARS 1995 AND 1994
Net sales for 1995 were $299,998,000, an increase of $61,204,000 or 26%
compared to 1994. This increase was primarily attributable to the Company
shipping approximately 31% more suspension assemblies during 1995 than 1994.
Gross profit for 1995 was $73,763,000, an increase of $34,517,000 or 88%
compared to 1994, and gross profit as a percent of net sales increased from 16%
to 25%. 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, as 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 1995 were $15,041,000, an
increase of $6,415,000 or 74% compared to 1994. The higher expenses were
primarily due to a charge of $2,500,000 related to the Technology Sharing
Agreement with IBM and increased labor expenses of $1,841,000.
Selling, general and administrative expenses for 1995 were $29,801,000, an
increase of $6,961,000 or 30% compared to 1994. The increased expenses were
primarily due to additional profit sharing expenses of
14
<PAGE>
$2,198,000 and increased labor expenses of $2,197,000. As a percent of net
sales, selling, general and administrative expenses increased from 9% to 10%.
Other income for 1995 was $1,462,000, an increase of $291,000 or 25%
compared to 1994. The increase was primarily a result of a $1,324,000 increase
in interest income as a result of a higher average investment balance offset
partially by a $825,000 decrease in income derived from licensing agreements.
Interest expense for 1995 was $2,636,000, an increase of $1,641,000 as a
result of higher outstanding debt and lower capitalization of interest.
The income tax provision for 1995 was based on an effective tax rate for the
year of 24% which was below the statutory federal rate primarily due to the
large portion of sales that qualifies for the benefit of the Company's Foreign
Sales Corporation.
Net income for 1995 was $21,078,000, an increase of $15,198,000 compared to
1994. The increase was primarily due to improving manufacturing efficiencies and
higher sales volume, as noted above.
15
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated quarterly financial
data for the periods indicated. This data is derived from unaudited consolidated
financial statements and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial results for such periods. Results of operations for any previous
fiscal quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED(1)
-----------------------------------------------------
DEC. 29, SEPT. 29, JUNE 23, MAR. 24, DEC. 24
1996 1996 1996 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 106,906 $ 91,890 $ 91,418 $ 86,546 $ 83,332
Cost of sales................................. 75,794 73,429 69,632 68,667 61,888
--------- --------- --------- --------- ---------
Gross profit................................ 31,112 18,461 21,786 17,879 21,444
Research and development expenses............. 5,739 8,609 6,239 3,750 9,053
Selling, general and administrative
expenses.................................... 10,918 7,947 8,669 8,537 8,563
--------- --------- --------- --------- ---------
Income from operations...................... 14,455 1,905 6,878 5,592 3,828
Other income.................................. 306 202 267 368 321
Interest expense.............................. (858) (739) (482) (407) (480)
--------- --------- --------- --------- ---------
Income before income taxes.................. 13,903 1,368 6,663 5,553 3,669
Provision (benefit) for income taxes.......... 2,786 (41) 1,464 1,221 807
--------- --------- --------- --------- ---------
Net income.................................. $ 11,117 $ 1,409 $ 5,199 $ 4,332 $ 2,862
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common and common equivalent
share....................................... $ 0.66 $ 0.08 $ 0.31 $ 0.26 $ 0.17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and common equivalent
shares outstanding.......................... 16,887 16,746 16,818 16,788 16,869
AS A PERCENTAGE OF NET SALES:
Net sales..................................... 100% 100% 100% 100% 100%
Cost of sales................................. 71 80 76 79 74
--------- --------- --------- --------- ---------
Gross profit................................ 29 20 24 21 26
Research and development expenses............. 5 9 7 4 11
Selling, general and administrative
expenses.................................... 10 9 9 10 10
--------- --------- --------- --------- ---------
Income from operations...................... 14 2 8 6 5
Other income.................................. -- -- -- -- --
Interest expense.............................. (1) -- (1) -- (1)
--------- --------- --------- --------- ---------
Income before income taxes.................. 13 2 7 6 4
Provision (benefit) for income taxes.......... 3 -- 1 1 1
--------- --------- --------- --------- ---------
Net income.................................. 10% 2% 6% 5% 3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The fiscal quarter ended September 29, 1996 contained 14 weeks. The fiscal
quarters ended December 29, 1996, June 23, 1996, March 24, 1996 and December
24, 1995 contained 13 weeks.
16
<PAGE>
The increase in net sales from the quarter ended September 29, 1996 to the
quarter ended December 29, 1996 was due to stronger orders for the Company's
suspension assemblies. Over these two periods, gross margins also increased from
20% to 29% due to improved capacity utilization, substantially improved yields
and operating efficiencies. Due to the Company's relatively high level of fixed
costs, gross margins are extremely sensitive to changes in volume. Net sales
were relatively flat in the quarter ended September 29, 1996 compared to the
quarter ended June 23, 1996. Over these two periods, net income declined from
$5,199,000 to $1,409,000 due to the combined effect of reduced demand, increased
overhead resulting from additions to manufacturing capacity and increased costs
related to development of the Company's TSA-TM- suspension assemblies. The
Company's research and development expenses for the quarter ended September 29,
1996 increased due to development efforts on TSA-TM- suspensions, and the
quarter ended December 24, 1995 included the recognition of a $5,500,000 expense
for the Technology Sharing Agreement with IBM.
The Company's historical operating results have been and the Company expects
that its future quarterly and annual operating results will continue to be
subject to variations based upon a wide variety of factors, including: the
cyclical nature of the hard disk drive industry and the associated changes in
demand; the ability to develop and implement new manufacturing process
technologies; the ability to introduce new products and to achieve
cost-effective and timely high volume production; changes in product mix and
average selling prices; the availability and efficient utilization of the
Company's production capacity; manufacturing yields; prolonged disruptions of
operations at any of the Company's facilities for any reason; changes in the
cost of or limitations on availability of materials and labor; and increases in
production and engineering costs associated with initial production of new
suspension assembly products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flow from operations,
cash balances and additional financing capacity. The Company's cash and cash
equivalents increased to $54,482,000 at December 29, 1996 compared to
$22,884,000 at September 29, 1996 and $30,479,000 at September 24, 1995. The
Company generated cash from operating activities of $22,302,000 for the thirteen
weeks ended December 29, 1996 compared to $39,904,000 in fiscal 1996,
$57,814,000 in fiscal 1995 and $11,967,000 in fiscal 1994.
Cash used for capital expenditures totaled $8,491,000 for the thirteen weeks
ended December 29, 1996, a decrease of $6,103,000 from the comparable period in
fiscal 1996, and was $77,065,000 in fiscal 1996, $44,472,000 in fiscal 1995 and
$29,540,000 in fiscal 1994. The expenditures for the first quarter of fiscal
1997 were primarily for manufacturing and support equipment and construction
costs of a photoetch facility at the Company's Eau Claire site. The expenditures
in fiscal 1996 were primarily for manufacturing and support equipment, the
completion of an assembly manufacturing facility and initial construction costs
of the Eau Claire photoetch facility. The Company anticipates, but is not
contractually committed to, fiscal 1997 expenditures of approximately
$100,000,000 primarily for manufacturing and support equipment and construction
of the Company's Eau Claire photoetch facility. Financing of these capital
expenditures will be principally from cash generated from operations, cash and
cash equivalents and the proceeds of this offering.
The Company established a $25,000,000 unsecured credit facility with The
First National Bank of Chicago during the first quarter of fiscal 1996. At
December 29, 1996, the Company had a letter of credit under this facility of
$1,625,000 as security for its variable rate demand note with the City of
Hutchinson. During the second quarter of fiscal 1996, the Company obtained
$15,300,000 from a sale/leaseback transaction of its Eau Claire, Wisconsin
suspension assembly manufacturing building, with a term of 15 years.
17
<PAGE>
During the fourth quarter of fiscal 1996, the Company completed a
$50,000,000 private debt placement, of which $25,000,000 was issued in July 1996
as senior unsecured notes having a fixed rate of 7.85%, annual principal
payments of $8,333,000 beginning on July 26, 2001 and maturing in July 2003. The
Company issued the remaining $25,000,000 during the first quarter of fiscal 1997
as a senior unsecured note having a fixed rate of 8.07%, annual principal
payments of $4,167,000 beginning on November 26, 2001 and maturing in November
2006. The Company's maturities of long-term debt for the five years subsequent
to September 29, 1996 are $5,760,000, $5,340,000, $4,620,000, $4,000,000 and
$12,333,000, respectively. The Company's financing agreements contain various
restrictive covenants. As of December 29, 1996, the Company was in compliance
with all such covenants.
During the first quarter of fiscal 1997, the Company signed a Master Lease
Agreement for up to $25,000,000 with General Electric Capital Corporation. The
agreement provides for leasing of various manufacturing equipment in fiscal 1997
for a noncancellable term of four years with various alternatives at the end of
the lease term.
The Company believes that the net proceeds from this offering, and cash
generated from operations, cash and cash equivalents, existing lending
facilities and available financing capacity, will provide adequate liquidity to
meet the Company's planned capital and operating requirements for at least the
twelve-month period following this offering. If the Company's spending plans
change, the Company may find it necessary to seek to obtain additional sources
of financing to support its capital needs, but there can be no assurance that
such financing will be available on commercially reasonable terms, if at all.
18
<PAGE>
BUSINESS
Hutchinson Technology Incorporated is the world's leading supplier of
suspension assemblies for hard disk drives. Suspension assemblies are critical
components of hard disk drives that hold the recording heads in position above
the spinning magnetic disks. The Company's suspension assemblies are
manufactured with proprietary technology and processes to uniform and precise
specifications that are critical to maintaining the necessary microscopic
clearance between the head and disk. During the fiscal year ended September 29,
1996, the Company shipped approximately 539 million suspension assemblies. The
Company believes its sales to disk drive and recording head manufacturers
account for approximately 70% of the worldwide supply of suspension assemblies.
The Company is a supplier to nearly all domestic and many foreign-based users of
suspension assemblies, including Applied Magnetics, IBM, Maxtor, Quantum,
Read-Rite, SAE Magnetics/TDK, Seagate Technology, Toshiba, Western Digital and
Yamaha. 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 hard disk drive industry. The Company's current
research and development efforts are principally focused on continuing the
development and prototype production of new high-precision conventional and
TSA-TM- suspension assemblies to meet changing market demands, performance
standards and electrical connectivity requirements. During the next several
years, the Company anticipates increasing acceptance by the disk drive industry
of its TSA-TM- suspensions, which integrate into the suspension thin electrical
conductors that connect directly with the recording head. The Company also is
evaluating product opportunities in the medical devices market but does not
expect any medical-related revenues in fiscal 1997.
INDUSTRY BACKGROUND
The market for disk drives has grown rapidly in recent years, driven by such
factors as the growing use of desktop PCs, workstations, portable computers and
network servers, the increasing amount of memory required for software program
storage and the continuing accumulation of data. Additionally, the increasing
use of disk drives for non-computer applications such as voice mail and video
data, the expansion of storage-intensive data warehousing, Internet and intranet
applications, and the simultaneous use of multiple small disk drives, such as
systems using Redundant Arrays of Inexpensive Disks ("RAID"), have contributed
to the rapid growth of the disk drive industry. International Data Corporation
("IDC") estimates that approximately 109 million hard disk drives were shipped
in 1996, up approximately 20% from those shipped in 1995, and projects an
increase of approximately 23% for 1997. According to IDC, shipments of hard disk
drives increased by an average of approximately 29% per year during the five
years ended December 31, 1996.
Hard disk drives incorporate the same basic technology. The principal
components of a hard disk drive are recording disk media, a motor assembly, the
control electronics and a head stack assembly. A head stack assembly consists of
multiple magnetic recording heads attached by suspension assemblies to the
actuator arm. Each disk drive contains one or more (up to thirteen) hard disks
attached to a motor assembly which rotates the disks at high speeds in extremely
close proximity to the magnetic recording heads, each of which is attached to a
suspension assembly. Typically two recording heads (one for each side of the
disk), and therefore two suspension assemblies, are used with each disk in the
disk drive.
An average of five suspension assemblies currently are contained in every
disk drive that is produced. In recent years, the growth of unit demand for
suspension assemblies has exceeded the growth in disk drive shipments for
several reasons. First, the growth in demand for storage in PCs, workstations
and network servers has exceeded the rate of increase in the areal density of
storage capacity on disks. Therefore, to satisfy the increasing demand for
storage capacity, there has been an increase in the average number of disks,
recording heads and suspension assemblies shipped per disk drive. Second, the
demand for very high capacity disk drives, such as those used in network
servers, has been growing faster than the overall
19
<PAGE>
demand for disk drives. Drives for such network servers each typically contain
four to ten disks, and therefore eight to twenty recording heads and suspension
assemblies. Third, industry transitions from thin film inductive recording heads
to magneto-resistive (MR) heads, and from nano heads to the smaller pico heads,
have reduced initial production yields of the head and disk drive manufacturers.
Because a significant portion of head yield reduction is ascertained after the
head is bonded onto the suspension assembly, low yields often result in
increased demand for suspension assemblies in order to achieve desired disk
drive shipment levels.
Suspension assemblies are critical to disk drive performance and
reliability. The design of suspension assemblies is driven by the increasing
performance requirements of new disk drives, principally reduced data access
time, increased data storage density, smaller recording heads and technology
incorporated in the type of recording head used. Technological advances in disk
drives generally require suspension assemblies with specialized design, expanded
functionality and greater precision. One of the major determinants of disk drive
data storage capacity is the microscopic height at which the magnetic head
"flies" above the disk. Suspension assemblies hold the magnetic recording heads
in position and are a significant factor in controlling the critical flying
height of the head above the disk and maintaining the position of the head on
the tracks of data. A typical nominal flying height is about one millionth of an
inch (a sheet of paper is approximately 3,000 millionths of an inch thick).
Excessive flying height impairs the ability of the head to read or write data.
Insufficient flying height causes the head to hit the disk surface which
destroys the magnetic coating and the data on the disk. Flying height is to a
large extent determined by the magnitude of the force exerted by the suspension
assembly on the recording head and by the location of the point on the recording
head at which the assembly imposes the force.
STRATEGY
The Company's strategy is focused primarily on developing suspension
assemblies which address the technological advances and rapidly changing
requirements of the hard disk drive industry. The Company designs and develops
suspension assemblies which meet the increasingly higher performance
specifications of disk drive manufacturers, and is committed to reliably
producing its suspension assemblies in high volume, with specialized design,
expanded functionality and greater precision. The Company's strategy has
increasingly emphasized assisting disk drive manufacturers in reducing their
time to market for new drives by developing suspension assemblies and the
processes to manufacture them in advance of market needs. Key elements of the
Company's strategy include:
DESIGN SUCCESS THROUGH CUSTOMER-FOCUSED ENGINEERING. The Company's
engineers and sales force work closely with the engineering staffs of its
customers to design and develop both standard and customer-specific suspension
assemblies that address individual customer requirements. These relationships
provide the Company with important insights into industry trends and the product
development needs of its customers. Through its customer relationships and
advanced product designs, the Company seeks to have its suspension assemblies
designed into future generations of disk drives.
HIGH VOLUME PRECISION MANUFACTURING. In addition to its design expertise
and volume production capability, the Company believes its leadership position
is based on the precision of its suspension assemblies. In order to provide
assemblies in high volumes and with the precision required by its customers, the
Company has increasingly invested in developing advanced process and measurement
systems in connection with the design of its automated production equipment. The
Company also has adopted an integrated manufacturing approach that closely
couples design, tooling and manufacturing. This integrated approach has
facilitated the rapid development, implementation and high volume production of
new suspension assembly products.
