<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14709
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HUTCHINSON TECHNOLOGY INCORPORATED
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0901840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK, HUTCHINSON, MINNESOTA 55350
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(Address of principal executive offices) (Zip code)
(320) 587-3797
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(Registrant's telephone number, including area code)
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(Former name, address or fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 31, 1997 the registrant had 5,485,365 shares of Common Stock
issued and outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
December 29, September 29,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $54,482 $22,884
Securities available for sale 3,169 3,064
Trade receivables, net 58,672 46,803
Other receivables 13,821 9,475
Inventories 15,383 17,235
Prepaid taxes and other expenses 9,333 9,204
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Total current assets 154,860 108,665
Property, plant and equipment, net 125,869 121,706
Other assets 8,803 8,612
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$289,532 $238,983
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $5,760 $5,760
Accounts payable and accrued expenses 28,488 23,008
Accrued compensation 20,654 12,187
Accrued income taxes 7,215 5,608
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Total current liabilities 62,117 46,563
Long-term debt 76,845 53,185
Other long-term liabilities 5,533 5,551
Shareholders' investment:
Common stock, $.02 par value, 15,000,000 shares authorized,
5,458,000 and 5,452,000 issued and outstanding 109 109
Additional paid-in capital 43,634 43,398
Retained earnings 101,294 90,177
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Total shareholders' investment 145,037 133,684
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$289,532 $238,983
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See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Thirteen Weeks Ended
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-------------------------------
December 29, December 24,
1996 1995
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Net sales $106,906 $83,332
Cost of sales 75,794 61,888
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Gross profit 31,112 21,444
Research and development
expenses 5,739 9,053
Selling, general and
administrative expenses 10,918 8,563
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Income from operations 14,455 3,828
Other income 306 321
Interest expense (858) (480)
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Income before income taxes 13,903 3,669
Provision for income taxes 2,786 807
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Net income $11,117 $2,862
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Net income per common
and common equivalent share $1.97 $.51
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Weighted average common and
common equivalent shares outstanding 5,629 5,623
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------
--------------------------------
December 29, December 24,
1996 1995
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<S> <C> <C>
Operating activities:
Net income $11,117 $2,862
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 9,559 7,435
Deferred tax benefit (296) (2,911)
Loss on disposal of assets 48 103
Change in operating assets and liabilities (Note 5) 1,874 5,429
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Cash provided by operating activities 22,302 12,918
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Investing activities:
Capital expenditures (8,491) (14,594)
Increase in other receivables (6,005) -
Sales of securities - 964
Purchases of securities (105) (1,814)
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Cash used for investing activities (14,601) (15,444)
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Financing activities:
Repayments of long-term debt (1,339) (1,340)
Proceeds from issuance of long-term debt 25,000 -
Net proceeds from issuance of common stock 236 21
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Cash provided (used) for financing activities 23,897 (1,319)
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Net increase (decrease) in cash and cash equivalents 31,598 (3,845)
Cash and cash equivalents at beginning of period 22,884 30,479
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Cash and cash equivalents at end of period $54,482 $26,634
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Dollars in thousands)
(1) ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished in the condensed
consolidated financial statements include normal recurring adjustments and
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K. The quarterly results are not
necessarily indicative of the actual results that may occur for the entire
fiscal year.
(2) BUSINESS AND CUSTOMERS
The Company is the world's leading supplier of suspension assemblies for
rigid disk drives. Suspension assemblies hold the recording heads in
position above the spinning magnetic disks in the drive and are critical to
maintaining the necessary microscopic clearance between the head and disk.
The Company developed its leadership position in suspension assemblies
through research, development and design activities coupled with a
substantial investment in manufacturing technologies and equipment. The
Company is focused on continuing to develop suspension assemblies which
address the rapidly changing requirements of the rigid disk drive industry.
The Company also is evaluating product opportunities in the medical devices
market but does not expect any medical-related revenues in fiscal 1997. A
breakdown of customer sales is as follows:
Thirteen Weeks Ended
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December 29, December 24,
Percentage of Net Sales 1996 1995
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Five Largest Customers 86% 90%
Seagate Technology Incorporated 36 33
Yamaha Corporation 14 15
SAE Magnetics, Ltd./TDK 13 16
Read-Rite Corporation 13 19
IBM 10 7
<PAGE>
(3) INVENTORIES
All inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following:
December 29, September 29,
1996 1996
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Raw materials $4,064 $4,137
Work in process 6,178 5,558
Finished goods 5,431 7,830
LIFO reserve (290) (290)
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$15,383 $17,235
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(4) INCOME TAXES
The following table details the significant components of the Company's deferred
tax assets as of December 29, 1996:
December 29, September 29,
1996 1996
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Current deferred tax assets:
Sales and accounts receivables $1,107 $873
Inventories 5,339 5,419
Accruals and other reserves 2,481 2,367
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Total current deferred tax assets 8,927 8,659
Long-term deferred tax assets (liabilities):
Property, plant and equipment 4,037 3,753
Accruals and other reserves 2,050 2,146
Tax credits 2,657 2,738
Valuation allowance (657) (738)
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Total long-term deferred tax assets 8,087 7,899
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Total deferred tax assets $17,014 $16,558
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The following table lists the types of tax credits available to the Company, and
their expiration dates:
Year of
Carryforward Amount Expiration
- ------------ -------- -------------------
Alternative minimum tax $2,657 Does not expire
The Company determined that the realization of this tax credit did
not meet the recognition criteria under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", and, accordingly,
a valuation allowance has been established.
<PAGE>
(5) SUPPLEMENTARY CASH FLOW INFORMATION
Thirteen Weeks Ended
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December 29, December 24,
1996 1995
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Changes in operating assets and liabilities:
Receivables, net ($10,210) ($5,144)
Inventories 1,852 (2,766)
Prepaid taxes and other expenses 139 249
Accounts payable and accrued liabilities 10,111 8,090
Other noncurrent liabilities (18) 5,000
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$1,874 $5,429
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Cash paid for:
Interest (net of amount capitalized) $116 $191
Income taxes 1,569 1,236
Capitalized interest for the thirteen weeks ended December 29, 1996 was $455,000
compared to $258,000 for the comparable period in fiscal 1996.
(6) 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. Common share and earnings per
share amounts in the accompanying condensed consolidated financial statements
have not been retroactively adjusted to reflect the stock split. The
consolidated financial statements for the fiscal year ending September 28,
1997 will include retroactively adjusted amounts. The earnings per common
share, assuming the stock split was applied retroactively, would be $.66 and
$.17 for the thirteen weeks ended December 29, 1996 and December 24, 1995,
respectively.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 29, 1996 VS. THIRTEEN WEEKS ENDED 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 increased from 3% to 10% primarily due to
the higher sales volume, improved manufacturing efficiencies and decreased
research and development expenses, noted above.
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. The Company generated cash from operating
activities of $22,302,000 for the thirteen weeks ended December 29, 1996.
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. 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 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.
<PAGE>
Financing of these capital expenditures will be principally from cash
generated from operations, cash and cash equivalents and additional financing
capacity.
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.
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 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. The
Company's financing agreements contain various restrictive covenants. As of
December 29, 1996, the Company was in compliance with all such covenants.
The Company believes that cash generated from operations, cash and cash
equivalents, existing lending facilities and available financing capacity
will be sufficient to meet the Company's current and long-term liquidity,
debt installments and capital requirements.
MARKET TRENDS AND CERTAIN CONTINGENCIES
The Company expects that the expanding use of smaller computers, increasingly
complex software and the emergence of new applications for disk storage that
have contributed to the historical year-to-year increases in disk drive
production will continue for the foreseeable future. The Company also believes
demand for disk drives will continue to be subject, as it has in the past, to
rapid short-term changes resulting from, among other things, changes in disk
drive inventory levels, responses to competitive price changes and unpredicted
high or low market acceptance of new drive models.
As in past years, disk drives continue to be the storage device of choice for
applications requiring low access times and higher capacities because of their
speed and low cost per megabyte of stored data. The cost of storing data on
disk drives continues to decrease primarily due to increasing areal density, the
amount of data which can be stored on magnetic disks. Improvements in areal
density have been attained by lowering the fly height of the read/write head,
using smaller read/write heads and using new read/write head types such as those
of magneto-resistive (MR) design. The move to MR heads, which require more
electrical leads, and the transition to smaller or pico-sized heads, may compel
drive manufacturers to use newer suspension technologies, such as the Company's
TSA-TM- suspensions. Although customer interest in TSA-TM- suspensions is
growing, the Company expects that conventional suspensions will make up a
majority of its shipments for the next couple years.
The introduction of new types or sizes of read/write heads and new disk drive
designs tends to decrease customers' yields with the result that the Company may
experience temporary elevations of demand for some types of suspension
assemblies. The advent of new heads and new drive designs may require the
Company to rapidly develop and manufacture new suspension types which
temporarily may reduce the
<PAGE>
Company's manufacturing yields and efficiencies. There can be no assurance that
such changes will not continue to affect the Company.
The Company generally experiences declining selling prices due to product
maturity and competitive pricing pressures. These forces may be temporarily
offset when the Company's new products, having initially higher selling prices,
enter the market.
The statements above under the heading "Market Trends and Certain
Contingencies" about demand for disk drives and suspension assemblies,
including TSA-TM-suspensions, manufacturing yields and selling prices, and
the statements under the heading "Liquidity and Capital Resources" about
anticipated capital expenditures and capital resources, are forward-looking
statements based on current expectations. These statements are subject to
risks and uncertainties, including slower or faster acceptance of its new
products, difficulties in producing its TSA-TM- suspensions, difficulties in
expanding capacity and those discussed above. These factors may cause the
Company's actual future results to differ materially from historical earnings
and from the financial performance of the Company presently anticipated.
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 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 operating results
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.
The Company is a 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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) EXHIBITS.
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Registration Statement No. 2-98270), as
amended by Articles of Amendment dated January 27, 1988 (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 27, 1987, File No. 0-14709) and as
amended by Articles of Amendment dated January 21, 1997.
3.2 Restated By-Laws of the Company.
4.1 Instruments defining the rights of security holders, including an
indenture. The Registrant agrees to furnish the Securities and Exchange
Commission upon request copies of instruments with respect to long-term
debt.
4.2 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).
4.3 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).
4.4 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).
4.5 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).
<PAGE>
4.6 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).
4.7 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).
4.8 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).
10.1 Lease with Right of Refusal between Donald Wendorff and Laura Wendorff,
Lessors, and the Company, Lessee, dated September 6, 1995 (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 24, 1995, File No. 0-14709).
10.2 Office/Warehouse Lease between OPUS Corporation, Lessor, and the Company,
Lessee, dated December 29, 1995 (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended March
24, 1996, File No. 0-14709), and First Amendment to Office/Warehouse Lease
dated April 30, 1996 (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 23,
1996, File No. 0-14709).
10.3 Building Lease dated April 1988 and Amendment to Building Lease dated
August 29, 1988 (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
25, 1988, File No. 0-14709), Second Amendment to Building Lease dated as
of September 18, 1989, relating to the Company's Sioux Falls, South Dakota
facility (incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1990,
File No. 0-14709), Third Amendment to Building Lease dated September 19,
1991, relating to the Company's Sioux Falls, South Dakota facility
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 29, 1991, File No.
0-14709), Fourth Amendment to Commercial Lease dated September 29, 1992,
relating to the Company's Sioux Falls, South Dakota facility (incorporated
by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 27, 1992, File No. 0-14709), Fifth
Amendment to Commercial Lease dated February 11, 1993, relating to the
Company's Sioux Falls, South Dakota facility (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 24, 1995, File No. 0-14709), Sixth Amendment to
Commercial Lease dated February 17, 1995, relating to the Company's Sioux
Falls, South Dakota facility (incorporated by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K for the fiscal year ended
September 24, 1995, File No. 0-14709), and Seventh Amendment to
Commercial Lease dated April 1, 1995, relating to the Company's Sioux
Falls, South Dakota facility (incorporated by reference to Exhibit 10.6
to the
<PAGE>
Company's Annual Report on Form 10-K for the fiscal year ended
September 24, 1995, File No. 0-14709).
10.4 Hutchinson Technology Incorporated 401-K Plan and related 401-K Trust
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1990, File No.
0-14709), and Amendment effective April 1, 1995 (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 24, 1996, File No. 0-14709), and Amendment
effective April 1, 1996 (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 23,
1996, File No. 0-14709).
10.5 Directors' Retirement Plan effective as of January 1, 1992 (incorporated
by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 27, 1992, File No. 0-14709).
10.6 Description of Bonus Program for Key Employees of Hutchinson Technology
Incorporated (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 27, 1992,
File No. 0-14709).
10.7 1988 Stock Option Plan (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended September
25, 1988, File No. 0-14709), Amendment to the 1988 Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 26, 1993, File No.
0-14709), and Amendment to the 1988 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 26, 1995, File No. 0-14709).
*10.8 Technology Transfer and Development Agreement, effective as of September
1, 1994, between Hutchinson Technology Incorporated and International
Business Machines Corporation (incorporated by reference to Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q/A for the quarter ended
June 25, 1995, File No. 0-14709), and Amendment dated December 11, 1995 to
the Technology Transfer and Development Agreement between International
Business Machines Corporation and Hutchinson Technology Incorporated
executed June 15, 1995 (incorporated by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 24,
1995, File No. 0-14709).
*10.9 Patent License Agreement, effective as of September 1, 1994, between
Hutchinson Technology Incorporated and International Business Machines
Corporation (incorporated by reference to Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended June 25, 1995, File
No. 0-14709).
10.10 Lease Agreement between Meridian Eau Claire LLC and Hutchinson
Technology Incorporated, dated May 1, 1996 (incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 23, 1996, File No. 0-14709).
10.11 Master Lease Agreement dated as of December 19, 1996 between General
Electric Capital Corporation, as Lessor, and Hutchinson Technology
Incorporated, as Lessee.
<PAGE>
10.12 Hutchinson Technology Incorporated 1996 Incentive Plan.
11 Statement Regarding Computation of Net Income Per Share.
27 Financial Data Schedule.
B) REPORTS ON FORM 8-K.
A Current Report on Form 8-K was filed by the Company on October 1, 1996
which contained cautionary statements for purposes of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
* Exhibits 10.8 and 10.9 contain portions for which confidential treatment
has been granted by the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUTCHINSON TECHNOLOGY INCORPORATED
Date: February 5, 1997 By /s/Wayne M. Fortun
-------------------- ------------------------------
Wayne M. Fortun
Chief Executive Officer and President
Date: February 5, 1997 By /s/John A. Ingleman
-------------------- ------------------------------
John A. Ingleman
Vice President, Chief Financial Officer
and Secretary
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INDEX TO EXHIBITS
Exhibit
No. Page
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3.1 Articles of Amendment of Restated Articles Electronically
of Incorporation Filed
3.2 Restated By-Laws of the Company Electronically
Filed
10.11 Master Lease Agreement between General Electric Electronically
Capital Corporation and Hutchinson Technology Filed
Incorporated
10.12 Hutchinson Technology Incorporated Electronically
1996 Incentive Plan Filed
11 Statement Regarding Computation of Net Income
Per Share Electronically
Filed
27 Financial Data Schedule Electronically
Filed
<PAGE>
ARTICLES OF AMENDMENT
OF AMENDED AND
RESTATED ARTICLES OF INCORPORATION
OF
HUTCHINSON TECHNOLOGY INCORPORATED
The undersigned, John A. Ingleman, Secretary of Hutchinson Technology
Incorporated, a Minnesota corporation (the "Corporation"), hereby certifies (i)
that Article III of the Corporation's Amended and Restated Articles of
Incorporation has been amended, effective at the close of business on
February 11, 1997 (the "Effective Time"), to read in its entirety as follows:
"ARTICLE III
This Corporation is authorized to issue an aggregate of
45,000,000 shares, all of which shall be designated as Common Stock,
having a par value of $0.01 per share."