TECHNOLOGICAL ADVANCES TO MEET MARKET NEEDS. The Company believes that the
ongoing technological changes in the disk drive market, particularly the trends
toward smaller magnetic heads, increased data
20
<PAGE>
storage capacity, greater precision and expanded functionality, will provide
additional product development opportunities. In anticipation of these market
trends, the Company focuses its resources on the manufacture of suspension
assemblies, including suspensions for use with smaller recording heads,
suspensions which have integral thin electrical conductors that connect directly
with the recording head, and suspensions for low profile drives.
EXPERTISE APPLIED TO NEW OPPORTUNITIES. The Company believes that the
experience gained from designing and manufacturing products requiring a high
degree of precision, quality and miniaturization for the disk drive market also
can be applied to other market opportunities. In this regard, the Company is
evaluating the development of certain devices for the medical market, including
a probe for the measurement of tissue oxygen saturation and tissue vitality
during surgery. See "Research and Development" below.
PRODUCTS
The Company has developed significant proprietary capabilities in the design
and production of suspension assemblies for both current and emerging disk drive
designs. The Company has developed improved suspension assemblies in
anticipation of several market shifts to new generations of smaller magnetic
heads (mini-to-micro, micro-to-nano, and nano-to-pico). The Company currently
produces over 300 variations of suspension assemblies for the nano and pico
platforms to meet the varied and changing requirements of individual customers.
In total, the Company shipped approximately 539 million suspension assemblies of
all types during the fiscal year ended September 29, 1996.
For customer-specific suspension assemblies, the Company has developed the
ability to assist customers' design efforts and to modify rapidly the Company's
standard designs to address specific customer needs. Because of its integrated
manufacturing approach that closely couples design, tooling and manufacturing,
the Company believes that it has a competitive advantage in quickly supplying
prototypes and commencing volume manufacturing.
In order to help develop both standard and customer-specific suspensions,
the Company maintains a test laboratory and computerized systems to simulate and
analyze suspension designs. The ability to predict and modify suspension
assembly performance is especially important in developing suspensions for high
capacity drives and drives with low access times.
TSA-TM- SUSPENSION ASSEMBLIES. During the next several years, the Company
anticipates increasing acceptance by the disk drive industry of its TSA-TM-
suspensions, which integrate into the suspension thin electrical conductors that
connect directly with the recording head. The integral etched copper leads of
the TSA-TM- suspension are pre-positioned on the suspension assembly from the
head region through the length of the suspension and, in some cases, along the
actuator. The Company believes that this electrical integration will be a key
feature of suspension assemblies as disk drive manufacturers make the transition
to smaller and more complex recording heads and the process of attaching the
smaller head to the rest of the drive's electronics becomes more difficult and
costly, involving greater risk of handling damage as well as interference by the
electrical wires with the head's performance.
The Company believes that electrical integration will reduce the manual
labor required to attach the heads to suspensions and will ease automated
assembly. TSA-TM- suspensions also increase the consistency of head flying by
eliminating certain wires that can impart forces which adversely affect the
recording head's flying attitude. The Company believes that similar benefits
throughout the head gimbal assembly and head stack assembly processes will
result in improved yields and increased throughput for its customers, which
should translate into lower capital investment, reduced labor and lower overall
costs for such customers. TSA-TM- suspensions are particularly suited for
magneto-resistive (MR) heads, which constitute a major portion of the new and
smaller types of recording heads that allow increased data storage density and
require at least twice as many electrical leads as conventional recording heads.
21
<PAGE>
The Company introduced TSA-TM- suspension assemblies to customers and began
shipping electrically functional engineering samples in the first half of fiscal
1996. In response to growing customer interest, the Company accelerated its
development efforts and began shipping qualified pre-production TSA-TM-
suspensions to four of the major disk drive manufacturers during the first
quarter of fiscal 1997.
MANUFACTURING
The Company's manufacturing strategy focuses on enhancing its ability to
reliably produce suspension assemblies in high volume and with the precision
required by its customers, by investing in the development of advanced process
and measurement systems and the design of its automated production equipment, as
well as in additional manufacturing facilities and equipment. The Company also
has adopted an integrated manufacturing approach that closely couples design,
tooling and manufacturing. This integrated approach has facilitated the rapid
development, implementation and high-volume production of new suspension
assembly products. Effective use of this integrated approach, together with the
Company's equipment, has increased production yields and efficiency, and has
been an important factor in the reduction of manufacturing costs.
A suspension assembly consists of two or three components that are laser
welded together. Certain suspension assemblies also incorporate electrical leads
which provide electrical connection from the recording head to the disk drive's
circuitry. Alignment, adjustment and freedom from imperfections and contaminants
are of critical importance. The Company's products require several manufacturing
processes, each dependent on different technical disciplines, to ensure the high
degree of precision and process control necessary to meet strict customer
tolerance and other requirements. The Company has developed sophisticated
proprietary manufacturing processes and controls, and related equipment, which
are essential to the precision and reliability of its products. The
manufacturing processes employed by the Company include photoetching, stamping,
plasma etching, plating, precision forming, laser welding and ultra-cleaning.
The photoetching of the components, the laser-welding operations which fuse the
components together and subsequent processing steps are subject to stringent
specifications and controls. The Company monitors and controls these processes
through real-time statistical process analysis, and continuously tracks critical
parameters and takes corrective action as required.
The Company's critical raw material needs are available through multiple
sources of supply, with the following exceptions. Certain types of photoresist,
a liquid compound used in the photoetching process, and the stainless steel,
copper and polyamide materials that meet the Company's strict specifications,
are each currently available from only one supplier. To protect against the
adverse effect of a short-term supply disruption, the Company maintains several
weeks' supply of these materials. If for any reason the Company were unable to
continue to obtain these materials in the necessary quantities and at reasonable
prices, the Company's results of operations would be materially adversely
affected. See "Risk Factors-- Availability of Certain Materials."
The Company's production processes require the storage, use and disposal of
a variety of chemicals which are considered hazardous under applicable federal
and state laws. Accordingly, the Company is subject to a variety of regulatory
requirements for the handling of such materials. If an accident were to result
in significant personal injury or environmental damage, the Company's results of
operations could be materially adversely affected.
RESEARCH AND DEVELOPMENT
The Company participates in an industry that is subject to rapid
technological change, and its ability to remain competitive depends on, among
other things, its ability to anticipate such change and, in that regard, to
continue its close working relationships with the engineering staffs of its
customers. As a result, the Company has devoted and will continue to devote
substantial resources to product development and process engineering efforts.
For the first thirteen weeks of fiscal 1997 and for fiscal 1996, 1995 and 1994,
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the Company's research and development expenses were approximately $5,739,000,
$27,651,000, $15,041,000 and $8,626,000, respectively. As of December 29, 1996,
the Company employed approximately 694 engineers and technicians who are
responsible for the implementation of new technologies as well as process and
product development and improvements.
The Company's current research and development efforts are principally
directed to continuing the development and prototype production of new
high-precision conventional and TSA-TM- suspension assemblies to meet changing
head size, performance standards and electrical connectivity requirements for
disk drives.
The Company entered into the Technology Sharing Agreement and a Patent
License Agreement with IBM during fiscal 1995. Under the Technology Sharing
Agreement, IBM made available to the Company the results of many years of
research by IBM into a new type of suspension, called an integrated lead
suspension. The Company itself had devoted substantial efforts independent of
IBM to the research and development of TSA-TM- suspensions, and contributed its
existing TSA-TM- suspension technology to the joint effort. The Company and IBM
will continue to pursue joint research and development efforts to complete the
commercialization of integrated lead suspension designs. As of December 29,
1996, the Company had made payments totalling $1,500,000 to IBM and will make
additional payments over the next three fiscal years totalling $6,500,000, all
of which have been expensed and a related liability has been recorded by the
Company. Certain royalties have been paid and may be payable in the future by
the Company to IBM under the Technology Sharing Agreement.
The Company also is engaged in the development of certain devices for the
medical market, including a probe for the measurement of tissue oxygen
saturation and tissue vitality during surgery. For the first thirteen weeks of
fiscal 1997 and for fiscal 1996, research and development expenses allocated to
such devices were $502,000 and $1,990,000, respectively. There can be no
assurance that the Company's efforts will result in a marketable product or that
such products will ever generate significant revenues.
CUSTOMERS AND MARKETING
The Company's products are sold principally through its own ten member sales
force operating primarily from its headquarters in Hutchinson, Minnesota. The
Company has one technical representative in Europe serving its European
customers, and, through a subsidiary, four technical representatives in
Singapore serving its Pacific Rim customers. The Company's products are sold to
original equipment manufacturers for use in their products and to subassemblers
who sell to original equipment manufacturers. The Company's sales force is
organized by individual customer. Company salespeople typically initiate
contacts with both the customer's purchasing agent and its engineers. The
Company's engineers and sales force actively participate in the selling process
and in maintaining customer relationships.
The Company is a supplier to nearly all domestic and many foreign-based
manufacturers of hard disk drives and recording heads used in such drives. The
following table shows the Company's major customer sales as a percentage of net
sales.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25,
1996 1995 1996 1995 1994
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Seagate Technology Incorporated................... 36% 33% 35% 36% 31%
Yamaha Corporation................................ 14 15 16 13 9
SAE Magnetics, Ltd./TDK........................... 13 16 14 9 7
Read-Rite Corporation............................. 13 19 13 19 23
IBM............................................... 10 7 9 9 5
</TABLE>
Sales to the Company's five largest customers constituted 86% and 87% of net
sales, respectively, for the thirteen weeks ended December 29, 1996 and for
fiscal 1996. Significant portions of the Company's
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<PAGE>
revenue may be indirectly attributable to large manufacturers of disk drives,
such as Quantum Corporation, Toshiba Corporation and Western Digital
Corporation, which may purchase recording head assemblies from several different
recording head manufacturers that utilize the Company's suspension assemblies.
The Company expects to continue to depend upon a limited number of customers
for a substantial majority of its sales, given the relatively small number of
hard disk drive and recording head manufacturers. The Company's results of
operations could be adversely affected by reduced requirements of its major
customers. See "Risk Factors--Customer Concentration."
Sales to foreign-based enterprises totaled $18,016,000 for the first
thirteen weeks of fiscal 1997, $63,898,000 in fiscal 1996, $46,075,000 in fiscal
1995 and $29,394,000 in fiscal 1994. Sales to foreign subsidiaries of domestic
corporations totaled $18,734,000 for the first thirteen weeks of fiscal 1997,
$51,564,000 in fiscal 1996, $54,398,000 in fiscal 1995 and $14,126,000 in fiscal
1994. The majority of these sales were to the Pacific Rim region. In addition,
the Company has significant sales to domestic corporations which use the
Company's products in their offshore manufacturing sites.
BACKLOG
The Company's sales are generally made pursuant to purchase orders rather
than long-term contracts. The Company's backlog of purchase orders was
approximately $92,200,000 at December 29, 1996, compared to $58,500,000 at
September 29, 1996 and $56,200,000 at December 24, 1995. Such purchase orders
may be changed or cancelled by customers on short notice without penalty. In
addition, the Company believes that it is a common practice for disk drive
manufacturers to place orders in excess of their needs during growth periods.
Accordingly, the Company does not believe that backlog should be considered
indicative of sales for any future period. See "Risk Factors--Dependence on Hard
Disk Drive Industry."
COMPETITION
The Company believes that the principal factors of competition in the
suspension assembly market include time to market, product quality, design
expertise, reliability of volume supply and price. The Company estimates that in
fiscal 1996 it produced approximately 70% of all suspension assemblies sold to
disk drive manufacturers and their suppliers, including recording head
manufacturers, worldwide. The Company's principal competitors are K. R.
Precision Co., Magnacomp Corporation and Nippon Hatsujo Kogyo Co. Certain users
of suspension assemblies also may have or may develop the ability to fabricate
their own suspension assemblies. In addition to competition in the conventional
suspension assembly market, the electrical interconnect features of the
Company's new TSA-TM- suspensions face competition from alternative
interconnection technologies such as conventional wiring, deposition circuitry
and flexible circuitry. Although there can be no assurance that the number of
competitors will not increase in the future or that users of suspension
assemblies will not develop internal capabilities to manufacture suspension
assemblies, the Company believes that the number of entities that have the
technical capability and capacity for producing precision suspension assemblies
in large volumes will remain small.
Other types of computer memory systems, such as semiconductor memories
(flash memory) and tape and laser (optical and CD) drives, may become
competitive with certain hard disk drive applications, and thereby affect the
demand for certain of the Company's products. However, given the current state
of the technologies, semiconductor memories are not expected to be price
competitive with disk drives and optical memories are inherently much slower
than disk drives. Accordingly, the Company believes that such technologies will
not materially impact the market for hard disk drives in the near future.
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<PAGE>
INTELLECTUAL PROPERTIES
Certain equipment, processes, information and knowledge generated by the
Company and utilized in the manufacture of its products are regarded as
proprietary by the Company and are protectable under applicable trade secret,
copyright and unfair competition laws. In addition, if the Company believes it
has made inventions in manufacturing equipment, products and processes for
making products where patents might enhance the Company's position, patents have
been and will continue to be pursued in the U.S. and in other countries. The
Company currently holds 19 U.S. patents, and has more than 50 patent
applications pending in the U.S., relating to its proprietary suspension
assembly products and manufacturing equipment and processes relating to their
manufacture. The Company believes that although the patents it holds and may
obtain will be of value, they will not independently determine the Company's
success, which depends principally upon its engineering and manufacturing
skills. There can be no assurance that any patent issued to the Company will not
be challenged, invalidated or circumvented or that the rights granted thereunder
will provide adequate protection to the Company's technology. Within the
Company, intellectual property protection of trade secrets is achieved through
physical security measures at the Company's facilities as well as through
non-disclosure and non-competition agreements with all employees and
confidentiality agreements with consultants, strategic suppliers and customers.
There can be no assurance as to the degree of protection afforded by these
practices and laws.
In addition to the Technology Sharing Agreement and the Patent License
Agreement with IBM, the Company also has entered into licensing and
cross-licensing agreements under the Company's patents and patent applications
allowing certain competitors to produce certain of the Company's products in
return for either royalty payments or cross-license rights.
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 manufacturing equipment or products or to products
which include the Company's products as a component. Although the Company to
date 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 that 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 results of operations could be adversely affected.
The Company expects that, as the number of patents issued continues to increase,
and as the Company grows, the volume of intellectual property claims could
increase. See "Risk Factors--Intellectual Properties."
LEGAL PROCEEDINGS
The Company is a party to certain 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.
EMPLOYEES
As of December 29, 1996, the Company had approximately 5,600 employees. The
Company's ability to conduct its business would be impaired if a significant
number of its specialized employees were to leave and could not be replaced by
comparable personnel. However, turnover of specialized employees, including key
management personnel, historically has been low. The locations of the Company's
facilities and the broad span and complexity of technology encompassed by the
Company's products and processes limit the number of qualified engineering and
other candidates for key positions. The Company expects that internal training
will continue to be the primary avenue for the development of key employees.
None of the Company's employees is subject to a collective bargaining
agreement, and the Company has experienced no work stoppages. The Company
believes that its employee relations are good.
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FACILITIES
The Company's executive offices, primary manufacturing facilities and
training center are located in four buildings on a 163-acre site in Hutchinson,
Minnesota. The largest building has floor area of approximately 450,000 square
feet. The Company also leases a 20,000 square foot warehouse and a 7,000 square
foot fabrication shop near the Hutchinson site.