(ii) that such amendment has been adopted in accordance with the requirements
of, and pursuant to, Chapter 302A of the Minnesota Statutes; (iii) that such
amendment was adopted pursuant to Section 302A.402, Subd. 3, of the Minnesota
Statutes in connection with a three-for-one division of the Corporation's Common
Stock; and (iv) that such amendment will not adversely affect the rights or
preferences of the holders of outstanding shares of any class or series of the
Corporation and will not result in the percentage of authorized shares that
remains unissued after such division exceeding the percentage of authorized
shares that were unissued before the division.
The division giving rise to the amendment set forth above concerns a
three-for-one division of the Common Stock of the Corporation. Such division is
being effected as follows:
(i) Effective at the Effective Time, each share of Common Stock of
the Corporation, par value $0.02 per share, outstanding immediately prior to
the Effective Time will be split and divided into three shares of Common
Stock of the Corporation, par value $0.01 per share, all of which shall be
validly issued, fully paid and nonassessable;
(ii) each stock certificate representing a share or shares of Common
Stock of the Corporation, par value $0.02 per share, immediately prior to the
Effective Time shall continue to represent the same number of shares of Common
Stock of the Corporation, par value $0.01 per share, following the Effective
Time; and
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(iii) a stock certificate or certificates representing two
additional shares of the authorized but previously unissued Common Stock of
the Corporation, par value $0.01 per share, for each share of Common Stock of
the Corporation, par value $0.02 per share, outstanding immediately prior to
the Effective Time shall be mailed or delivered on February 11, 1997 or as
soon thereafter as practicable. The record date for determining the
shareholders of record entitled to receive such stock certificate or
certificates with respect to Common Stock outstanding as of the close of
business on January 31, 1997, and remaining outstanding at the Effective
Time, shall be the close of business on January 31, 1997. With respect to
each share of Common Stock of the Corporation, par value $0.02 per share, if
any, that is first issued and becomes outstanding after the close of business
on January 31, 1997, but prior to the Effective Time and remains outstanding
at the Effective Time, the stock certificate for the additional share
resulting from the division of any such share of Common Stock shall be mailed
or delivered to the first holder of record to whom such share of Common Stock
was issued.
The foregoing Articles of Amendment shall take effect at the Effective
Time previously stated herein.
IN WITNESS WHEREOF, I have subscribed my name this 21st day of
January, 1997.
/s/ John A. Ingleman
________________________________________
John A. Ingleman
-2-
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RESTATED
BY-LAWS
of
HUTCHINSON TECHNOLOGY INCORPORATED
SHAREHOLDERS
SECTION 1.01 PLACE OF MEETINGS. Each meeting of the shareholders
shall be held at the principal executive office of the Corporation or at such
other place as may be designated by the Board (the "Board") or the Chief
Executive Officer; provided, however, that any meeting called by or at the
demand of a shareholder or shareholders shall be held in the county where the
principal executive office of the Corporation is located.
SECTION 1.02 REGULAR MEETING. Regular meetings of the shareholders
may be held on an annual or other less frequent basis as determined by the Board
or the Chief Executive Officer; provided, however, that if a regular meeting has
not been held during the immediately preceding 15 months, a shareholder or
shareholders holding three percent or more of the voting power of all shares
entitled to vote may demand a regular meeting of shareholders by written demand
given to the Chief Executive Officer or Chief Financial Officer of the
Corporation. At each regular meeting the shareholders shall elect qualified
successors for directors whose terms have expired or are due to expire within
six months after the date of the meeting and may transact any other business,
provided, however, that no business with respect to which special notice is
required by law shall be transacted unless such notice shall have been given.
SECTION 1.03 SPECIAL MEETINGS. A special meeting of the
shareholders may be called for any purpose or purposes at any time by the Chief
Executive Officer; by the Chief Financial Officer; by the Board or any two or
more members thereof; or by one or more shareholders holding not less than ten
percent of the voting power of all shares of the Corporation entitled to vote
(except that a special meeting for the purpose of considering any action to
directly or indirectly facilitate or effect a business combination, including
any action to change or otherwise affect the composition of the Board for that
purpose, must be called by shareholders holding 25 percent or more of the voting
power of all shares of the Corporation entitled to vote), who shall demand such
special meeting by written notice given to the Chief Executive Officer or the
Chief Financial Officer of the Corporation specifying the purposes of such
meeting.
SECTION 1.04 MEETINGS HELD UPON SHAREHOLDER DEMAND. Within 30 days
after receipt of a demand by the Chief Executive Officer or the Chief Financial
Officer from any shareholder or shareholders entitled to call a meeting of the
shareholders, it shall be the duty of the Board of the Corporation to cause a
special or regular meeting of shareholders, as the case may be, to be duly
called and held on notice no later than 90 days after receipt of such demand.
If the Board fails to cause such a meeting to be called and held
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as required by this Section, the shareholder or shareholders making the demand
may call the meeting by giving notice as provided in Section 1.06 hereof at the
expense of the Corporation.
SECTION 1.05 ADJOURNMENTS. Any meeting of the shareholders may be
adjourned from time to time to another date, time and place. If any meeting of
the shareholders is so adjourned, no notice as to such adjourned meeting need be
given if the adjourned meeting is to be held not more than 120 days after the
date fixed for the original meeting and the date, time and place at which the
meeting will be reconvened are announced at the time of adjournment.
SECTION 1.06 NOTICE OF MEETINGS. Unless otherwise required by law,
written notice of each meeting of the shareholders, stating the date, time and
place and, in the case of a special meeting, the purpose or purposes, shall be
given at least ten days and not more than 60 days prior to the meeting to every
holder of shares entitled to vote at such meeting except as specified in Section
1.05 or as otherwise permitted by law. The business transacted at a special
meeting of shareholders is limited to the purposes stated in the notice of the
meeting.
SECTION 1.07 WAIVER OF NOTICE. A shareholder may waive notice of
the date, time, place and purpose or purposes of a meeting of shareholders. A
waiver of notice by a shareholder entitled to notice is effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a shareholder at a meeting is a waiver of notice of
that meeting, unless the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
SECTION 1.08 QUORUM; ACTS OF SHAREHOLDERS. The holders of a
majority of the voting power of the shares entitled to vote at a shareholders
meeting are a quorum for the transaction of business. If a quorum is present
when a duly called or held meeting is convened, the shareholders present may
continue to transact business until adjournment, even though the withdrawal of a
number of the shareholders originally present leaves less than the proportion or
number otherwise required for a quorum. Except as otherwise required by law or
specified in the Articles of Incorporation of the Corporation, the shareholders
shall take action by the affirmative vote of the holders of the greater of (a) a
majority of the voting power of the shares present and entitled to vote on that
item of business or (b) a majority of the voting power of the minimum number of
shares entitled to vote that would constitute a quorum for the transaction of
business at a duly held meeting of shareholders.
SECTION 1.09 VOTING RIGHTS. Subdivision 1. A shareholder shall
have one vote for each share held which is entitled to vote. Except as
otherwise required by law, a holder of shares entitled to vote may vote any
portion of the shares in any way the shareholder
<PAGE>
chooses. If a shareholder votes without designating the proportion or number of
shares voted in a particular way, the shareholder is deemed to have voted all of
the shares in that way.
Subdivision 2. The Board of Directors or, if permitted by law, the
Chief Executive Officer may fix a date not more than 60 days before the date
of a meeting of shareholders as the date for the determination of the holders
of shares entitled to notice of and entitled to vote at the meeting. When a
date is so fixed, only shareholders on that date are entitled to notice of
and permitted to vote at that meeting of shareholders.
SECTION 1.10 PROXIES. Subdivision 1. A shareholder may cast or
authorize the casting of a vote by filing a written appointment of a proxy with
an officer of the Corporation at or before the meeting at which the appointment
is to be effective or by otherwise appointing a proxy as permitted by law. The
shareholder may sign or authorize the written appointment by telegram, cablegram
or other means of electronic transmission, provided that the Corporation has no
reason to believe that the telegram, cablegram or other electronic transmission
was not authorized by the shareholder, or as otherwise permitted by law. Any
copy, facsimile, telecommunication or other reproduction of the original of
either the writing or transmission may be used in lieu of the original, provided
that it is a complete and legible reproduction of the entire original.
Subdivision 2. A shareholder voting by proxy authorized to vote on
less than all items of business considered at the meeting shall be considered to
be present and entitled to vote only with respect to those items of business for
which the proxy has authority to vote. A proxy who is given authority by a
shareholder who abstains with respect to an item of business shall be considered
to have authority to vote on that item of business.
SECTION 1.11 ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the shareholders of the Corporation may be
taken without a meeting by written action signed by all of the shareholders
entitled to vote on that action. The written action is effective when it has
been signed by all of those shareholders, unless a different effective time is
provided in the written action.
DIRECTORS
SECTION 2.01 NUMBER; QUALIFICATIONS. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of not
less than three nor more than nine directors. Directors shall be natural
persons. The shareholders at each regular meeting shall determine the number of
directors to constitute the Board for the ensuing year, provided that thereafter
the authorized number of directors may be increased by the shareholders or the
Board and decreased by the shareholders. Directors need not be shareholders.
<PAGE>
SECTION 2.02 TERM. At each regular meeting the shareholders shall
elect qualified successors for directors whose terms have expired or are due to
expire within six months after the date of the meeting. Each director shall be
elected to hold office for one year and until a successor is elected and has
qualified or until the earlier death, resignation, removal or disqualification
of the director.
SECTION 2.03 VACANCIES. Vacancies on the Board resulting from the
death, resignation, removal or disqualification of a director may be filled by
the affirmative vote of a majority of the remaining members of the Board, though
less than a quorum. Vacancies on the Board resulting from newly created
directorships may be filled by the affirmative vote of a majority of the
directors serving at the time such directorships are created. Each person
elected to fill a vacancy shall hold office until a qualified successor is
elected by the shareholders at the next regular meeting or at any special
meeting duly called for that purpose.
SECTION 2.04 REMOVAL OF DIRECTORS. The entire Board or any
individual director may be removed from office at any time, with or without
cause, by the affirmative vote of the holders of a majority of the shares
entitled to vote at an election of directors. A director appointed by the Board
to fill a vacancy may be removed by the affirmative vote of a majority of the
remaining directors present if the shareholders have not elected directors in
the interval between such appointment and the time of removal. New directors
may be elected at the same meeting at which the director or directors are
removed.
SECTION 2.05 PLACE OF MEETINGS. Each meeting of the Board shall be
held at the principal executive office of the Corporation or at such other place
as may be designated from time to time by a majority of the members of the
Board, by the Chairman of the Board or by the Chief Executive Officer. A
meeting may be held by conference among the directors using any means of
communication through which the directors may simultaneously hear each other
during the conference.
SECTION 2.06 REGULAR MEETINGS. Regular meetings of the Board for
the transaction of any business shall be held without notice at the place of and
immediately after each regular meeting of the shareholders.
SECTION 2.07 SPECIAL MEETINGS. A special meeting of the Board may
be called for any purpose or purposes at any time by any member of the Board by
giving not less than two days' notice to all directors of the date, time and
place of the meeting, provided that when notice is mailed, at least four days'
notice shall be given. The notice need not state the purpose of the meeting.
<PAGE>
SECTION 2.08 WAIVER OF NOTICE; PREVIOUSLY SCHEDULED MEETINGS.
Subdivision 1. A director of the Corporation may waive notice of the
date, time and place of a meeting of the Board. A waiver of notice by a
director entitled to notice is effective whether given before, at or after the
meeting, and whether given in writing, orally or by attendance. Attendance by a
director at a meeting is a waiver of notice of that meeting, unless the director
objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and thereafter does not
participate in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting
have been provided herein or announced at a previous meeting of the Board, no
notice is required, notwithstanding Sections 2.05 or 2.07 hereof. Notice of an
adjourned meeting need not be given other than by announcement at the meeting at
which adjournment is taken of the date, time and place at which the meeting will
be reconvened.
SECTION 2.09 QUORUM. The presence in person of a majority of the
directors currently holding office shall be necessary to constitute a quorum for
the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn a meeting from time to time without further notice
until a quorum is present. If a quorum is present when a duly called or held
meeting is convened, the directors present may continue to transact business
until adjournment, even though the withdrawal of a number of the directors
originally present leaves less than the proportion or number otherwise required
for a quorum.
SECTION 2.10 ACTS OF BOARD. Except as otherwise required by law or
specified in the Articles of Incorporation of the Corporation, the Board shall
take action by the affirmative vote of the greater of (a) a majority of the
directors present at a duly held meeting at the time the action is taken or (b)
a majority of the minimum proportion or number of directors that would
constitute a quorum for the transaction of business at the meeting.
SECTION 2.11 PARTICIPATION BY ELECTRONIC COMMUNICATIONS. A director
may participate in a Board meeting by any means of communication through which
the director, other directors so participating and all directors physically
present at the meeting may simultaneously hear each other during the meeting. A
director so participating shall be deemed present in person at the meeting.
SECTION 2.12 ABSENT DIRECTORS. A director of the Corporation may
give advance written consent or opposition to a proposal to be acted on at a
Board meeting. If the director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as the vote of a director present at the meeting in favor of or against
the proposal and shall be entered in the minutes or other record of action at
the meeting, if the
<PAGE>
proposal acted on at the meeting is substantially the same or has substantially
the same effect as the proposal to which the director has consented or objected.
SECTION 2.13 ACTION WITHOUT A MEETING. An action required or
permitted to be taken at a Board meeting may be taken without a meeting by
written action signed by all of the directors. If the Articles of Incorporation
so provide, any action, other than an action requiring shareholder approval, may
be taken by written action signed by the number of directors that would be
required to take the same action at a meeting of the Board at which all
directors were present. The written action is effective when signed by the
required number of directors, unless a different effective time is provided in
the written action. When written action is permitted to be taken by less than
all directors, all directors shall be notified immediately of its text and
effective date.
SECTION 2.14 COMMITTEES. Subdivision 1. A resolution approved by
the affirmative vote of a majority of the Board may establish committees having
the authority of the Board in the management of the business of the Corporation
only to the extent provided in the resolution. Committees shall be subject at
all times to the direction and control of the Board, except as provided in
Section 2.14 or otherwise provided by law.
Subdivision 2. A committee shall consist of one or more natural
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present at a duly held Board meeting.