The Company operates a manufacturing facility in Sioux Falls, South Dakota,
in connection with which it leases a building of approximately 94,000 square
feet, a training center of 5,500 square feet and a warehouse of 4,800 square
feet.
The Company also operates a manufacturing facility in Eau Claire, Wisconsin,
in connection with which it leases a building of approximately 156,000 square
feet. The Company is in the process of constructing a photoetching facility of
approximately 320,000 square feet in Eau Claire.
The Company is leasing a building of approximately 100,000 square feet
located in Plymouth, Minnesota for stamping operations, office space and a
logistic center. The Company also leases sales offices in Singapore and the
Netherlands.
The Company believes that its existing facilities, including the facility
under construction in Eau Claire, Wisconsin, will be adequate to meet its
currently anticipated requirements.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Jeffrey W. Green.......................... 56 Chairman of the Board and Director
Wayne M. Fortun........................... 47 President, Chief Executive Officer and Chief Operating Officer
and Director
John A. Ingleman.......................... 51 Vice President, Chief Financial Officer and Secretary
Rebecca A. Albrecht....................... 43 Vice President of Human Resources
Beatrice A. Graczyk....................... 48 Vice President of Disk Drive Components Operations
Larry G. Moehring......................... 47 Vice President of Disk Drive Components Assembly Operations
Richard C. Myers.......................... 56 Vice President of Administration
LeRoy E. Olson............................ 60 Vice President of Disk Drive Components Operations Development
Richard J. Penn........................... 40 Vice President of Sales and Marketing
R. Scott Schaefer......................... 43 Vice President and Chief Technical Officer
W. Thomas Brunberg(1)..................... 56 Director
Archibald Cox, Jr.(2)..................... 56 Director
James E. Donaghy(1)(2).................... 62 Director
Harry C. Ervin(2)......................... 68 Director
Richard N. Rosett(1)...................... 68 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Green is a co-founder of the Company and has served as a director since
the Company's formation in 1965. Mr. Green has been Chairman of the Board since
January 1983, and served as the Company's Chief Executive Officer from January
1983 to May 1996.
Mr. Fortun was elected a director in 1983. He has been with the Company
since 1975 and was elected President and Chief Operating Officer in January 1983
and Chief Executive Officer in May 1996.
Mr. Ingleman was elected Vice President in January 1982, Chief Financial
Officer in January 1988, and Secretary in January 1992. Mr. Ingleman served as
the Company's Treasurer from January 1982 through January 1996. Mr. Ingleman has
been with the Company since 1977.
Ms. Albrecht was elected Vice President in January 1995 and is now Vice
President of Human Resources. Previously she had been Director of Human
Resources since 1988. Ms. Albrecht has been with the Company since 1983.
27
<PAGE>
Ms. Graczyk was elected Vice President in May 1990 and is now Vice President
of Disk Drive Components Operations. She had been Director of Component
Operations since 1988. Ms. Graczyk has been with the Company since 1970.
Mr. Moehring was elected Vice President in May 1990 and is now Vice
President of Disk Drive Components Assembly Operations. He had been Director of
Assembly Operations since 1988. Mr. Moehring has been with the Company since
1978.
Mr. Myers was elected Vice President in January 1988 and is now Vice
President of Administration. In January 1995, he was elected Vice President of
Administration. Mr. Myers has been with the Company since 1977.
Mr. Olson was elected Vice President in May 1990 and is now Vice President
of Disk Drive Components Operations Development. He had been Director of Sioux
Falls Operations since April 1988 when he joined the Company.
Mr. Penn was elected Vice President in January 1996 and is now Vice
President of Sales and Marketing. Previously he had been Director of Sales and
Marketing since December 1994, Senior Manager responsible for Medical Business
Development from January 1994 to December 1994 and Marketing Manager since June
1990. Mr. Penn has been with the Company since 1981.
Mr. Schaefer was elected Vice President in May 1990 and is now Vice
President and Chief Technical Officer. He had been Vice President of Medical
Business Development since 1990 and Director of Engineering since 1988. Mr.
Schaefer has been with the Company since 1979.
Mr. Brunberg became a director of the Company in 1975. He is a certified
public accountant and has been a shareholder in the Minneapolis accounting firm
of Brunberg, Thoresen & Associates, Ltd. since March 1991. He was a partner in
the Minneapolis office of the accounting firm of Pannell Kerr Forster from 1987
through January 1991, which firm filed a petition under the Federal bankruptcy
laws in 1993.
Mr. Cox became a director of the Company in May 1996. Mr. Cox has been Vice
Chairman and President of Magnequench International, Inc., a manufacturer of
magnets and magnetic material, since October 1995. He has been Chairman of
Sextant Group, Inc., a financial advisory firm, since August 1993. Mr. Cox
served as President and Chief Executive Officer of The First Boston Corporation,
an investment banking firm, from July 1990 to August 1993, and as a Managing
Director of Tiger Management Company, an investment fund, from November 1993 to
June 1994. Mr. Cox is a director of Harris Chemical Group, Inc.
Mr. Donaghy became a director of the Company in 1992. Since January 1991,
Mr. Donaghy has been the Chief Executive Officer and President and a director of
Sheldahl, Inc., a manufacturer of laminates, composite materials and flexible
electronic interconnects.
Mr. Ervin became a director of the Company in 1969. Mr. Ervin, who is now
retired, was a Vice President of Dain Bosworth Incorporated, an investment
banking firm, from April 1988 through June 1996.
Mr. Rosett became a director of the Company in 1986. He has been a Professor
of Economics at the Rochester Institute of Technology ("RIT") since July 1990,
and Director of Quality Cup Programs at RIT since July 1995. Mr. Rosett was Dean
of the College of Business of RIT from July 1990 to July 1996.
28
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of November 27, 1996 and as adjusted to
reflect the sale of 3,375,000 shares offered by this Prospectus, information
with respect to the beneficial ownership of the Common Stock of the Company by
(i) each person known to the Company to own 5% or more of the outstanding shares
of Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's five most highly compensated executive officers, (iv) all of the
directors and executive officers as a group and (v) the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
----------------------- SHARES -----------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ---------------------------------------------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
FMR Corp.(2).................................. 1,695,900 10.4% -- 1,695,900 8.8%
82 Devonshire Street
Boston, Massachusetts 02109
Jeffrey W. Green(3)........................... 1,415,466 8.4 300,000 1,115,466 5.6
3401 Fourth Avenue North
Sioux Falls, South Dakota 57104
VGH Partners, L.L.C.(4)....................... 1,095,300 6.7 -- 1,095,300 5.7
260 Franklin Street
Boston, Massachusetts 02110
Wayne M. Fortun(5)............................ 640,818 3.8 75,000 565,818 2.9
Richard C. Myers(6)........................... 152,745 * -- 152,745 *
John A. Ingleman(7)........................... 138,570 * -- 138,570 *
R. Scott Schaefer(8).......................... 52,320 * -- 52,320 *
Archibald Cox, Jr............................. 30,000 * -- 30,000 *
Harry C. Ervin, Jr............................ 13,500 * -- 13,500 *
Richard N. Rosett(9).......................... 12,435 * -- 12,435 *
W. Thomas Brunberg(10)........................ 1,650 * -- 1,650 *
James E. Donaghy(11).......................... 1,200 * -- 1,200 *
Executive officers and directors as a group
(15 persons)(12)............................ 2,651,688 15.1 375,000 2,276,688 11.1
</TABLE>
- ------------------------
* Less than 1%
(1) Based on 16,357,230 shares outstanding as of November 27, 1996 and
19,357,230 shares to be outstanding after this offering, except that shares
underlying options exercisable within 60 days of November 27, 1996 are
deemed to be outstanding for purposes of calculating the percentage owned by
the holder of such options. Unless otherwise indicated in the footnotes to
this table, the listed beneficial owner has sole voting power and investment
power with respect to such shares.
(2) The number of shares noted above is based upon information reported to the
Securities and Exchange Commission (the "Commission") in a Schedule 13G
filed by FMR Corp. ("FMR") on December 12, 1996, a copy of which was
provided to the Company by FMR, and reflects beneficial ownership by FMR as
of December 9, 1996.
29
<PAGE>
(3) Of these shares, 660 are held by Mr. Green in joint tenancy with his wife
and 133,800 shares are held in an IRA for Mr. Green. Includes 411,300 shares
covered by options exercisable within 60 days granted to Mr. Green.
(4) The number of shares noted above is based upon information reported to the
Commission in a Schedule 13D filed by VGH Partners, L.L.C. ("VGH") on
January 9, 1997, a copy of which was provided to the Company by VGH, and
reflects beneficial ownership by VGH as of December 30, 1996.
(5) Of these shares, 16,725 are held by Mr. Fortun in joint tenancy with his
wife. Includes 409,170 shares covered by options exercisable within 60 days
granted to Mr. Fortun.
(6) Of these shares, 31,200 are held by Mr. Myers in joint tenancy with his wife
and 30,000 shares are held by Mr. Myers' wife. Includes 89,910 shares
covered by options exercisable within 60 days granted to Mr. Myers.
(7) Of these shares, 71,700 are held by Mr. Ingleman in joint tenancy with his
wife and 300 are held by Mr. Ingleman as custodian for his son under the
Minnesota Uniform Transfers to Minors Act. Includes 66,570 shares covered by
options exercisable within 60 days granted to Mr. Ingleman.
(8) All of these shares are covered by options exercisable within 60 days
granted to Mr. Schaefer.
(9) Includes 300 shares held in an IRA for Mr. Rosett's wife.
(10) Of these shares, 750 are held in trusts, 600 are held in an IRA for Mr.
Brunberg and 300 are held in an IRA for Mr. Brunberg's wife.
(11) Of these shares, 900 are held by Mr. Donaghy's wife and 300 shares are held
in a living trust of which Mr. Donaghy is settlor, beneficiary and
co-trustee, and over which he exercises both investment control and the
power to revoke the trust.
(12) Includes 1,147,611 shares covered by options exercisable within 60 days
granted to ten executive officers of the Company, and the spouse of one such
officer who is an employee of the Company.
30
<PAGE>
UNDERWRITING
Montgomery Securities, Hambrecht & Quist LLC and Dain Bosworth Incorporated
(the "Underwriters") have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement (the "Underwriting Agreement"), by and
among the Company, the Selling Shareholders and the Underwriters, to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock indicated below opposite their respective names, at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares of Common Stock, if
any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------ ----------
<S> <C>
Montgomery Securities.......................................
Hambrecht & Quist LLC.......................................
Dain Bosworth Incorporated..................................
----------
Total..................................................... 3,375,000
----------
----------
</TABLE>
The Underwriters have advised the Company and the Selling Shareholders that
the Underwriters propose initially to offer the Common Stock to the public on
the terms set forth on the cover page of this Prospectus. The Underwriters may
allow selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the offering, the public
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 506,250 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 3,375,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such
over-allotment option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Selling Shareholders and all of the Company's other executive officers
and directors, who immediately following the offering will beneficially own an
aggregate of approximately 2,277,000 shares of Common Stock, have agreed that,
for a period of 90 days after the date of this Prospectus, they will not,
without the prior written consent of Montgomery Securities, directly or
indirectly offer for sale, sell, solicit an offer to sell, contract or grant an
option to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any shares of Common Stock (except for the shares offered
hereby by the Selling Shareholders and an aggregate of up to 120,000 shares held
by certain executive officers or issuable upon the exercise of stock options
held by certain executive officers) or any securities convertible or
exchangeable for shares of Common Stock. In addition, the Company has agreed
that for a period of 90 days after the date of this Prospectus, it will not,
without the prior written consent of Montgomery Securities, directly or
indirectly offer to sell, issue, distribute or otherwise dispose of any equity
securities or securities convertible into or exchangeable for equity securities
or any options, rights or warrants with respect to any equity securities except
(i) for the shares of Common Stock offered by the Company hereby
31
<PAGE>
or (ii) for options issued pursuant to the Company's employee benefit plans and
shares of Common Stock issued upon exercise thereof.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers on the Nasdaq
National Market may engage in passive market making transactions in the Common
Stock of the Company on the Nasdaq National Market in accordance with Rule
10b-6A under the Exchange Act, during the two business day period before
commencement of offers or sales of the Common Stock. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market makers' bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby is being
passed upon for the Company by Faegre & Benson LLP, 2200 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402. Certain legal matters for
the Underwriters will be passed upon by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304, who
may rely on the opinion of Faegre & Benson LLP as to certain matters relating to
the laws of the State of Minnesota.
EXPERTS
The audited consolidated financial statements and schedules included or
incorporated by reference in this Prospectus and elsewhere in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included and incorporated by reference herein in reliance upon the authority of
such firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well
as at the following regional offices: 7 World Trade Center, Suite 1300, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy statements and other information filed by the
Company at (http://www.sec.gov). The Company's Common Stock is traded on the
Nasdaq National Market. The foregoing materials also should be available for
inspection at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, copies of which may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
32
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission under the
Exchange Act, are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
September 29, 1996 (which incorporates by reference certain portions of the
Company's 1996 Annual Report to Shareholders, including financial statements
and accompanying information, and certain portions of the Company's
definitive notice and proxy statement for the Company's 1997 Annual Meeting
of Shareholders).
(b) The Company's Quarterly Report on Form 10-Q for the thirteen weeks
ended December 29, 1996.
(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
June 9, 1986.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to Mr.
John A. Ingleman, Secretary, Hutchinson Technology Incorporated, 40 West
Highland Park, Hutchinson, Minnesota 55350. Telephone requests may be directed
to Mr. Ingleman at (320) 587-3797.