Subdivision 3. Section 2.05 and Sections 2.07 to 2.13 hereof shall
apply to committees and members of committees to the same extent as those
sections apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
SECTION 2.15 SPECIAL LITIGATION COMMITTEE. Pursuant to the
procedure set forth in Section 2.14, the Board may establish a committee
composed of one or more independent directors or other independent persons to
determine whether it is in the best interests of the Corporation to consider
legal rights or remedies of the Corporation and whether those rights and
remedies should be pursued. The committee, once established, is not subject to
the direction or control of, or (unless required by law) termination by, the
Board. To the extent permitted by law, a vacancy on the committee may be filled
by a majority vote of the remaining committee members. The good faith
determinations of the committee are binding upon the Corporation and its
directors, officers and shareholders to the extent permitted by law. The
committee terminates when it issues a written report of its determinations to
the Board.
<PAGE>
SECTION 2.16 COMPENSATION. The Board may fix the compensation, if
any, of directors.
OFFICERS
SECTION 3.01 NUMBER AND DESIGNATION. The Corporation shall have one
or more natural persons exercising the functions of the offices of Chief
Executive Officer and Chief Financial Officer. The Board may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the Corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary and a Treasurer, each of whom shall have the powers, rights, duties
and responsibilities set forth in these By-Laws unless otherwise determined by
the Board. Any of the offices or functions of those offices may be held by the
same person.
SECTION 3.02 CHAIRMAN OF THE BOARD. Unless provided otherwise by a
resolution adopted by the Board, the Chairman of the Board (a) shall, when
present, preside at all meetings of the Board, (b) may maintain records of and
certify proceedings of the Board, and (c) shall perform such other duties as may
from time to time be assigned by the Board.
SECTION 3.03 CHIEF EXECUTIVE OFFICER. Unless provided otherwise by
a resolution adopted by the Board, the Chief Executive Officer (a) shall have
general active management of the business of the Corporation; (b) shall, when
present, preside at all meetings of the shareholders; (c) shall see that all
orders and resolutions of the Board are carried into effect; (d) may maintain
records of and certify proceedings of the shareholders; and (e) shall perform
such other duties as may from time to time be assigned by the Board.
SECTION 3.04 CHIEF FINANCIAL OFFICER. Unless provided otherwise by
a resolution adopted by the Board, the Chief Financial Officer (a) shall keep
accurate financial records for the Corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the Corporation in such
banks and depositories as the Board shall designate from time to time; (c) shall
endorse for deposit all notes, checks and drafts received by the Corporation as
ordered by the Board, making proper vouchers therefor; (d) shall disburse
corporate funds and issue checks and drafts in the name of the Corporation, as
ordered by the Board; (e) shall render to the Chief Executive Officer and the
Board, whenever requested, an account of all of such officer's transactions as
Chief Financial Officer and of the financial condition of the Corporation; and
(f) shall perform such other duties as may be prescribed by the Board or the
Chief Executive Officer from time to time.
SECTION 3.05 PRESIDENT, VICE PRESIDENTS. The President, if any, and
each Vice President, if any, designated by the Board shall perform such
functions as are
<PAGE>
specified by the Board in designating such President or Vice President or which
are assigned or delegated to such officer or officers by the Chief Executive
Officer. Any one or more of the Vice Presidents may be designated by the Board
as Executive Vice Presidents or Senior Vice Presidents.
During the absence or disability of the Chairman of the Board, the
duties of the Chairman of the Board shall be assumed by the Chief Executive
Officer, if any; in the event of the Chief Executive Officer's absence or
disability, the duties of the Chief Executive Officer shall be assumed by the
President, if any, or in the event of the President's absence or disability (or
if there is no President) by the highest ranking Executive Vice President, or in
the absence of any such Vice President, the highest ranking Senior Vice
President or other Vice President. The determination of who is the highest
ranking of two or more persons holding the same office shall, in the absence of
specific designation of order of rank by the Board, be made on the basis of the
earliest date of appointment or election, or, in the event of simultaneous
appointment or election, on the basis of the longest continuous employment by
the Corporation.
SECTION 3.06 SECRETARY. The Secretary, unless otherwise determined
by the Board, shall attend all meetings of the shareholders and all meetings of
the Board, shall record or cause to be recorded all proceedings thereof in a
book to be kept for that purpose, and may certify such proceedings. Except as
otherwise required or permitted by law or by these By-Laws, the Secretary shall
give or cause to be given notice of all meetings of the shareholders and all
meetings of the Board.
SECTION 3.07 TREASURER. During the absence or disability of the
Chief Financial Officer, duties of the Chief Financial Officer shall be assumed
by the Treasurer of the Corporation, except to the extent otherwise assigned by
the Board. The Treasurer shall perform such other duties as may from time to
time be assigned by the Board.
SECTION 3.08 AUTHORITY AND DUTIES. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board. Unless
prohibited by a resolution approved by the affirmative vote of a majority of the
directors present, an officer elected or appointed by the Board may, without the
approval of the Board, delegate some or all of the duties and powers of an
office to other persons.
SECTION 3.09 TERM. Subdivision 1. All officers of the Corporation
shall hold office until their respective successors are chosen and have
qualified or until their earlier death, resignation or removal.
<PAGE>
Subdivision 2. An officer may resign at any time by giving written
notice to the Corporation. The resignation is effective without acceptance when
the notice is given to the Corporation, unless a later effective date is
specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in the
office of Chief Executive Officer or Chief Financial Officer shall, be filled
for the unexpired portion of the term by the Board.
SECTION 3.10 SALARIES. The salaries of all officers of the
Corporation shall be fixed by the Board or by the Chief Executive Officer if
authorized by the Board.
INDEMNIFICATION
SECTION 4.01 INDEMNIFICATION. The Corporation shall indemnify its
officers and directors and other persons entitled to mandatory indemnification
under Minnesota Statutes, Section 302A.521, as amended from time to time, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent, as required or permitted by Minnesota Statutes, Section 302A.521,
as amended from time to time, or as required or permitted by other provisions of
law.
SECTION 4.02 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
SHARES
SECTION 5.01 CERTIFICATED AND UNCERTIFICATED SHARES. Subdivision 1.
The shares of the Corporation shall be either certificated shares or
uncertificated shares. Each holder of duly issued certificated shares is
entitled to a certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall
bear the corporate seal, if any, and shall be signed by the Chief Executive
Officer, or the President or any Vice President, and the Chief Financial
Officer, or the Secretary or any Assistant Secretary, but when a certificate is
signed by a transfer agent or a registrar, the signature of any such officer and
the corporate seal upon such certificate may be facsimiles, engraved or printed.
If a person signs or has a facsimile signature placed upon a certificate while
an officer, transfer agent or registrar of the Corporation, the certificate may
be issued by the
<PAGE>
Corporation, even if the person has ceased to serve in that capacity before the
certificate is issued, with the same effect as if the person had that capacity
at the date of its issue.
Subdivision 3. A certificate representing shares issued by the
Corporation shall, if the Corporation is authorized to issue shares of more than
one class or series, set forth upon the face or back of the certificate, or
shall state that the Corporation will furnish to any shareholder upon request
and without charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or series authorized
to be issued, so far as they have been determined, and the authority of the
Board to determine the relative rights and preferences of subsequent classes or
series.
Subdivision 4. A resolution approved by the affirmative vote of a
majority of the directors present at a duly held meeting of the Board may
provide that some or all of any or all classes and series of the shares of the
Corporation will be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until the certificate is surrendered to
the Corporation.
SECTION 5.02 DECLARATION OF DIVIDENDS AND OTHER DISTRIBUTIONS. The
Board shall have the authority to declare dividends and other distributions upon
the shares of the Corporation to the extent permitted by law.
SECTION 5.03 TRANSFER OF SHARES. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by such person's attorney. In the case of certificated shares, shares
shall be transferred only upon surrender and cancellation of certificates for a
like number of shares. The Board, however, may appoint one or more transfer
agents and registrars to maintain the share records of the Corporation and to
effect transfers of shares.
SECTION 5.04 RECORD DATE. The Board may fix a time, not exceeding
60 days preceding the date fixed for the payment of any dividend or other
distribution, as a record date for the determination of the shareholders
entitled to receive payment of such dividend or other distribution, and in such
case only shareholders of record on the date so fixed shall be entitled to
receive payment of such dividend or other distribution, notwithstanding any
transfer of any shares on the books of the Corporation after any record date so
fixed.
<PAGE>
MISCELLANEOUS
SECTION 6.01 EXECUTION OF INSTRUMENTS. Subdivision 1. All deeds,
mortgages, bonds, checks, contracts and other instruments pertaining to the
business and affairs of the Corporation shall be signed on behalf of the
Corporation by the Chief Executive Officer, or the President, or any Vice
President, or by such other person or persons as may be designated from time to
time by the Board.
Subdivision 2. If a document must be executed by persons holding
different offices or functions and one person holds such offices or exercises
such functions, that person may execute the document in more than one capacity
if the document indicates each such capacity.
SECTION 6.02 ADVANCES. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
SECTION 6.03 EXPENSES AND UNREASONABLE COMPENSATION. In the event
any expenses authorized to be reimbursed to an officer by this Corporation shall
be disallowed as a deduction to this Corporation, such expenses shall be deemed
to be additional compensation to such officers for the period in which received;
provided further that in the event the treatment of such expenses as additional
compensation, or any other payments of salaries, bonuses, medical reimbursements
or other benefits paid to an officer of the Corporation shall be deemed
unreasonable compensation and disallowed as a deduction to this Corporation,
then such officer shall be obligated to immediately repay to the Corporation the
full amount of any such disallowance and the Board of Directors shall take
whatever action as, in the opinion of counsel to the Corporation, may be deemed
necessary to collect such disallowance.
SECTION 6.04 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first Monday after the last Sunday in September and end on the last
Sunday in September.
SECTION 6.05 AMENDMENTS. The Board shall have the power to adopt,
amend or repeal the By-Laws of the Corporation, subject to the power of the
shareholders to change or repeal the same, provided, however, that the Board
shall not adopt, amend or repeal any By-Law fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the Board, or fixing the number of directors or their classifications,
qualifications or terms of office, but may adopt or amend a By-Law that
increases the number of directors.
<PAGE>
MASTER LEASE AGREEMENT
dated as of December 19, 1996
between
GENERAL ELECTRIC CAPITAL CORPORATION, as Lessor,
and
HUTCHINSON TECHNOLOGY INCORPORATED, as Lessee
<PAGE>
MASTER LEASE AGREEMENT
TABLE OF CONTENTS
Page
I. LEASING..............................................................2
II. TERM, RENT AND PAYMENT...............................................6
III. [INTENTIONALLY OMITTED]..............................................6
IV. TAXES................................................................7
V. REPORTS..............................................................7
VI. DELIVERY, USE AND OPERATION..........................................8
VII. SERVICE..............................................................9
VIII. STIPULATED LOSS VALUE...............................................10
IX. LOSS OR DAMAGE......................................................10
X. INSURANCE...........................................................10
XI. RETURN OF EQUIPMENT.................................................11
XII. DEFAULT.............................................................12
XIII. ASSIGNMENT..........................................................13
XIV. NET LEASE; NO SET-OFF, ETC..........................................14
XV. INDEMNIFICATION.....................................................15
XVI. DISCLAIMER..........................................................21
XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE............................22
XVIII. INTENT; TITLE; SECURITY DEPOSIT.....................................23
XIX. OPTIONS AT END OF BASIC TERM........................................24
XX. MISCELLANEOUS.......................................................26
XXI. CHOICE OF LAW.......................................................28
XXII. CHATTEL PAPER.......................................................28
XXIII. SPECIAL PURCHASE OPTION.............................................29
XXIV. FINANCIAL COVENANTS.................................................30
XXV. SPECIAL LESSOR OPTION...............................................32
XXVI. LICENSE OF INTELLECTUAL PROPERTY....................................33
i
<PAGE>
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT, dated as of December 19, 1996 ("AGREEMENT"),
between GENERAL ELECTRIC CAPITAL CORPORATION with an office at 4 Northpark
Drive, Suite 500, Hunt Valley, Maryland 21030 (hereinafter called, together with
its successors and assigns, if any, "LESSOR"), and HUTCHINSON TECHNOLOGY
INCORPORATED, a Minnesota corporation with its mailing address and chief place
of business at 40 West Highland Park, Hutchinson, Minnesota 55350-9784
(hereinafter called "LESSEE").
WITNESSETH:
I. LEASING:
(a) This Agreement shall be effective from and after the date of execution
hereof. Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, certain assembly
equipment and etching equipment ("EQUIPMENT") described in Annex A to any
schedule hereto (each and collectively, the "SCHEDULE"). Each Schedule shall be
in the form of Exhibit A attached hereto, appropriately completed. Terms defined
in a Schedule and not otherwise defined herein shall have the meanings ascribed
to them in such Schedule.
(b)(i) Subject to satisfaction of the terms and conditions specified
herein, Lessor agrees to acquire and lease to Lessee on the terms set forth
herein Equipment having an aggregate Capitalized Lessor's Cost not in excess of
Twenty-five Million Dollars ($25,000,000.00) during the period commencing on the
date of this Agreement through and including September 30, 1997 (the "INITIAL
COMMITMENT PERIOD"). Future commitment(s) by Lessor for the acquisition and
leasing of additional Equipment during a subsequent twelve (12) month period(s)
(each, an "ADDITIONAL COMMITMENT PERIOD"; and together with the Initial
Commitment Period being hereinafter referred to as a "COMMITMENT PERIOD") is
subject to Lessor's approval upon expiration of the then current Commitment
Period. On or before July 1, 1997, Lessee shall notify Lessor of the
anticipated Capitalized Lessor's Cost of Equipment which Lessee desires to
finance pursuant to this Agreement during the first Additional Commitment
Period. Upon receipt of Lessee's notice, and in any event on or before August
15, 1997, Lessor shall notify Lessee whether Lessor has approved a commitment
for such first Additional Commitment Period and the amount of such approval. If
Lessor does not timely provide a commitment for the full amount requested by
Lessee, Lessee may accept a partial commitment expressed by Lessor or,
notwithstanding the last sentence of Section I(b)(iii) hereof, Lessee may
arrange for a third party to provide any or all lease financing requirements of
Lessee with respect to assembly and/or etching equipment for the balance of the
period of three (3) years after the date of this Agreement or thereafter. On or
before July 1, 1998, Lessee shall notify Lessor of the anticipated Capitalized
Lessor's Cost of Equipment which
<PAGE>
Lessee desires to finance pursuant to this Agreement during the second
Additional Commitment Period. Upon receipt of Lessee's notice, and in any event
on or before August 15, 1998, Lessor shall notify Lessee whether Lessor has
approved a commitment for such second Additional Commitment Period and the
amount of such approval. If Lessor does not timely provide a commitment for the
full amount requested by Lessee, Lessee may accept a partial commitment
expressed by Lessor or, notwithstanding the last sentence of Section I(b)(iii)
hereof, Lessee may arrange for a third party to provide any or all lease
financing requirements of Lessee with respect to assembly and/or etching
equipment for the balance of the period of three (3) years after the date of
this Agreement or thereafter. Lessor's obligations hereunder ("LESSOR'S
COMMITMENT") are subject to there then being no material adverse change in
Lessee's business or financial condition from that disclosed in Lessee's
financial statements referred to in Section XVII (g) hereof, as determined by
Lessor in its reasonable discretion.