33
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statements of Operations for the quarters ended December 29,
1996 (unaudited) and December 24, 1995 (unaudited) and for the fiscal
years ended September 29, 1996, September 24, 1995 and September 25,
1994.................................................................... F-3
Consolidated Balance Sheets as of December 29, 1996 (unaudited) and as of
September 29, 1996 and September 24, 1995............................... F-4
Consolidated Statements of Cash Flows for the quarters ended December 29,
1996 (unaudited) and December 24, 1995 (unaudited) and for the fiscal
years ended September 29, 1996, September 24, 1995 and September 25,
1994.................................................................... F-5
Consolidated Statements of Shareholders' Investment for the quarter ended
December 29, 1996 (unaudited) and for the fiscal years ended September
29, 1996, September 24, 1995 and September 25, 1994..................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hutchinson Technology Incorporated:
We have audited the accompanying consolidated balance sheets of Hutchinson
Technology Incorporated (a Minnesota corporation) and Subsidiaries as of
September 29, 1996 and September 24, 1995, and the related consolidated
statements of operations, shareholders' investment and cash flows for each of
the three years in the period ended September 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hutchinson Technology
Incorporated and Subsidiaries as of September 29, 1996 and September 24, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended September 29, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 31, 1996
(except with respect to the matters
discussed in Note 9, as to which
the date is January 20, 1997)
F-2
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
--------------------- ----------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25,
1996 1995 1996 1995 1994
---------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................................................... $ 106,906 $ 83,332 $ 353,186 $ 299,998 $ 238,794
Cost of sales..................................................... 75,794 61,888 273,616 226,235 199,548
---------- --------- ---------- ---------- ----------
Gross profit.................................................... 31,112 21,444 79,570 73,763 39,246
Research and development expenses................................. 5,739 9,053 27,651 15,041 8,626
Selling, general and administrative expenses...................... 10,918 8,563 33,716 29,801 22,840
---------- --------- ---------- ---------- ----------
Income from operations.......................................... 14,455 3,828 18,203 28,921 7,780
Other income...................................................... 306 321 1,158 1,462 1,171
Interest expense.................................................. (858) (480) (2,108) (2,636) (995)
---------- --------- ---------- ---------- ----------
Income before income taxes...................................... 13,903 3,669 17,253 27,747 7,956
Provision for income taxes........................................ 2,786 807 3,451 6,669 2,076
---------- --------- ---------- ---------- ----------
Net income...................................................... $ 11,117 $ 2,862 $ 13,802 $ 21,078 $ 5,880
---------- --------- ---------- ---------- ----------
---------- --------- ---------- ---------- ----------
Net income per common and common equivalent share................. $ 0.66 $ 0.17 $ 0.82 $ 1.28 $ 0.36
---------- --------- ---------- ---------- ----------
---------- --------- ---------- ---------- ----------
Weighted average common and common equivalent shares
outstanding..................................................... 16,887 16,869 16,806 16,479 16,338
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC. 29, SEPT. 29, SEPT. 24,
1996 1996 1995
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 54,482 $ 22,884 $ 30,479
Securities available for sale............................. 3,169 3,064 1,190
Trade receivables, net.................................... 58,672 46,803 37,058
Other receivables......................................... 13,821 9,475 3,625
Inventories............................................... 15,383 17,235 13,298
Prepaid taxes and other expenses.......................... 9,333 9,204 4,842
--------- --------- ---------
Total current assets.................................. 154,860 108,665 90,492
Property, plant and equipment, at cost:
Land, buildings and improvements.......................... 40,163 39,888 35,371
Equipment................................................. 197,210 189,989 150,866
Construction in progress.................................. 38,721 34,801 22,804
Less: accumulated depreciation............................ (150,225) (142,972) (115,225)
--------- --------- ---------
Net property, plant and equipment..................... 125,869 121,706 93,816
Other assets................................................ 8,803 8,612 6,590
--------- --------- ---------
$ 289,532 $ 238,983 $ 190,898
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt...................... $ 5,760 $ 5,760 $ 4,255
Accounts payable and accrued expenses..................... 28,488 23,008 13,907
Accrued compensation...................................... 20,654 12,187 13,628
Accrued income taxes...................................... 7,215 5,608 4,418
--------- --------- ---------
Total current liabilities............................. 62,117 46,563 36,208
Long-term debt.............................................. 76,845 53,185 33,445
Other long-term liabilities................................. 5,533 5,551 1,500
Commitments and contingencies (Note 6)
Shareholders' investment:
Common stock, $.01 par value, 45,000,000 shares
authorized, 16,374,000, 16,356,000 and 16,341,000 issued
and outstanding......................................... 164 164 163
Additional paid-in capital................................ 43,579 43,343 43,207
Retained earnings......................................... 101,294 90,177 76,375
--------- --------- ---------
Total shareholders' investment........................ 145,037 133,684 119,745
--------- --------- ---------
$ 289,532 $ 238,983 $ 190,898
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
----------------------- ----------------------------------
DEC. 29, DEC. 24, SEPT. 29, SEPT. 24, SEPT. 25,
1996 1995 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income..................................................... $ 11,117 $ 2,862 $ 13,802 $ 21,078 $ 5,880
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization................................ 9,559 7,435 33,565 28,174 23,974
Deferred tax benefit......................................... (296) (2,911) (6,085) (2,498) (1,493)
Loss on disposal of assets................................... 48 103 344 403 49
Changes in operating assets and liabilities (Note 7)......... 1,874 5,429 (1,722) 10,657 (16,443)
----------- ---------- ---------- ---------- ----------
Cash provided by operating activities.......................... 22,302 12,918 39,904 57,814 11,967
----------- ---------- ---------- ---------- ----------
Investing activities:
Capital expenditures........................................... (8,491) (14,594) (77,065) (44,472) (29,540)
Increase in other receivables.................................. (6,005) -- (5,242) -- --
Proceeds from the sale of building/equipment................... -- -- 15,300 -- 66
Purchases of marketable securities............................. (105) (1,814) (4,944) (3,080) --
Sales of marketable securities................................. -- 964 3,070 1,890 3,547
----------- ---------- ---------- ---------- ----------
Cash used for investing activities............................. (14,601) (15,444) (68,881) (45,662) (25,927)
----------- ---------- ---------- ---------- ----------
Financing activities:
Proceeds from issuance of long-term debt....................... 25,000 -- 25,500 -- 43,500
Repayments of long-term debt................................... (1,339) (1,340) (4,255) (2,380) (15,880)
Net proceeds from issuance of common stock..................... 236 21 137 2,137 50
----------- ---------- ---------- ---------- ----------
Cash provided by (used for) financing activities............... 23,897 (1,319) 21,382 (243) 27,670
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents............. 31,598 (3,845) (7,595) 11,909 13,710
Cash and cash equivalents at beginning of period................. 22,884 30,479 30,479 18,570 4,860
----------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period....................... $ 54,482 $ 26,634 $ 22,884 $ 30,479 $ 18,570
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, September 26, 1993........................................... 15,993 $ 160 $ 39,112 $ 49,417
Exercise of stock options........................................... 6 -- 50 --
Net income.......................................................... -- -- -- 5,880
--------- ----- ----------- ----------
Balance, September 25, 1994........................................... 15,999 160 39,162 55,297
Exercise of stock options........................................... 345 3 4,066 --
Common stock issuance............................................... -- -- 12 --
Common stock retirements............................................ (3) -- (33) --
Net income.......................................................... -- -- -- 21,078
--------- ----- ----------- ----------
Balance, September 24, 1995........................................... 16,341 163 43,207 76,375
Exercise of stock options........................................... 15 1 127 --
Common stock issuance............................................... -- -- 9 --
Net income.......................................................... -- -- -- 13,802
--------- ----- ----------- ----------
Balance, September 29, 1996........................................... 16,356 164 43,343 90,177
Exercise of stock options (unaudited)............................... 18 -- 236
Net income (unaudited).............................................. -- -- -- 11,117
--------- ----- ----------- ----------
Balance, December 29, 1996 (unaudited)................................ 16,374 $ 164 $ 43,579 $ 101,294
--------- ----- ----------- ----------
--------- ----- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 29, 1996 IS UNAUDITED
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Hutchinson Technology Incorporated and its subsidiaries (the
Company), all of which are wholly owned. All significant intercompany accounts
and transactions have been eliminated in consolidation.
RECLASSIFICATIONS--Certain reclassifications have been made in the 1995 and
1994 financial statements to conform with 1996 and thirteen weeks ended December
29, 1996 presentation. Such reclassifications had no effect on 1996 or thirteen
weeks ended December 29, 1996 results of operations or shareholders' investment.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
FISCAL YEAR--The Company's fiscal year is the fifty-two/fifty-three week
period ending on the last Sunday in September. The fiscal year ended September
29, 1996 is a fifty-three week period and fiscal years ended September 24, 1995
and September 25, 1994 are fifty-two week periods.
REVENUE RECOGNITION AND CUSTOMERS--The Company recognizes revenue upon the
shipment of completed products. An analysis of customer sales is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Seagate Technology Incorporated............................. 36% 33% 35% 36% 31%
Yamaha Corporation.......................................... 14 15 16 13 9
SAE Magnetics, Ltd./TDK..................................... 13 16 14 9 7
Read-Rite Corporation....................................... 13 19 13 19 23
IBM......................................................... 10 7 9 9 5
</TABLE>
Sales to the Company's five largest customers constituted 86% and 90% for
the thirteen weeks ended December 29, 1996 and December 24, 1995, respectively,
and 87%, 86% and 75% of net sales for fiscal 1996, 1995 and 1994, respectively.
Sales to foreign locations were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
--------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Foreign-based enterprises..................... $ 18,016 $ 16,691 $ 63,898 $ 46,075 $ 29,394
Foreign subsidiaries of U.S. corporations..... 18,734 14,189 51,564 54,398 14,126
--------- --------- ---------- ---------- ---------
$ 36,750 $ 30,880 $ 115,462 $ 100,473 $ 43,520
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
</TABLE>
F-7
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The majority of these foreign location sales were to the Pacific Rim region.
In addition, the Company had significant sales to U.S. corporations which used
the Company's products in their offshore manufacturing sites.
CASH AND CASH EQUIVALENTS--Cash equivalents consist of all highly liquid
investments with original maturities of ninety days or less.
SECURITIES AVAILABLE FOR SALE--Securities available for sale consist
primarily of U.S. Treasury bills. The Company follows the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The securities available for sale
have been pledged for certain self-insured reserves.
TRADE RECEIVABLES--The Company grants credit to customers, but generally
does not require collateral or any other security to support amounts due. Trade
receivables are net of allowances of $2,781,000 at December 29, 1996, $2,148,000
at September 29, 1996 and $1,924,000 at September 24, 1995.
INVENTORIES--All inventories are stated at the lower of last-in, first-out
(LIFO) cost or market. Inventories consist of the following:
<TABLE>
<CAPTION>
DEC. 29, SEPT. 29, SEPT. 24,
1996 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Raw materials.............................................. $ 4,064 $ 4,137 $ 3,019
Work in process............................................ 6,178 5,558 3,159
Finished goods............................................. 5,431 7,830 7,455
LIFO Reserve............................................... (290) (290) (335)
----------- --------- ---------
$ 15,383 $ 17,235 $ 13,298
----------- --------- ---------
----------- --------- ---------
</TABLE>
PROPERTY AND DEPRECIATION--Property, plant and equipment are stated at cost.
Costs of renewals and betterments are capitalized and depreciated. Maintenance
and repairs are charged to expense as incurred.
Property is depreciated using primarily accelerated methods for both
financial and tax reporting purposes. Estimated useful lives for financial
reporting purposes are as follows:
<TABLE>
<S> <C>
20 to 25
Buildings.................................................... years
Leasehold improvements....................................... 5 to 10 years
Equipment.................................................... 3 to 8 years
</TABLE>
ENGINEERING AND PROCESS DEVELOPMENT--The Company's engineers and technicians
are responsible for the development of new products and process technologies and
implementation of process improvements. Expenditures related to these activities
totaled $11,540,000 in the first thirteen weeks of fiscal 1997, $14,490,000 in
the first thirteen weeks of fiscal 1996, $51,212,000 in fiscal 1996, $32,567,000
in fiscal 1995 and $25,663,000 in fiscal 1994. Of these amounts, approximately
$5,739,000 in the first thirteen weeks of fiscal 1997, $9,053,000 in the first
thirteen weeks of fiscal 1996, $27,651,000 in fiscal 1996, $15,041,000 in fiscal
1995 and $8,626,000 in fiscal 1994 are classified as research and development
expenses.
INCOME TAXES--Deferred taxes are provided at currently enacted tax rates on
all significant temporary differences.
F-8
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE--Net income 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.
2--FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
DEC. 29, SEPT. 29, SEPT. 24,
LONG-TERM DEBT 1996 1996 1995
- ------------------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Senior unsecured note, 7.46%, payable in varying semi-annual installments
through February 2004........................................................ $ 28,125 $ 28,125 $ 30,000
Senior unsecured note, 7.85%, payable in varying annual installments through
July 2003.................................................................... 25,000 25,000 --
Senior unsecured note, 8.07%, payable in varying annual installments through
November 2006................................................................ 25,000 -- --
Senior unsecured note, 10.3% payable in varying annual installments through
October 1998................................................................. 1,960 3,300 4,640
Variable rate demand note, City of Hutchinson, payable in varying annual
installments through June 2004............................................... 1,600 1,600 1,700
Major Economic Development Fund Agreement, 4%, payable in varying annual
installments through March 2006.............................................. 500 500 --
Senior unsecured note, 10.1%, payable in varying annual installments through
July 1997.................................................................... 420 420 1,360
------------- ------------- -------------
82,605 58,945 37,700
Less-current maturities........................................................ (5,760) (5,760) (4,255)
------------- ------------- -------------
$ 76,845 $ 53,185 $ 33,445
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company established a $25,000,000 unsecured credit facility with The
First National Bank of Chicago during the first quarter of fiscal 1996 which has
an effective interest rate of the CD or LIBOR plus a variable spread based on
the Company's financial position, maturing on December 8, 1998. At December 29,
1996, the Company had a letter of credit under this facility of $1,625,000 as
security for its variable rate demand note with the City of Hutchinson. As of
December 29, 1996, there were no amounts outstanding under this facility.
On July 26, 1996, the Company completed a $50,000,000 private debt
placement, of which $25,000,000 was issued as a senior unsecured note having a
fixed rate of 7.85%, annual principal payments of $8,333,000 beginning on July
26, 2001 and maturing July 26, 2003. The Company issued the remaining
$25,000,000 on November 26, 1996 as a senior unsecured note having a fixed rate
of 8.07%, annual principal payments of $4,167,000 beginning on November 26, 2001
and maturing November 26, 2006. The Company's financing agreements contain
certain restrictive covenants which require the Company, among other things, to
maintain specified levels of net income, working capital, tangible net worth and
financial ratios, and also impose limitations on capital expenditures,
additional indebtedness, leases, guarantees and the payment of dividends. The
Company was in compliance with all such covenants of the above agreements as of
September 29, 1996 and December 29, 1996.
F-9
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2--FINANCING ARRANGEMENTS (CONTINUED)
Maturities of long-term debt for the five years subsequent to December 29,
1996 and September 29, 1996 are as follows:
<TABLE>
<CAPTION>
DEC. 29, SEPT. 29,
1996 1996
------------- -------------
<S> <C> <C>
1997.................................................................. $ 5,760 $ 5,760
1998.................................................................. 4,620 5,340
1999.................................................................. 4,000 4,620
2000.................................................................. 4,000 4,000
2001.................................................................. 12,333 12,333
Thereafter............................................................ 51,892 26,892
------------- -------------
$ 82,605 $ 58,945
------------- -------------
------------- -------------
</TABLE>
3--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................................... $ 2,485 $ 3,277 $ 8,204 $ 8,142 $ 3,123
State............................................ 597 441 1,332 1,025 446
Deferred........................................... (296) (2,911) (6,085) (2,498) (1,493)
----------- ----------- ----------- ----------- -----------
$ 2,786 $ 807 $ 3,451 $ 6,669 $ 2,076
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The deferred benefit is composed of the following:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Asset bases, lives and depreciation methods........ $ (284) $ (167) $ (895) $ (552) $ (1,002)
Reserves and accruals not currently deductible..... (118) (2,743) (5,888) (1,534) (60)
Tax credits........................................ 106 (1) 698 (407) (427)
Other, net......................................... -- -- -- (5) (4)
----- ----------- ----------- ----------- -----------
$ (296) $ (2,911) $ (6,085) $ (2,498) $ (1,493)
----- ----------- ----------- ----------- -----------
----- ----------- ----------- ----------- -----------
</TABLE>
F-10
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3--INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory tax rate to the effective tax rate
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate........................... 35% 35% 35% 35% 34%
Effect of:
State income taxes, net of federal income tax benefits.... 2 2 3 2 4
Tax benefits of the Foreign Sales Corporation............. (14) (15) (19) (12) (12)
Other, net................................................ (3) -- 1 (1) --
-- -- -- -- --
20% 22% 20% 24% 26%
-- -- -- -- --
-- -- -- -- --
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 29, 1996, the
Company had unused tax credits of $2,657,000, all of which can be carried
forward indefinitely. A valuation allowance of $657,000 has been recognized to
offset the related deferred tax assets due to the uncertainty of realizing the
benefit of certain tax credits. The following is a table of the significant
components of the Company's deferred tax assets:
<TABLE>
<CAPTION>
DEC. 29, SEPT. 29, SEPT. 24,
DEFERRED TAX ASSETS 1996 1996 1995
- ----------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Current deferred tax assets:
Sales and accounts receivables........................... $ 1,107 $ 873 $ 702
Inventories.............................................. 5,339 5,419 1,830
Accruals and other reserves.............................. 2,481 2,367 1,783
------------ ------------- -------------
Total current deferred tax assets........................ 8,927 8,659 4,315
Long-term deferred tax assets (liabilities):
Property, plant and equipment............................ 4,037 3,753 2,858
Accruals and other reserves.............................. 2,050 2,146 602
Tax credits.............................................. 2,657 2,738 4,933
Valuation allowance...................................... (657) (738) (2,235)
------------ ------------- -------------
Total long-term deferred tax assets...................... 8,087 7,899 6,158
------------ ------------- -------------
Total deferred tax assets.................................. $ 17,014 $ 16,558 $ 10,473
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
4--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of these instruments.
SECURITIES AVAILABLE FOR SALE--The fair value of these instruments is based
on quoted market prices.
F-11
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT--The fair value of the Company's long-term debt is estimated
based on the discounted value of the future cash flows expected to be paid on
the loans. The discount rate used to estimate the fair value of the loans is the
rate currently available to the Company for loans with similar terms and
maturities.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DEC. 29, 1996 SEPT. 29, 1996 SEPT. 24, 1995
-------------------- -------------------- --------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 54,482 $ 54,482 $ 22,884 $ 22,884 $ 30,479 $ 30,479
Securities available for sale....................... 3,169 3,169 3,064 3,064 1,190 1,190
Long-term debt...................................... 82,605 81,556 58,945 59,619 37,700 37,593
</TABLE>
5--EMPLOYEE BENEFITS
STOCK OPTIONS--In January 1995, the shareholders approved an amendment to
the 1988 Stock Option Plan under which up to 3,000,000 common shares are
reserved for issuance, of which options representing 2,875,545 common shares and
2,332,545 common shares have been granted as of December 29, 1996 and September
29, 1996, respectively. Options may be granted to any employee, including
officers and directors of the Company, prior to May 31, 1998, at a price not
less than the fair market value of the Company's common stock at the date the
options are granted.
The plan limits the number of shares for which any single employee may be
granted options in any one calendar year to 300,000 and options generally expire
ten years from the date of grant or at an earlier date as determined by the
committee of the Board of Directors that administers the plan.
Options granted under the 1988 Stock Option Plan may not be exercised for at
least six months from the date of grant.
<TABLE>
<CAPTION>
1988 STOCK OPTION
PLAN
---------------------
<S> <C>
Balance, September 26, 1993............................................ 905,550
Granted at $10.33.................................................... 161,400
Exercised at $2.58 to $8.17.......................................... (7,200)
Expired.............................................................. (75)
----------
Balance, September 25, 1994............................................ 1,059,675
Granted at $7.75..................................................... 382,260
Exercised at $2.00 to $10.33......................................... (345,009)
----------
Balance, September 24, 1995............................................ 1,096,926
Granted at $16.33.................................................... 438,510
Exercised at $3.92 to $7.75.......................................... (15,810)
----------
Balance, September 29, 1996............................................ 1,519,626
Granted at $17.33.................................................... 543,000
Excercised at $3.92 to $16.33........................................ (17,265)
Expired.............................................................. (8,235)
----------
Balance, December 29, 1996............................................. 2,037,126
----------
----------
</TABLE>
F-12
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5--EMPLOYEE BENEFITS (CONTINUED)
EMPLOYEE BENEFIT PLANS--The Company has a defined contribution plan covering
its employees. The Company's contributions to the plan were $1,574,000 in the
first thirteen weeks of fiscal 1997, $1,501,000 in the first thirteen weeks of
fiscal 1996, $6,463,000 in fiscal 1996, $3,979,000 in fiscal 1995 and $2,241,000
in fiscal 1994.
The Company sponsors a comprehensive medical and dental plan for qualified
employees that is funded by contributions from both the Company and plan
participants. Contributions are made through a Voluntary Employee's Benefit
Association Trust. The Company recognized expense related to these plans of
$3,205,000 in the first thirteen weeks of fiscal 1997, $2,775,000 in the first
thirteen weeks of fiscal 1996, $13,439,000 in fiscal 1996, $10,427,000 in fiscal
1995 and $10,001,000 in fiscal 1994.
6--COMMITMENTS AND CONTINGENCIES
The Company is committed under various operating lease agreements. Total
rent expense under these operating leases was $2,477,000 in the first thirteen
weeks of fiscal 1997, $1,414,000 in the first thirteen weeks of fiscal 1996,
$7,502,000 in fiscal 1996, $4,866,000 in fiscal 1995 and $4,199,000 in fiscal
1994. Future minimum payments for all operating leases with initial or remaining
terms of one year or more subsequent to September 29, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 8,573
1998............................................................... 7,381
1999............................................................... 5,199
2000............................................................... 3,540
2001 and thereafter................................................ 22,119
</TABLE>
During the first quarter of fiscal 1997, the Company signed a Master Lease
Agreement for up to $25,000,000 with General Electric Capital Corporation. The
agreement provides for leasing of various manufacturing equipment in fiscal 1997
for a noncancellable term of four years with various alternatives at the end of
the lease term.
On May 1, 1996, the Company obtained $15,300,000 from a sale/leaseback
transaction of its Eau Claire, Wisconsin assembly manufacturing building, which
has a term of 15 years.
The Company entered into a Technology Transfer and Development Agreement
(the "Technology Sharing Agreement") and a Patent License Agreement with IBM
during fiscal 1995. Under the Technology Sharing Agreement, IBM made available
to the Company the results of many years of research by IBM into a new type of
suspension, called an integrated lead suspension. The Company itself had devoted
substantial efforts independent of IBM to the research and development of
TSA-TM- suspensions, and contributed its existing TSA-TM- suspension technology
to the joint effort. The Company and IBM will continue to pursue joint research
and development efforts to complete the commercialization of integrated lead
suspension designs. As of December 29, 1996, the Company had made payments to
IBM totalling $1,500,000 and will make additional payments over the next three
fiscal years totalling $6,500,000, all of which has been reflected as an
expense, $2,500,000 during the third quarter of fiscal 1995 and $5,500,000
resulting from an amendment during the first quarter of fiscal 1996.
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 manufacturing equipment or products or to
F-13
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
7--SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
DEC. 29, DEC. 24, FISCAL FISCAL FISCAL
1996 1995 1996 1995 1994
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Changes in operating assets and liabilities:
Receivables, net...................................... $ (10,210) $ (5,144) $ (10,353) $ (1,568) $ (16,795)
Inventories........................................... 1,852 (2,766) (3,937) (3,769) (1,630)
Prepaid taxes and other expenses...................... 139 249 (334) (1,231) 1,023
Accounts payable and accrued liabilities.............. 10,111 8,090 8,850 15,725 959
Other noncurrent liabilities.......................... (18) 5,000 4,052 1,500 --
---------- --------- ---------- --------- ----------
$ 1,874 $ 5,429 $ (1,722) $ 10,657 $ (16,443)
---------- --------- ---------- --------- ----------
---------- --------- ---------- --------- ----------
Cash paid for:
Interest (net of amount capitalized).................. $ 116 $ 191 $ 1,703 $ 2,655 $ 767
Income taxes.......................................... 1,569 1,236 8,405 7,792 6,055
</TABLE>
Capitalized interest was $455,000 in the first thirteen weeks of fiscal
1997, $258,000 in the first thirteen weeks of fiscal 1996, $1,206,000 in fiscal
1996, $512,000 in fiscal 1995 and $1,142,000 in fiscal 1994.
8--SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
The following table summarizes unaudited financial data for the thirteen
weeks ended December 29, 1996 and for fiscal years 1996 and 1995:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 BY QUARTER FISCAL 1995 BY QUARTER
----------- ------------------------------------------ -------------------------------
FIRST
QUARTER FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 106,906 $ 83,332 $ 86,546 $ 91,418 $ 91,890 $ 63,495 $ 67,889 $ 81,892
Gross profit............................ 31,112 21,444 17,879 21,786 18,461 12,988 15,239 21,895
Income from operations.................. 14,455 3,828 5,592 6,878 1,905 3,474 5,678 8,113
Income before income taxes.............. 13,903 3,669 5,553 6,663 1,368 3,178 5,282 7,886
Net income.............................. 11,117 2,862 4,332 5,199 1,409 2,345 4,084 5,988
Net income per share.................... $ 0.66 $ 0.17 $ 0.26 $ 0.31 $ 0.08 $ 0.14 $ 0.25 $ 0.36
Price range per share:
High.................................. $ 26.79 $ 21.83 $ 17.16 $ 19.46 $ 14.38 $ 9.58 $ 10.58 $ 14.67
Low................................... 12.75 15.17 12.17 12.75 10.25 7.67 8.08 9.50
<CAPTION>
FOURTH
---------
<S> <C>
Net sales............................... $ 86,722
Gross profit............................ 23,641
Income from operations.................. 11,656
Income before income taxes.............. 11,401
Net income.............................. 8,661
Net income per share.................... $ 0.52
Price range per share:
High.................................. $ 29.67
Low................................... 14.08
</TABLE>
F-14
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8--SUMMARY OF QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
The price range per share, reflected above, is the highest and lowest
closing prices as quoted on the Nasdaq National Market during each quarter.
9--SUBSEQUENT EVENT
On January 20, 1997, the Company announced that the Board of Directors
declared a three-for-one stock split of the Company's common stock, effective at
the close of business on February 11, 1997, for shareholders of record at the
close of business on January 31, 1997. The Company also changed the par value of
its common stock to $.01 per share. Common share and earnings per share amounts
in the accompanying consolidated financial statements have been retroactively
adjusted to reflect the stock split and par value change.
F-15
<PAGE>
[Picture of suspension [Picture of recording [Picture showing force
assemblies] head flying over disk] applied to recording
head by suspension
assembly]
SUSPENSION ASSEMBLIES HEADS FLY ON THIN AIR CRITICAL LOCATION OF
ACTUAL SIZE FILM FORCE
IMPORTANCE OF SUSPENSION ASSEMBLIES--The Company's suspension assemblies are
critical to the performance of disk drives.
Disk drive heads do not touch the surface of the spinning disk but instead fly
at a critical microscopic distance above the disk. Excessive flying height
impairs the ability of the head to read or write data; insufficient flying
height causes the head to hit the disk surface which destroys the magnetic
coating (and the data) on the disk.
The head stays at the correct flying height because of the equilibrium of the
downward force applied by the suspension assembly and the upward force of the
air driven under the head by the spinning disk.
The applied suspension force is not the only factor that controls flying height.
The suspension must apply the force at precisely the right point on the head,
the suspension must hold the head at the correct angles in two axes
simultaneously and the suspension must accommodate motions of the head due to
undulations in the disk and irregularities in rotation.
While all parts of the suspension are important in drive performance, of
greatest concern is the design and precision of the gimbal or flexure. The
Company's customers attach the head to the gimbal or flexure which must hold
smaller and smaller heads at lower and lower flying heights. Some suspensions
incorporate a gimbal etched and formed from the same material as the load beam.
Other suspensions terminate in a flexure that is laser welded to the load beam
and allows the head to pivot on a precisely located dimple.
Because head size is such an important factor in determining the head's flying
characteristics and because smaller heads require special considerations in the
designs of the suspension assemblies, the Company organizes its suspension
designs around platforms based on the size of the head (micro, nano and pico).
Most of the heads now in production are of inductive type and are made with thin
film deposition techniques. Magneto-resistive heads (MR), a more complex variant
of inductive types, are being used in increasing numbers because they offer
higher data densities in some applications. MR heads have several more leads
connected to them and therefore are likely candidates for the Company's TSA-TM-
suspensions.
ANGLES ARE CRITICAL TO COMPLIANCE ACCOMMODATES COMPONENTS OF SUSPENSION
FLIGHT DISK IMPERFECTIONS ASSEMBLY
[Picture showing pitch [Picture showing [Picture of suspension
and roll of recording recording head flying assembly components]
head over disk] over irregular disk
surface]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 5
USE OF PROCEEDS........................................................... 9
DIVIDEND POLICY........................................................... 9
PRICE RANGE OF COMMON STOCK............................................... 9
CAPITALIZATION............................................................ 10
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION...................................................... 12
BUSINESS.................................................................. 19
MANAGEMENT................................................................ 27
PRINCIPAL AND SELLING SHAREHOLDERS........................................ 29
UNDERWRITING.............................................................. 31
LEGAL MATTERS............................................................. 32
EXPERTS................................................................... 32
AVAILABLE INFORMATION..................................................... 32
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
3,375,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
DAIN BOSWORTH
INCORPORATED
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 42,247
NASD filing fee................................................... 14,442
Nasdaq listing fee................................................ 17,500
Printing expenses................................................. 100,000
Fees and expenses of counsel...................................... 200,000
Fees and expenses of accountants.................................. 50,000
Transfer agent and registrar fees................................. 5,000
Blue sky fees and expenses........................................ 5,000
Miscellaneous..................................................... 15,811
---------
Total......................................................... $ 450,000
---------
---------
</TABLE>
Except for the SEC registration fee, the NASD filing fee and the Nasdaq
listing fee, all of the foregoing expenses have been estimated. All of such
expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is subject to Minnesota Statutes Chapter 302A, the Minnesota
Business Corporation Act (the "Corporation Act"). Section 302A.521 of the
Corporation Act provides in substance that, unless prohibited by its articles of
incorporation or bylaws, a corporation must indemnify an officer or director who
is made or threatened to be made a party to a proceeding by reason of his
official capacity against judgments, penalties, fines, settlements and
reasonable expenses, including attorneys' fees and disbursements, incurred by
such person in connection with the proceeding, if certain criteria are met.
These criteria, all of which must be met by the person seeking indemnification,
are (a) that such person has not been indemnified by another organization for
the same judgments, penalties, fines, settlements and expenses; (b) that such
person must have acted in good faith; (c) that no improper personal benefit was
obtained by such person and such person satisfied certain statutory conflicts of
interest provisions, if applicable; (d) that in the case of a criminal
proceeding, such person had no reasonable cause to believe that the conduct was
unlawful; and (e) that such person must have acted in a manner he reasonably
believed was in the best interests of the corporation or, in certain limited
circumstances, not opposed to the best interests of the corporation. The
determination as to eligibility for indemnification is made by the members of
the corporation's board of directors or a committee of the board who are at the
time not parties to the proceedings under consideration, by special legal
counsel, by the shareholders who are not parties to the proceedings or by a
court. Section 4.01 of the Restated By-Laws of the Registrant requires
indemnification by the Registrant in such manner, under such circumstances and
to such extent as required or permitted by Section 302A.521 of the Corporation
Act, as amended from time to time, or as required or permitted by other
provisions of law.
Under Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto,
the Underwriters agree to indemnify, under certain conditions, the Registrant,
its directors, certain of its officers and persons who control the Registrant
within the meaning of the Securities Act of 1933, as amended, against certain
liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Restated Articles of Incorporation of the Registrant (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
Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1987,
File No. 0-14709) and by Articles of Amendment dated January 21, 1997 (incorporated
by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 29, 1996, File No. 0-14709).