(ii) In consideration of the foregoing, Lessee agrees to pay to
Lessor an administrative and executory fee calculated as one-quarter of one
percent (0.25%) of the amount of Lessor's Commitment with respect to a
particular Commitment Period, which fee shall be payable with respect to the
Initial Commitment Period concurrently with execution of this Agreement, and
shall be payable with respect to each Additional Commitment Period (if any) upon
any subsequent approval by Lessor of a future commitment with respect to any
such Additional Commitment Period.
(iii) In the event that, by December 15, 1996, Equipment having an
aggregate Capitalized Lessor's Cost less than Twenty Million Dollars
($20,000,000.00) has then been leased hereunder (as evidenced by the
satisfaction of all conditions specified in Paragraph (d) hereof), then Lessee
will pay to Lessor a non-use fee of One Hundred Thousand Dollars ($100,000.00)
on December 15, 1996. The parties acknowledge and agree that Lessee has paid to
Lessor a good faith deposit in the amount of Seventy-five Thousand Dollars
($75,000.00) and that any portion of such good faith deposit as has not then
been applied pursuant to the terms of that certain proposal letter dated
December 25, 1995, between the parties will be applied in partial satisfaction
of Lessee's obligation with respect to such non-use fee. Further in
consideration of the foregoing, Lessee agrees that Lessor shall have the
exclusive right to provide all lease financing requirements of Lessee with
respect to assembly and/or etching equipment for a period of three (3) years
after the date of this Agreement.
(c) Lessor and Lessee acknowledge and agree that the Basic Term Lease Rate
Factors and the FMV Special Purchase Option Price factors are shown as a
percentage of the Capitalized Lessor's Cost in Exhibit B attached hereto, which
percentages and the Schedule of Stipulated Loss Values attached hereto as
Exhibit C have been calculated based on the 15.75% November, 2001 U.S. Treasury
Note having an ask yield of 5.97% as published in the November 11, 1996 edition
of THE WALL STREET JOURNAL. Actual Basic Term Lease Rate factors and actual FMV
Special Purchase Option Price factors and
3
<PAGE>
related Stipulated Loss Values will be determined based on the Applicable
Treasury Yield (as hereinafter defined) on the date Lessor prepares the
applicable Schedule for sending to and signature by Lessee as contemplated below
(the "SCHEDULE PREPARATION DATE") so as to maintain Lessor's pre-tax yield at
the same spread over the Applicable Treasury Yield as when the Applicable
Treasury Yield was 5.97%.
The "APPLICABLE TREASURY YIELD" as of each Schedule Preparation Date means
the ask yield as quoted in THE WALL STREET JOURNAL as of the next previous day
of a U.S. Treasury Note maturing in the month that is five (5) years from such
Schedule Preparation Date, or, if there is no such Note maturing in such month,
then of a U.S. Treasury Note maturing in the month that is closest to but
earlier than such month. If there is more than one class of U.S. Treasury Notes
maturing in the month of maturity to be used for purposes of the preceding
sentence, then the Applicable Treasury Yield shall be the average of the ask
yields of such Notes.
Lessor and Lessee contemplate that Lessee will submit documentation to
Lessor required by Paragraph (d) below in sufficient time before the end of a
calendar quarter to enable Lessor to prepare a related Schedule for sending to
Lessee for signature and for Lessee to verify the economics thereof and sign and
return the same to Lessor before the end of such quarter.
Lessee recognizes that Lessor's formula for determining Lessor's pre-tax
yield is complicated and not easily set forth in this Agreement. However,
Lessor has furnished Lessee with Lessor's internal rate of return ("IRR")
calculated as described below for an Applicable Treasury Yield of 5.97% and
Lessor and Lessee agree that as a means of Lessee verifying Lessor's
determination of Basic Term Lease Rate factors and the FMV Special Purchase
Option Price factors and related Stipulated Loss Value, Lessor's IRR is expected
to change by only 50-80% of the change in the Applicable Treasury Yield
depending on the particular calendar quarter involved. For example, a change of
10 basis points in the Applicable Treasury Yield from 5.97% is expected to
change the Lessor's IRR by 5-8 basis points. For this purpose, Lessor's IRR
shall be based on gross cash flow, the amount funded, the quarterly payments of
Basic Rent, and as if the FMV Special Purchase Option were exercised.
Nevertheless, whether or not Lessor's IRR is within the foregoing parameters,
Lessor agrees that Lessee may in its sole discretion and at Lessee's expense
have Lessee itself or an accounting firm chosen by Lessee verify that Lessor has
calculated Basic Term Lease Rate factors and the FMV Special Purchase Option
Price factors and related Stipulated Loss Values so as to maintain Lessor's
pre-tax yield at the same spread over the Applicable Treasury Yield as when the
Applicable Treasury Yield was 5.97%. Lessor agrees to make available such of
its records and appropriate access to its employees for the purposes of such
verification.
(d) The obligation of Lessor to purchase Equipment components from the
manufacturer or supplier thereof ("SUPPLIER") and, after assembly and
configuration thereof by Lessee, to lease the Equipment to Lessee under any
Schedule shall be subject to
4
<PAGE>
satisfaction of the following conditions: (1) receipt by Lessor, prior to the
Lease Commencement Date (with respect to such Equipment), of each of the
following documents in form and substance satisfactory to Lessor: (i) a
Schedule relating to the Equipment then to be leased hereunder, (ii) an Agency
Agreement in the form of Exhibit D attached hereto, unless Lessor shall have
delivered its purchase order for such Equipment, (iii) evidence of insurance
which complies with the requirements of Section IX, (iv) an Estoppel/Waiver
Agreement in the form of Annex D to the applicable Schedule, (v) the security
deposit required pursuant to Section XVIII(c) hereof, (vi) the Equipment
Substantiation with respect to the applicable Equipment, (vii) an appraisal with
respect to the Equipment issued by such appraiser as reasonably is satisfactory
to Lessor, stating the fair market value of the Equipment and that the
Capitalized Lessor's Cost of the Equipment is not more than the fair market
value of the Equipment, that the Equipment will have an uninflated fair market
value of at least twenty percent (20%) of Capitalized Lessor's Cost as of the
end of the Term, an inflated fair market value on the FMV Special Purchase
Option Date of not more than the FMV Special Purchase Option Price, and that the
useful life of the Equipment exceeds the Term by the greater of one (1) year or
twenty percent (20%) of such estimated useful life, and (viii) such other
documents as Lessor reasonably may request; and (2) the Equipment must consist
of either assembly or etching equipment and the aggregate Capitalized Lessor's
Cost of all Equipment to be leased during the Initial Commitment Period shall
not exceed Twenty-five Million Dollars ($25,000,000.00) and during any
Additional Commitment Period (if applicable) shall not exceed the amount of any
such future commitment by Lessor; (3) the Purchase Price (as such term is
defined in the Agency Agreement) and the Capitalized Lessor's Cost of each item
of Equipment must be not more than the then current Fair Market Value (as such
term is hereinafter defined) of such item of Equipment; and (4) the Equipment
must be delivered to, and accepted for purposes of this Agreement by, Lessee on
or before the expiration of the Initial Commitment Period (or of any Additional
Commitment Period, if applicable). As used herein, "EQUIPMENT SUBSTANTIATION"
shall mean the Project Reports, tied to specific asset numbers, together with a
complete description with respect to not less than ten percent (10%) and not
more than fifteen percent (15%) of the Equipment, provided that Lessor is
reasonably satisfied with the Equipment Substantiation provided with respect to
such portion of the Equipment, including: make (manufacturer), model numbers,
serial numbers, age, original cost breakdown, equipment specifications and
applicable capitalized costs of modification, together with copies of the
original purchase orders and invoices. As a further condition to such
obligations of Lessor, Lessee shall, upon delivery of such Equipment (but not
later than the Last Delivery Date specified in the applicable Schedule) execute
and deliver to Lessor a Certificate of Acceptance (in the form of Annex B to the
applicable Schedule) covering such Equipment, and deliver to Lessor a bill of
sale therefor (in form and substance satisfactory to Lessor). Upon execution by
Lessee of any Certificate of Acceptance,
5
<PAGE>
then, and only then, shall the Equipment described thereon be deemed to have
been delivered to, and irrevocably accepted by, Lessee for lease hereunder.