4.2 Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December 29, 1996,
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 of 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 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).
4.6 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).
4.7 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) and
Amendment dated as of March 15, 1996 (incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 24, 1996, File
No. 0-14709).
</TABLE>
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<TABLE>
<C> <S>
4.8 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) and Amendment dated as
of March 15, 1996 (incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 24, 1996, File No.
0-14709).
4.9 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) and Amendment dated as of March 15,
1996 (incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 24, 1996, File No. 0-14709).
4.10 Credit Agreement between the Company and The First National Bank of Chicago, dated as
of December 8, 1995 (incorporated by reference to Exhibit 4.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 24, 1995, File No.
0-14709), and First Amendment dated as of June 22, 1996 (incorporated by reference to
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
23, 1996, File No. 0-14709).
4.11 Note Purchase Agreement dated as of July 26, 1996, providing for the placement of
$15,000,000 of senior unsecured notes with Metropolitan Insurance and Annuity Company
(incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 29, 1996, File No. 0-14709).
4.12 Note Purchase Agreement dated as of July 26, 1996, providing for the placement of
$10,000,000 of senior unsecured notes with Metropolitan Life Insurance Company
(incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 29, 1996, File No. 0-14709).
4.13 Note Purchase Agreement dated as of July 26, 1996, providing for the placement of
$25,000,000 of senior unsecured notes with Teachers Insurance and Annuity Association
of America (incorporated by reference to Exhibit 4.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 29, 1996, File No. 0-14709).
5.1 Opinion and consent of Faegre & Benson LLP, counsel for the Registrant.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Faegre & Benson LLP (included in Exhibit 5.1).
24.1 Powers of attorney (included with signatures to this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
II-3
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hutchinson and State of Minnesota on the fifth day of
February, 1997.
HUTCHINSON TECHNOLOGY INCORPORATED
By /s/ WAYNE M. FORTUN
------------------------------------------
Wayne M. Fortun
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
Each of the undersigned hereby appoints Jeffrey W. Green, Wayne M. Fortun
and John A. Ingleman, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of substitution, for
and in the name, place and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 any and all
amendments and exhibits to this Registration Statement and any and all
applications, instruments and other documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities covered
hereby, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ---------------------------------- -------------------
<C> <S> <C>
President, Chief Executive Officer
/s/ WAYNE M. FORTUN and Chief Operating Officer
- ------------------------------------ (Principal Executive Officer) February 5, 1997
Wayne M. Fortun and Director
Vice President, Chief Financial
/s/ JOHN A. INGLEMAN Officer and Secretary (Principal
- ------------------------------------ Financial Officer and Principal February 5, 1997
John A. Ingleman Accounting Officer)
/s/ W. THOMAS BRUNBERG
- ------------------------------------ Director February 5, 1997
W. Thomas Brunberg
/s/ ARCHIBALD COX, JR.
- ------------------------------------ Director February 5, 1997
Archibald Cox, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ---------------------------------- -------------------
<C> <S> <C>
/s/ JAMES E. DONAGHY
- ------------------------------------ Director February 5, 1997
James E. Donaghy
/s/ HARRY C. ERVIN, JR.
- ------------------------------------ Director February 5, 1997
Harry C. Ervin, Jr.
/s/ JEFFREY W. GREEN
- ------------------------------------ Director February 5, 1997
Jeffrey W. Green
/s/ RICHARD N. ROSETT
- ------------------------------------ Director February 5, 1997
Richard N. Rosett
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S> <C>
1.1 Form of Underwriting Agreement..................................... Electronically Filed
4.1 Restated Articles of Incorporation of the Registrant (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 Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 27,
1987, File No. 0-14709) and by Articles of Amendment dated January
21, 1997 (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1996, File No. 0-14709).
4.2 Restated By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 29, 1996, 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 of 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 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).
4.6 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).
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4.7 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)
and Amendment dated as of March 15, 1996 (incorporated by reference
to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 24, 1996, File No. 0-14709).
4.8 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) and Amendment dated as of
March 15, 1996 (incorporated by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
24, 1996, File No. 0-14709).
4.9 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) and Amendment dated as of March
15, 1996 (incorporated by reference to Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 24, 1996,
File No. 0-14709).
4.10 Credit Agreement between the Company and The First National Bank of
Chicago, dated as of December 8, 1995 (incorporated by reference to
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 24, 1995, File No. 0-14709), and First
Amendment dated as of June 22, 1996 (incorporated by reference to
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 23, 1996, File No. 0-14709).
4.11 Note Purchase Agreement dated as of July 26, 1996, providing for
the placement of $15,000,000 of senior unsecured notes with
Metropolitan Insurance and Annuity Company (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form
10-K for the fiscal year ended September 29, 1996, File No.
0-14709).
4.12 Note Purchase Agreement dated as of July 26, 1996, providing for
the placement of $10,000,000 of senior unsecured notes with
Metropolitan Life Insurance Company (incorporated by reference to
Exhibit 4.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 29, 1996, File No. 0-14709).
4.13 Note Purchase Agreement dated as of July 26, 1996, providing for
the placement of $25,000,000 of senior unsecured notes with
Teachers Insurance and Annuity Association of America (incorporated
by reference to Exhibit 4.8 to the Company's Annual Report on Form
10-K for the fiscal year ended September 29, 1996, File No.
0-14709).
5.1 Opinion and consent of Faegre & Benson LLP, counsel for the
Registrant......................................................... Electronically Filed
23.1 Consent of Independent Public Accountants.......................... Electronically Filed
23.2 Consent of Faegre & Benson LLP (included in Exhibit 5.1).
24.1 Powers of attorney (included with signatures to this Registration
Statement).
27.1 Financial Data Schedule............................................ Electronically Filed
</TABLE>
<PAGE>
MONTGOMERY SECURITIES
FORM UNDERWRITING AGREEMENT
[Draft of February 5, 1997]
3,375,000 SHARES
HUTCHINSON TECHNOLOGY INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
DATED FEBRUARY , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................... 2
Compliance with Registration Requirements.................................................... 2
Offering Materials Furnished to Underwriters................................................. 2
Distribution of Offering Material By the Company............................................. 2
The Underwriting Agreement................................................................... 3
Authorization of the Common Shares........................................................... 3
No Applicable Registration or Other Similar Rights........................................... 3
No Material Adverse Change................................................................... 3
Independent Accountants...................................................................... 3
Preparation of the Financial Statements...................................................... 3
Incorporation and Good Standing of the Company and its Subsidiaries.......................... 3
Capitalization and Other Capital Stock Matters............................................... 4
Stock Exchange Listing....................................................................... 4
Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required... 4
No Material Actions or Proceedings........................................................... 5
Intellectual Property Rights................................................................. 5
All Necessary Permits, etc................................................................... 5
Title to Properties.......................................................................... 5
Tax Law Compliance........................................................................... 6
Company Not an "Investment Company".......................................................... 6
Insurance.................................................................................... 6
No Price Stabilization or Manipulation....................................................... 6
Related Party Transactions................................................................... 6
Exchange Act Compliance...................................................................... 6
No Unlawful Contributions or Other Payments.................................................. 6
Company's Accounting System.................................................................. 7
Compliance with Environmental Laws........................................................... 7
Periodic Review of Costs of Environmental Compliance......................................... 7
ERISA Compliance............................................................................. 8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS............................................ 8
The Underwriting Agreement................................................................... 8
The Custody Agreement and Power of Attorney.................................................. 8
Title to Common Shares to be Sold; All Authorizations Obtained............................... 9
Non-Contravention; No Further Authorizations or Approvals Required........................... 9
No Registration or Other Similar Rights...................................................... 9
No Further Consents, etc..................................................................... 9
Disclosure Made by Such Selling Shareholder in the Prospectus................................ 9
No Price Stabilization or Manipulation....................................................... 10
Confirmation of Company Representations and Warranties 10
</TABLE>
i
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<TABLE>
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<S> <C> <C>
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES............................................. 10
The Firm Common Shares....................................................................... 10
The First Closing Date....................................................................... 10
The Optional Common Shares; the Second Closing Date.......................................... 10
Public Offering of the Common Shares......................................................... 11
Payment for the Common Shares................................................................ 11
Delivery of the Common Shares................................................................ 11
Delivery of Prospectus to the Underwriters................................................... 12
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY.......................................................... 12
A. COVENANTS OF THE COMPANY.............................................................................. 12
Underwriters' Review of Proposed Amendments and Supplements.................................. 12
Securities Act Compliance.................................................................... 12
Amendments and Supplements to the Prospectus and Other Securities Act Matters................ 12
Copies of any Amendments and Supplements to the Prospectus................................... 13
Blue Sky Compliance.......................................................................... 13
Use of Proceeds.............................................................................. 13
Transfer Agent............................................................................... 13
Earnings Statement........................................................................... 13
Periodic Reporting Obligations............................................................... 13
Agreement Not To Offer or Sell Additional Securities......................................... 13
Future Reports to Montgomery Securities...................................................... 13
Exchange Act Compliance...................................................................... 14
B. COVENANTS OF THE SELLING SHAREHOLDERS................................................................. 14
Agreement Not to Offer or Sell Additional Securities......................................... 14
Delivery of Form W-9......................................................................... 14
SECTION 4. PAYMENT OF EXPENSES.......................................................................... 14
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS............................................ 15
Accountants' Comfort Letter.................................................................. 15
Compliance with Registration Requirements; No Stop Order; No Objection from NASD............. 15
No Material Adverse Change or Ratings Agency Change.......................................... 16
Opinion of Counsel for the Company........................................................... 16
Opinion of Counsel for the Underwriters...................................................... 16
Officers' Certificate........................................................................ 16
Bring-down Comfort Letter.................................................................... 16
Opinion of Counsel for the Selling Shareholders.............................................. 16
Selling Shareholders' Certificate............................................................ 17
Selling Shareholders' Documents.............................................................. 17
Lock-Up Agreement from Certain Shareholders of the Company Other Than Selling Shareholders... 17
Additional Documents......................................................................... 17
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES...................................................... 17
</TABLE>
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SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.............................................................. 17
SECTION 8. INDEMNIFICATION.............................................................................. 18
Indemnification of the Underwriters.......................................................... 18
Indemnification of the Company, its Directors and Officers................................... 19
Notifications and Other Indemnification Procedures........................................... 19
Settlements.................................................................................. 20
SECTION 9. CONTRIBUTION................................................................................. 20
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITER............................................ 21
SECTION 11. TERMINATION OF THIS AGREEMENT................................................................ 22
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.......................................... 22
SECTION 13. NOTICES...................................................................................... 22
SECTION 14. SUCCESSORS................................................................................... 23
SECTION 15. PARTIAL UNENFORCEABILITY..................................................................... 23
SECTION 16. GOVERNING LAW PROVISIONS..................................................................... 23
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL AND DELIVER COMMON SHARES......... 24
SECTION 18. GENERAL PROVISIONS........................................................................... 24
</TABLE>
iii
<PAGE>
UNDERWRITING AGREEMENT
February [ ], 1997
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
Dain Bosworth Incorporated
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Hutchinson Technology Technology Incorporated, an Minnesota
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in SCHEDULE A (the "Underwriters") an aggregate of 3,000,000
shares of its Common Stock, par value $0.01 per share (the "Common Stock"); and
the shareholders of the Company named in SCHEDULE B (collectively, the "Selling
Shareholders") severally propose to sell to the Underwriters an aggregate of
375,000 shares of Common Stock. The 3,000,000 shares of Common Stock to be sold
by the Company and the 375,000 shares of Common Stock to be sold by the Selling
Shareholders are collectively called the "Firm Common Shares." In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional 506,250 shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-[ ]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), including all documents
incorporated or deemed to be incorporated by reference therein and any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, or the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act"), is called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement," and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus;" PROVIDED,
HOWEVER, if the Company has, with the consent of Montgomery Securities, elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [ ] (such preliminary prospectus is called
the "Rule 434 preliminary prospectus"), together with the applicable term sheet
(the "Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"). All references in this
Agreement to financial statements and schedules and other information which is
"contained," "included" or "stated" in the Registration Statement or the
Prospectus (and all other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is or is deemed to be incorporated by reference in the Registration Statement or
the Prospectus, as the case may
<PAGE>
be; and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of the
Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to
the Underwriters for use in connection with the offer and sale of the Common
Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus, as amended or supplemented, as of its date
and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and
warranties set forth in the two immediately preceding sentences do not apply
to statements in or omissions from the Registration Statement, any Rule
462(b) Registration Statement, or any post-effective amendment thereto, or
the Prospectus, or any amendments or supplements thereto, made in reliance
upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by the Underwriters expressly for use
therein. There are no contracts or other documents required to be described
in the Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to each of the Underwriters one complete manually signed copy of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Underwriters have reasonably requested.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
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(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement, will be validly issued, fully
paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) except as specifically disclosed in
the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company or, except for dividends paid to the
Company or other subsidiaries, any of its subsidiaries on any class of
capital stock or repurchase or redemption by the Company or any of its
subsidiaries of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. Arthur Andersen LLP, who have expressed
their opinion with respect to the financial statements (which term as used
in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement
and included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act and the Exchange Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries as of and at the dates
indicated and the results of their operations and cash flows for the periods
specified. The supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules
are required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Selected Financial Data," "Selected Financial Data" and
"Capitalization" fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained in the
Registration Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation and has corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and, in the case of the Company, to
enter into and perform its obligations under this Agreement. Each of the
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Company and each subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Minnesota and each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of Minnesota) where the
failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change. All of the issued and
outstanding capital stock of each subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim. The Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than the subsidiaries listed in Exhibit 22 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 29, 1996.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus.
All of the issued and outstanding shares of Common Stock (including the
shares of Common Stock owned by Selling Shareholders) have been duly
authorized and validly issued, are fully paid and nonassessable and have
been issued in compliance with federal and state securities laws. None of
the outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no authorized
or outstanding options, warrants, preemptive rights, rights of first refusal
or other rights to purchase, or equity or debt securities convertible into
or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus.
The description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(l) STOCK EXCHANGE LISTING. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock
from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. (the "NASD") is contemplating terminating such registration or
listing.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound
(including, without limitation, the Company's $25,000,000 7.85% Senior Notes
due 2003 and $25,000,000 8.07% Senior Notes due 2006 with Metropolitan Life
Insurance and Annuity Company, Metropolitan Life Insurance Company and
Teachers Insurance and Annuity Association of America as Lenders, or to
which any of the property or assets of the Company or any of its
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a
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breach of, or Default [or a Debt Repayment Triggering Event (as defined
below)(1)] under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, or require the consent of any other part to,
any Existing Instrument, except for such conflicts, breaches, Defaults,
liens, charges or encumbrances as would not, individually or in the
aggregate, result in a Material Adverse Change and (iii) will not result in
any violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary. No consent,
approval, authorization or other order of, or registration or filing with,
any court or other governmental or regulatory authority or agency, is
required for the Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by
the Prospectus, except such as have been obtained or made by the Company and
are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and from the National Association of Securities
Dealers, Inc. (the "NASD"). As used herein, a "Debt Repayment Triggering
Event" means any event or condition which gives, or with the giving of
notice or lapse of time would give, the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of all
or a portion of such indebtedness by the Company or any of its subsidiaries.
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any
of its subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company or
such subsidiary and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the employees
of the Company or any of its subsidiaries, or with the employees of any
principal supplier of the Company, exists or, to the best of the Company's
knowledge, is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict, if the subject of an unfavorable
decision, would result in a Material Adverse Change.
(p) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(A) (i) above (or
elsewhere in the Prospectus), in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of
such property and do not materially interfere with the use
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(1) This is an appropriate insertion for those issuers with below-investment
grade debt outstanding.
5
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made or proposed to be made of such property by the Company or such
subsidiary. The real property, improvements, equipment and personal property
held under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or
such subsidiary.
(r) TAX LAW COMPLIANCE. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and, if
due and payable, any related or similar assessment, fine or penalty levied
against any of them. The Company has made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section 1
[(A)] (i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company
or any of its consolidated subsidiaries has not been finally determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(t) INSURANCE. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or leased
by the Company and its subsidiaries against theft, damage, destruction, acts
of vandalism and earthquakes. The Company has no reason to believe that it
or any subsidiary will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to
conduct its business as now conducted and at a cost that would not result in
a Material Adverse Change. Neither of the Company nor any subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(v) RELATED PARTY TRANSACTIONS. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(w) EXCHANGE ACT COMPLIANCE. The documents incorporated or deemed to
be incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and at
the First Closing Date and the Second Closing Date, as the case may be, will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(x) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
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federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(y) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required
for the operation of the business of the Company or its subsidiaries under
applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company or any of its subsidiaries received
any written communication, whether from a governmental authority, citizens
group, employee or otherwise, that alleges that the Company or any of its
subsidiaries is in violation of any Environmental Law; (ii) there is no
claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal
injuries, attorneys' fees or penalties arising out of, based on or resulting
from the presence, or release into the environment, of any Material of
Environmental Concern at any location owned, leased or operated by the
Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could
result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries
or against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(aa) PERIODIC REVIEW OF COSTS OF ENVIRONMENTAL COMPLIANCE. In the
ordinary course of its business, the Company conducts a periodic review of
the effect of Environmental Laws on the business, operations and properties
of the Company and its subsidiaries, in the course of which it identifies
and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review and the
amount of its established
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reserves, the Company has reasonably concluded that such associated costs
and liabilities would not, individually or in the aggregate, result in a
Material Adverse Change.
(bb) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a subsidiary, any member of
any group of organizations described in Sections 414(b),(c),(m) or (o) of
the Internal Revenue Code of 1986, as amended, and the regulations and
published interpretations thereunder (the "Code") of which the Company or
such subsidiary is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would
have any "amount of unfunded benefit liabilities" (as defined under ERISA).
Neither the Company, its subsidiaries nor any of their ERISA Affiliates has
incurred or reasonably expects to incur any liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "employee
benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
Any certificate signed by an officer of the Company and delivered to
Montgomery Securities or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. In addition
to the representations, warranties and covenants set forth in Section 1(A), each
Selling Shareholder represents, warrants and covenants to each Underwriter as
follows:(2)
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the (i)
Custody Agreement signed by such Selling Shareholder and [ ], as
custodian (the "Custodian"), relating to the deposit of the Common Shares to
be sold by such Selling Shareholder (the "Custody Agreement") and (ii) Power
of Attorney appointing certain individuals named therein as such Selling
Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the extent
set forth therein relating to the transactions contemplated hereby and by
the Prospectus (the "Power of Attorney"), of such Selling Shareholder has
been duly authorized, executed and delivered by such Selling Shareholder and
is a valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder
may be limited by applicable law and except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
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(2) Conforming changes may be required to this Section 1(B) following negotiated
and other changes to Section 1(A).
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similar laws relating to or affecting the rights and remedies of creditors
or by general equitable principles.
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS
OBTAINED. Such Selling Shareholder has, and on the First Closing Date and
the Second Closing Date (as defined below) will have, good and valid title
to all of the Common Shares which may be sold by such Selling Shareholder
pursuant to this Agreement on such date and the legal right and power, and
all authorizations and approvals required by law [and under its charter or
by-laws,] [partnership agreement,] [trust agreement] [or other
organizational documents]to enter into this Agreement and its Custody
Agreement and Power of Attorney, to sell, transfer and deliver all of the
Common Shares which may be sold by such Selling Shareholder pursuant to this
Agreement and to comply with its other obligations hereunder and thereunder.
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the Common
Shares which are sold by such Selling Shareholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED. The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to [, the charter or
by-laws, [partnership agreement,] [trust agreement] or other organizational
documents of such Selling Shareholder or] any [other] agreement or
instrument to which such Selling Shareholder is a party or by which it is
bound or under which it is entitled to any right or benefit, any provision
of applicable law or any judgment, order, decree or regulation applicable to
such Selling Shareholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Shareholder. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority or
agency, is required for the consummation by such Selling Shareholder of the
transactions contemplated in this Agreement, except such as have been
obtained or made and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling Shareholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except
for such rights as are described in the Prospectus under "Shares Eligible
for Future Sale."
(g) NO FURTHER CONSENTS, ETC. No consent, approval or waiver is
required under any instrument or agreement to which such Selling Shareholder
is a party or by which it is bound or under which it is entitled to any
right or benefit, in connection with the offering, sale or purchase by the
Underwriters of any of the Common Shares which may be sold by such Selling
Shareholder under this Agreement or the consummation by such Selling
Shareholder of any of the other transactions contemplated hereby.
(h) DISCLOSURE MADE BY SUCH SELLING SHAREHOLDER IN THE PROSPECTUS. All
information furnished by or on behalf of such Selling Shareholder in writing
expressly for use in the Registration Statement and Prospectus is, and on
the First Closing Date and the Second Closing Date will be, true, correct,
and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make such information not misleading. Such Selling Shareholder confirms as
accurate the number of shares of Common Stock set forth opposite such
Selling Shareholder's name in the Prospectus under the caption "Principal
and Selling Shareholders" (both prior to and after giving effect to the sale
of the Common Shares).
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(i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization
or manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(j) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES. Such
Selling Shareholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement or the Prospectus which has had or
may have a Material Adverse Effect and is not prompted to sell shares of
Common Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to Montgomery Securities or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
THE FIRM COMMON SHARES. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of 3,000,000
Firm Common Shares and (ii) the Selling Shareholders agree to sell to the
several Underwriters an aggregate of 375,000 Firm Common Shares, each Selling
Shareholder selling the number of Firm Common Shares set forth opposite such
Selling Shareholder's name on SCHEDULE B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Shareholders the
respective number of Firm Common Shares set forth opposite their names on
SCHEDULE A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Shareholders shall be $[ ] per
share.
THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common Shares
to be purchased by the Underwriters and payment therefor shall be made at the
offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and
Montgomery Securities) at 6:00 a.m. San Francisco time, on [ ],
or such other time and date not later than 10:30 a.m. San Francisco time, on
[ ] as Montgomery Securities shall designate by notice to the
Company (the time and date of such closing are called the "First Closing Date").
The Company and the Selling Shareholders hereby acknowledge that circumstances
under which Montgomery Securities may provide notice to postpone the First
Closing Date as originally scheduled include, but are in no way limited to, any
determination by the Company, the Selling Shareholders or the Underwriters to
recirculate to the public copies of an amended or supplemented Prospectus or a
delay as contemplated by the provisions of Section 10.
THE OPTIONAL COMMON SHARES; THE SECONDH CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 506,250 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the Underwriters
to the Company, which notice may be given at any time within 30 days from the
date of this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the
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time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by Montgomery
Securities and shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. If any Optional Common Shares
are to be purchased, (a) each Underwriter agrees, severally and not jointly, to
purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as Montgomery Securities may determine) that bears
the same proportion to the total number of Optional Common Shares to be
purchased as the number of Firm Common Shares set forth on SCHEDULE A opposite
the name of such Underwriter bears to the total number of Firm Common Shares.
The Underwriters may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
PUBLIC OFFERING OF THE COMMON SHARES. Montgomery Securities hereby advises
the Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as Montgomery Securities,
in its sole judgment, has determined is advisable and practicable.
PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares to be sold by
the Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Shareholders shall be made at the First Closing Date by wire transfer of
immediately available funds to the order of the Custodian.
It is understood that Montgomery Securities has been authorized, for its own
account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Firm Common Shares
and any Optional Common Shares the Underwriters have agreed to purchase.
Montgomery Securities may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by Montgomery Securities by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Shareholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Shareholder hereunder and to hold such amounts for the account of such
Selling Shareholder with the Custodian under the Custody Agreement.
DELIVERY OF THE COMMON SHARES. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, to Montgomery Securities for the
accounts of the several Underwriters certificates for the Firm Common Shares to
be sold by them at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company and the Selling Shareholders shall also deliver, or
cause to be delivered, to Montgomery Securities for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase from them at the First Closing Date or the Second Closing
Date, as the case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor. The
certificates for the Common Shares shall be in definitive form and registered in
such names and denominations as Montgomery Securities shall have requested at
least two full business days prior to the First Closing Date (or the Second
Closing Date, as the case may be) and shall be made available for inspection on
the business day preceding the First Closing Date (or the Second Closing Date,
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as the case may be) at a location in New York City as Montgomery Securities may
designate. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00 p.m. on
the second business day following the date the Common Shares of released by the
Underwriters for sale to the public, the Company shall delivery or cause to be
delivered copies of the Prospectus in such quantities and at such places as
Montgomery Securities shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with
each Underwriter as follows:
(a) UNDERWRITERS' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending on
the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law to
be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus (including any
amendment or supplement through incorporation by reference of any report
filed under the Exchange Act), the Company shall furnish to the Underwriters
for review a copy of each such proposed amendment or supplement, and the
Company shall not file any such proposed amendment or supplement to which
the Underwriters reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this Agreement, the
Company shall promptly advise the Underwriters in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information
from, the Commission, (ii) of the time and date of any filing of any post-
effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the
time and date that any post-effective amendment to the Registration
Statement becomes effective and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of
any proceedings to remove, suspend or terminate from listing or quotation
the Common Stock from any securities exchange upon which the it is listed
for trading or included or designated for quotation, or of the threatening
or initiation of any proceedings for any of such purposes. If the Commission
shall enter any such stop order at any time, the Company will use its best
efforts to obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the provisions of
Rules 424(b), 430A and 434, as applicable, under the Securities Act and will
use its reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of Montgomery Securities or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereof), file with the Commission and furnish at
its own expense to the Underwriters and to dealers, amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
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(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Underwriters, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto (including any documents incorporated or
deemed incorporated by reference therein) as the Underwriters may request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Underwriters and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of those jurisdictions designated by
the Underwriters, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required
for the distribution of the Common Shares. The Company shall not be required
to qualify as a foreign corporation or to take any action that would subject
it to general service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise the Underwriters promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best
efforts to obtain the withdrawal thereof at the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Underwriters an
earnings statement (which need not be audited) covering the twelve-month
period ending March [31], 1998 that satisfies the provisions of Section
11(a) of the Securities Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act.
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. During the
period of 90 days following the date of the Prospectus, the Company will
not, without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery Securities),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock, options
or warrants to acquire shares of the Common Stock or securities exchangeable
or exercisable for or convertible into shares of Common Stock (other than as
contemplated by this Agreement with respect to the Common Shares); PROVIDED,
HOWEVER, that the Company may issue shares of its Common Stock or options to
purchase its Common Stock, or Common Stock upon exercise of options,
pursuant to any stock option, stock bonus or other stock plan or arrangement
described in the Prospectus, but only if the holders of such shares,
options, or shares issued upon exercise of such options, agree in writing
not to sell, offer, dispose of or otherwise transfer any such shares or
options during such 90 day period without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole discretion
of the Montgomery Securities).
(k) FUTURE REPORTS TO MONTGOMERY SECURITIES. During the period of five
years hereafter the Company will furnish to Montgomery Securities at 600
Montgomery Street, San Francisco, CA 94111,
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Attention: Clark Gerhardt: (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, shareholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public or
certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital
stock.
(l) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery Period,
the Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and
within the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder further
covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such Selling
Shareholder will not, without the prior written consent of Montgomery (which
consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable
for or convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under Securities
Exchange Act of 1934, as amended) by the undersigned, or publicly announce
the undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of trading on
the date 180 days after the date of the Prospectus.
(b) DELIVERY OF FORM W-9. To deliver to Montgomery Securities prior to
the First Closing Date a properly completed and executed United States
Treasury Department Form W-9.
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company or any
Selling Shareholder of any one or more of the foregoing covenants or extend
the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its and the Selling
Shareholders' obligations hereunder and in connection with the transactions
contemplated hereby, including without limitation (i) all expenses incident to
the issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer agent
of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes
in connection with the issuance and sale of the Common Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel, independent
public or certified pubic accountants and other advisors, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, and, if
requested by Montgomery Securities, preparing and printing a "Blue Sky Survey"
or memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident to,
and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the NASD's review and approval of the Underwriters'
participation in the offering and distribution of the Common Shares, (viii) the
fees and expenses associated with including the Common Shares on the Nasdaq
National Market, and (ix) all other
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fees, costs and expenses referred to in Item 14 of Part II of the Registration
Statement. Except as provided in this Section 4, Section 6, Section 8 and
Section 9 hereof, the Underwriters shall pay their own expenses, including the
fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Shareholders (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Shareholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the Underwriters
shall have received from Arthur Andersen LLP, independent public or
certified public accountants for the Company, a letter dated the date hereof
addressed to the Underwriters, in form and substance satisfactory to
Montgomery Securities, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b)
under the Securities Act; or the Company shall have filed a post-
effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment
shall have become effective; or, if the Company elected to rely upon Rule
434 under the Securities Act and obtained Montgomery Securities' consent
thereto, the Company shall have filed a Term Sheet with the Commission in
the manner and within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
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(c) NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date:
(i) in the judgment of Montgomery Securities there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or
any of its subsidiaries by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received the
favorable opinion of Faegre & Benson LLP, counsel for the Company, dated as
of such Closing Date, the form of which is attached as EXHIBIT A.
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, dated as of such
Closing Date, with respect to the matters set forth in paragraphs[(i), (x),
(xi), (xii),] and [the next-to-last paragraph] of EXHIBIT A.
(f) OFFICERS' CERTIFICATE. On each of the First Closing Date and the
Second Closing Date the Underwriters shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the Company
set forth in Section 1(A) of this Agreement are true and correct with the
same force and effect as though expressly made on and as of such Closing
Date; and
(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior
to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing Date and
the Second Closing Date the Underwriters shall have received from Arthur
Andersen LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Underwriters, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be.
(h) OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS. On each of the
First Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of [Faegre & Benson LLP], counsel for the
Selling Shareholders, dated as of such Closing Date, the form of which is
attached as EXHIBIT B.
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(i) SELLING SHAREHOLDERS' CERTIFICATE. On each of the First Closing
Date the Underwriters shall received a written certificate executed each
Selling Shareholder, dated as of the First Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Shareholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(j) SELLING SHAREHOLDERS' DOCUMENTS. On the date hereof, the Company
and the Selling Shareholders shall have furnished for review by the
Underwriters copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Shareholders and such further information,
certificates and documents as the Underwriters may reasonably request.
(k) LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY OTHER
THAN SELLING SHAREHOLDERS. On the date hereof, the Company shall have
furnished to Montgomery Securities an agreement in the form of EXHIBIT C
hereto from all executive officers and directors of the Company, and such
agreement shall be in full force and effect on each of the First Closing
Date and the Second Closing Date.
(l) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date
and the Second Closing Date, Montgomery Securities and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon
the issuance and sale of the Common Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties,
or the satisfaction of any of the conditions or agreements, herein
contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by Montgomery
Securities by notice to the Company and the Selling Shareholders at any time on
or prior to the First Closing Date and, with respect to the Optional Common
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by Montgomery Securities pursuant to Section 5, Section 7, Section 10
or Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Shareholders to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse Montgomery Securities and the other Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by Montgomery Securities and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and Montgomery Securities of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company or the Selling Shareholders to
any Underwriter, except that the Company and the Selling Shareholders shall
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be obligated to reimburse the expenses of Montgomery Securities and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the
Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. Each of the Company and each
of the Selling Shareholders, jointly and severally, agree to indemnify and
hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities
Act and the Exchange Act against any loss, claim, damage, liability or
expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
or any amendment thereto, including any information deemed to be a part
thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading;
or (ii) upon any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company or the Selling Shareholders
contained herein; or (iv) in whole or in part upon any failure of the
Company or the Selling Shareholders to perform its their respective
obligations hereunder or under law; or (v) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter covered
by clause (i) or (ii) above, PROVIDED that the Company shall not be liable
under this clause (v) to the extent that a court of competent jurisdiction
shall have determined by a final judgment that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such expenses
are reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; PROVIDED,
HOWEVER, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company and the Selling
Shareholders by Montgomery Securities expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
18
<PAGE>
claim, damage, liability or expense; and PROVIDED, FURTHER, that the
liability of each Selling Shareholder under the foregoing indemnity
agreement shall be limited to an amount equal to the initial public offering
price of the Common Shares sold by such Selling Shareholder, less the
underwriting discount, as set forth on the front cover page of the
Prospectus. The indemnity agreement set forth in this Section 8(a) shall be
in addition to any liabilities that the Company and the Selling Shareholders
may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signed
the Registration Statement, the Selling Shareholders and each person, if
any, who controls the Company or any Selling Shareholder within the meaning
of the Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such
director, officer, Selling Shareholder or controlling person may become
subject, under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus, the Prospectus (or any amendment or supplement
thereto), in reliance upon and in conformity with written information
furnished to the Company and the Selling Shareholders by Montgomery
Securities expressly for use therein; and to reimburse the Company, or any
such director, officer, Selling Shareholder or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Shareholder or controlling person in connection
with investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. Each of the Company and
each of the Selling Shareholders, hereby acknowledges that the only
information that the Underwriters have furnished to the Company and the
Selling Shareholders expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the statements set forth (A) as the last two paragraphs on the
inside front cover page of the Prospectus concerning stabilization and
passive market making by the Underwriters and (B) in the table in the first
paragraph and as the second paragraph under the caption "Underwriting" in
the Prospectus; and the Underwriters confirm that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in
this Section 8 or to the extent it is not prejudiced as a proximate result
of such failure. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate
in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that a
conflict may arise between the
19
<PAGE>
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party
(Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
party.
(d) SETTLEMENTS. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such settlement.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held to
be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total
20
<PAGE>
net proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Shareholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; PROVIDED, HOWEVER, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
SCHEDULE A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITER. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Common Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on SCHEDULE A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by Montgomery Securities with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to Montgomery Securities and the Company for
the purchase of such
21
<PAGE>
Common Shares are not made within 48 hours after such default, this Agreement
shall terminate without liability of any party to any other party except that
the provisions of Section 4, Section 6, Section 8 and Section 9 shall at all
times be effective and shall survive such termination. In any such case either
Montgomery Securities or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to include
any person substituted for a defaulting Underwriter under this Section 10. Any
action taken under this Section 10 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date
this Agreement maybe terminated by Montgomery Securities by notice given to the
Company and the Selling Shareholders if at any time (i) trading or quotation in
any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York,
Minnesota or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of Montgomery Securities is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of Montgomery Securities there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of Montgomery Securities may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of Montgomery
Securities and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any
Underwriter to the Company or the Selling Shareholders, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to Montgomery Securities:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
22
<PAGE>
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Hutchinson Technology Incorporated
40 West Highland Park
Hutchinson, Minnesota 55350
Facsimile: (320) 587-1802
Attention: Wayne Fortun
If to the Selling Shareholders:
[Custodian]
[address]
Facsimile: [ ]
Attention: [ ]
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 16. (A) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth
23
<PAGE>
above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum.
(c) WAIVER OF IMMUNITY. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL AND
DELIVER COMMON SHARES. If one or more of the Selling Shareholders shall fail to
sell and deliver to the Underwriters the Common Shares to be sold and delivered
by such Selling Shareholders at the First Closing Date pursuant to this
Agreement, then the Underwriters may at their option, by written notice from
Montgomery Securities to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from Montgomery Securities to the Company and the Selling Shareholders,
to postpone the First Closing Date or the Second Closing Date, as the case may
be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
24
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
HUTCHINSON TECHNOLOGY INCORPORATED
By:
--------------------------------------
Wayne N. Fortun, President,
Chief Executive Officer and
Chief Operating Officer
SELLING SHAREHOLDERS
By:
--------------------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representative[s] in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
DAIN BOSWORTH INCORPORATED
By: MONTGOMERY SECURITIES
By:
- --------------------------------------
Richard A. Smith, Managing Director
25
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Montgomery Securities............................................................................ [ ]
Hambrecht & Quist LLC............................................................................ [ ]
Dain Bosworth Incorporate........................................................................ [ ]
Total........................................................................................ 3,375,000
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON MAXIMUM NUMBER OF
SHARES TO BE OPTIONAL COMMON SHARES
SELLING SHAREHOLDER SOLD TO BE SOLD
- ----------------------------------------------------------------------------- ------------- -----------------------
<S> <C> <C>
Wayne N. Fortun
[address]
Attention: [ ]........................................................... 75,000 0
Jeffrey W. Green
[address]
Attention: [ ]........................................................... 300,000 0
Total:................................................................... 325,000 0
------------- ---
------------- ---
</TABLE>
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section 5(e)
of the Underwriting Agreement.
References to the Prospectus in this EXHIBIT A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Minnesota.
(ii) The Company has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Underwriting Agreement.
(iii) The Company are duly qualified as a foreign corporation to transact
business and is in good standing in the States of [North Dakota] [Wisconsin] and
in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such significant
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or,
to the best knowledge of such counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth, or
incorporated by reference in the Prospectus. All of the outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Shareholders) have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been issued in
compliance with the registration and qualification requirements of federal and
state securities laws. The form of certificate used to evidence the Common Stock
is in due and proper form and complies with all applicable requirements of the
charter and by-laws of the Company and the [General Corporation Law] of the
State of Minnesota. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No shareholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the [General Corporation Law] of the State of
Minnesota or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may
A-1
<PAGE>
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the Company
have been duly authorized for issuance and sale pursuant to the Underwriting
Agreement and, when issued and delivered by the Company pursuant to the
Underwriting Agreement against payment of the consideration set forth therein,
will be validly issued, fully paid and nonassessable.
(x) [Each of] The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order suspending
the effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and no
proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus including any document incorporated by reference
therein, and each amendment or supplement to the Registration Statement and the
Prospectus [including any document incorporated by reference therein], as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included or incorporated by reference therein or in
exhibits to or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.
(xii) The Common Shares have been approved for listing on the Nasdaq National
Market.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors--[ ]," "Description of Capital Stock," "Management's Discussion and
Analysis and Results of Operations--Liquidity," "Business--Litigation,"
"Business--Intellectual Property," "Relationships and Related Transactions,"
"Shares Eligible for Future Sale," "Certain United States Income Tax
Considerations" and "Underwriting" and (ii) in Item 14 and Item 15 of the
Registration Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing Instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto; and the descriptions
thereof and references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of, or registration
or filing with, any court or other governmental authority or agency, is required
for the Company's execution, delivery and performance of the Underwriting
Agreement and consummation of the transactions contemplated thereby and by the
Prospectus, except as required under the Securities Act, applicable state
securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the Company
and the performance by the Company of its obligations thereunder (other than
performance by the Company of its obligations under the indemnification section
of the Underwriting Agreement, as to which no opinion need be rendered) (i) have
been duly authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the charter
or by-laws of the Company or any
A-2
<PAGE>
subsidiary; (iii) will not constitute a breach of, or Default [or a Debt
Repayment Triggering Event] under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, (A) the Company's [ ]% Senior Notes due
[ ] or the related indenture / Revolving Credit Facility with [ ], as
lender, or (B) to the best knowledge of such counsel, any other material
Existing Instrument; or (iv) to the best knowledge of such counsel, will not
result in any violation of any law, administrative regulation or administrative
or court decree applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common Shares
will not be, an "investment company" within the meaning of Investment Company
Act.
(xix) Except as disclosed in the Prospectus [under the caption "Shares
Eligible for Future Sale"], to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, other than the Selling
Shareholders, except for such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law, administrative
regulation or administrative or court decree applicable to the Company or any
subsidiary or is in Default in the performance or observance of any obligation,
agreement, covenant or condition contained in any material Existing Instrument,
except in each such case for such violations or Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
(xxi) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which no
opinion need be rendered) and incorporated or deemed to be incorporated by
reference in the Prospectus complied when so filed as to form in all material
respects with the Exchange Act.(3)
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included [or incorporated by reference] in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
- ------------------------
(3) In certain instances, it may be appropriate to request a disclosure opinion
with respect to Exchange Act filings, by adding the following to the end of
this sentence: "; and such counsel has no reason to believe that any of such
documents, when they were so filed, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made when such documents were filed, not misleading."
A-3
<PAGE>
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the General Corporation
Law of the State of Minnesota or the federal law of the United States, to the
extent they deem proper and specified in such opinion, upon the opinion (which
shall be dated the First Closing Date or the Second Closing Date, as the case
may be, shall be satisfactory in form and substance to the Underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representative) of other counsel
of good standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters; PROVIDED, HOWEVER, that such counsel shall further
state that they believe that they and the Underwriters are justified in relying
upon such opinion of other counsel, and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials.
A-4
<PAGE>
EXHIBIT B
THE FINAL OPINION IN DRAFT FORM SHOULD BE ATTACHED AS EXHIBIT B AT THE TIME
THIS AGREEMENT IS EXECUTED.
The opinion of such counsel pursuant to Section 5(i) shall be rendered to
Montgomery Securities at the request of the Company and shall so state therein.
References to the Prospectus in this EXHIBIT B include any supplements thereto
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Shareholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney will
not contravene or conflict with, result in a breach of, or constitute a default
under, the charter or by-laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, of such Selling Shareholder, or,
to the best of such counsel's knowledge, violate or contravene any provision of
applicable law or regulation, or violate, result in a breach of or constitute a
default under the terms of any other agreement or instrument to which such
Selling Shareholder is a party or by which it is bound, or any judgment, order
or decree applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
such Selling Shareholder.
(iii) Such Selling Shareholder has good and valid title to all of the Common
Shares which may be sold by such Selling Shareholder under the Underwriting
Agreement and has the legal right and power, and all authorizations and
approvals required [under its charter and by-laws,] [partnership agreement,]
[trust agreement] [or other organizational documents, as the case may be,]to
enter into the Underwriting Agreement and its Custody Agreement and its Power of
Attorney, to sell, transfer and deliver all of the Common Shares which may sold
by such Selling Shareholder under the Underwriting Agreement and to comply with
its other obligations under the Underwriting Agreement, its Custody Agreement
and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Shareholder has been duly authorized, executed and delivered by such Selling
Shareholder and is a valid and binding agreement of such Selling Shareholder,
enforceable in accordance with its terms, except as [rights to indemnification
thereunder may be limited by applicable law and except as] the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares which are sold
by such Selling Shareholder pursuant to the Underwriting Agreement for value, in
good faith and without notice of any adverse claim, the delivery of such Common
Shares pursuant to the Underwriting Agreement will pass good and valid title to
such Common Shares, free and clear of either (A) any security interest,
mortgage, pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Shareholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the General Corporation
Law of the State of Minnesota, the General Corporation Law of the State of
California or the federal law of the United States, to the extent they deem
B-1
<PAGE>
proper and specified in such opinion, upon the opinion (which shall be dated the
First Closing Date shall be satisfactory in form and substance to the
Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to Montgomery
Securities of other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the Underwriters; PROVIDED, HOWEVER,
that such counsel shall further state that they believe that they and the
Underwriters are justified in relying upon such opinion of other counsel, and
(B) as to matters of fact, to the extent they deem proper, on certificates of
the Selling Shareholders and public officials
B-2
<PAGE>
EXHIBIT C
[Date]
Montgomery Securities
Hambrecht & Quist LLC
Dain Bosworth Incorporated
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: HUTCHINSON TECHNOLOGY INCORPORATED (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
underwriters. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company [by, among other things, raising
additional capital for its operations]. The undersigned acknowledges that you
and the other underwriters are relying on the representations and agreements of
the undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 180 days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
C-1
<PAGE>
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ------------------------------------
Printed Name of Holder
By:
- --------------------------------
Signature
- ------------------------------------
Printed Name of Person Signing
(AND INDICATE CAPACITY OF PERSON SIGNING IF
SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF
OF AN ENTITY)
C-2
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
February 5, 1997
Hutchinson Technology Incorporated
40 West Highland Park
Hutchinson, Minnesota 55350-9784
Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of 3,881,250 shares of Common Stock of Hutchinson
Technology Incorporated, a Minnesota corporation (the "Company") (such number
of shares reflects the three-for-one stock split to be distributed on
February 11, 1997 to holders of record on January 31, 1997), we have examined
such corporate records and other documents, including the Registration
Statement on Form S-3 relating to such shares (the "Registration Statement"),
and have reviewed such matters of law as we have deemed necessary for this
opinion, and we advise you that in our opinion:
1. The Company is a corporation duly organized and existing under the
laws of the State of Minnesota.
2. When the Board of Directors of the Company or a duly authorized
committee of the Board determines the price and terms of the shares
of Common Stock to be sold by the Company, all necessary corporate
action on the part of the Company will have been taken to authorize
the issuance and sale of such shares of Common Stock by the Company,
and, when issued and sold as contemplated in the Registration
Statement, such shares will be legally and validly issued and fully
paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part of the Registration Statement
and to the reference to our firm wherever appearing therein.
Very truly yours,
FAEGRE & BENSON LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 5, 1997
<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 THIRTEEN WEEKS ENDED DECEMBER 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-29-1996
<CASH> 54,482,000
<SECURITIES> 3,169,000
<RECEIVABLES> 61,453,000
<ALLOWANCES> 2,781,000
<INVENTORY> 15,383,000
<CURRENT-ASSETS> 154,860,000
<PP&E> 276,094,000
<DEPRECIATION> 150,225,000
<TOTAL-ASSETS> 289,532,000
<CURRENT-LIABILITIES> 62,117,000
<BONDS> 76,845,000
0
0
<COMMON> 164,000
<OTHER-SE> 144,873,000
<TOTAL-LIABILITY-AND-EQUITY> 289,532,000
<SALES> 106,906,000
<TOTAL-REVENUES> 106,906,000
<CGS> 75,794,000
<TOTAL-COSTS> 75,794,000
<OTHER-EXPENSES> 5,739,000<F1>
<LOSS-PROVISION> 711,000
<INTEREST-EXPENSE> 858,000
<INCOME-PRETAX> 13,903,000
<INCOME-TAX> 2,786,000
<INCOME-CONTINUING> 11,117,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,117,000
<EPS-PRIMARY> .66
<EPS-DILUTED> .65
<FN>
<F1>Other Expenses reflect research and development expenses.
</FN>
</TABLE>