(e) Lessee may execute not more than one (1) Schedule per calendar quarter
with respect to assembly Equipment to be leased for a term of twenty-one (21)
quarters, and not more than one (1) Schedule per calendar quarter with respect
to etching Equipment to be leased for a term of twenty-five (25) quarters. The
aggregate Capitalized Lessor's Cost of the Equipment described on all Schedules
(but not each Schedule) executed in a calendar quarter shall be not less than
One Million Dollars ($1,000,000). As used herein, "CAPITALIZED LESSOR'S COST" of
an item of Equipment means the aggregate purchase price of the components of the
item actually paid by Lessee plus Lessee's charge for assembly and
configuration.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder (the "RENT") and Lessee's right to use the
Equipment shall commence on the date of execution by Lessee of the Certificate
of Acceptance for such Equipment ("LEASE COMMENCEMENT DATE"). The term of this
Agreement (the "TERM") with respect to such Equipment shall be the period
specified in the applicable Schedule, which shall be twenty-one (21) quarters
with respect to assembly equipment and twenty-five (25) quarters with respect to
etching Equipment. If any Term is extended, the word "Term" shall be deemed to
refer to all extended terms, and all provisions of this Agreement shall apply
with respect to such Equipment during any extended terms, except as otherwise
may be specifically provided in writing.
(b) Rent shall be paid to Lessor by wire transfer of immediately available
funds to: Bankers Trust New York, New York, New York 10006, Account No.
50-202-962, ABA No. 021-001-033, or to such other account as Lessor may direct
in writing; and shall be effective upon receipt. Payments of Rent shall be in
the amount set forth in, and due in accordance with, the provisions of the
applicable Schedule. In no event shall any Rent payments be refunded to Lessee.
III. [INTENTIONALLY OMITTED]
IV. TAXES:
Except as provided in Section XV(c) hereof, Lessee shall have no liability
for taxes imposed by (a) the United States of America or any State or political
subdivision thereof which are on or measured by the net income of Lessor or any
Participant (as such term is hereinafter defined), and (b) any foreign
government or political subdivision thereof which are on or measured by the net
income of Lessor or any Participant. Lessee shall report (to the
6
<PAGE>
extent that it is legally permissible) and pay promptly all other taxes, fees
and assessments due, imposed, assessed or levied against any Equipment (or the
purchase, ownership, delivery, leasing, possession, use or operation thereof),
this Agreement (or any rentals or receipts hereunder), any Schedule, Lessor or
Lessee by any foreign, federal, state or local government or taxing authority
during or related to the term of this Agreement, including, without limitation,
all license and registration fees, and all sales, use, personal property,
excise, gross receipts, franchise, stamp or other taxes, imposts, duties and
charges, together with any penalties, fines or interest thereon (all hereinafter
called "TAXES"). Lessee shall (i) reimburse Lessor upon receipt of written
request for reimbursement for any Taxes charged to or assessed against Lessor,
together with a statement from Lessor that such Taxes have been paid by Lessor,
(ii) on reasonable written request of Lessor, submit to Lessor written evidence
of Lessee's payment of Taxes, (iii) on all reports or returns show the ownership
of the Equipment by Lessor, and (iv) upon reasonable written request of Lessor,
send a copy thereof to Lessor. Promptly upon Lessor's receipt of notice of any
Taxes for which Lessor seeks or is entitled to seek reimbursement from Lessee,
Lessor shall give to Lessee prompt written notice of such Taxes and copies of
all related documents then having been received by Lessor, and (at Lessee's
expense) Lessor shall cooperate in a timely manner in any abatement, refund,
defense or other actions by Lessee with respect thereto.
V. REPORTS:
(a) Lessee will notify Lessor in writing, within ten (10) business days
after Lessee's receipt of notice, or actual knowledge, that any tax or other
lien shall have attached to any Equipment, of the full particulars thereof and
of the location of such Equipment on the date of such notification.
(b) Lessee will deliver to Lessor, within ninety (90) days of the close of
each fiscal year of Lessee, Lessee's consolidated balance sheet and consolidated
statement of operations, prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied, in each case except as
otherwise stated therein, certified by a recognized firm of certified public
accountants, together with Lessee's Form 10K filed with the Securities and
Exchange Commission ("SEC") and Lessee's annual report. Lessee will deliver to
Lessor quarterly, within forty-five (45) days of the close of each fiscal
quarter of Lessee, in reasonable detail, copies of Lessee's consolidated
quarterly financial report, together with Lessee's Form 10Q filed with the SEC.
(c) Lessee will permit Lessor to inspect the Equipment and all maintenance
records with respect thereto during normal business hours upon reasonable
notice.
7
<PAGE>
(d) Lessee will keep the Equipment within the Continental United States
and will not move any of the Equipment outside the Continental United States
without the prior written consent of Lessor. If Lessor moves any Equipment from
the Equipment Location (specified in the applicable Schedule), within ninety
(90) days thereafter, Lessee promptly shall notify Lessor thereof and shall
furnish to Lessor such Uniform Commercial Code financing statements or
statements of amendment (if any) as Lessor reasonably may request to maintain
the status of Lessor's interest in such Equipment. Upon Lessor's request,
Lessee promptly will notify Lessor in writing of the location of any Equipment
as of the date of such notification.
(e) Lessee will promptly and fully report to Lessor in writing if any
Equipment is lost or damaged (where the estimated repair costs would exceed
$100,000 in the aggregate with respect to all Equipment then having been lost or
damaged, or is otherwise involved in an accident causing personal injury or
property damage.
(f) Within ninety (90) days of the close of each fiscal year of Lessee,
and within thirty (30) days after any request by Lessor (provided, however, that
Lessor shall not make any such request more than four (4) times during any
consecutive twelve (12) month period), Lessee will furnish a certificate of an
authorized officer of Lessee stating that he has reviewed the activities of
Lessee and that, to the best of his knowledge, there exists no Default (as
hereinafter defined) or event which, with the giving of notice or the lapse of
time (or both), would become a Default.
VI. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to Lessee.
(b) Lessee agrees that the Equipment will be used by Lessee solely in the
conduct of its business and in a manner complying with all applicable Federal,
state, and local laws and regulations and any applicable insurance policies, and
Lessee shall not discontinue use of the Equipment for a period in excess of six
(6) consecutive months (provided, however, that notwithstanding such
discontinuance of use, Lessee shall continue to be required to perform its
obligations under this Agreement with respect to such Equipment, including,
without limitation, its obligations pursuant to Section VII hereof).
(c) Lessee will keep the Equipment free and clear of all liens and
encumbrances other than those created by or arising through (except those
created by Lessee) Lessor and those that are temporary liens or encumbrances
imposed by law for personal property taxes or other charges and are discharged
in due course by timely payment without delinquency.
8
<PAGE>
VII. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment in
good operating order, repair, condition and appearance in accordance with
standards consistent with and customary to industry practice and, in all events,
consistent with Lessee's practices with respect to similar equipment owned by
Lessee. Lessee shall, if at any time reasonably requested by Lessor, affix in a
prominent position on each unit of Equipment plates, tags or other identifying
labels showing the unit is leased and not owned by Lessee.
(b) Lessee will not, without the prior consent of Lessor, affix or install
any accessory, equipment or device on any Equipment if such addition will impair
the value, originally intended function or use of such Equipment. All
additions, repairs, parts, supplies, accessories, equipment, and devices
furnished, attached or affixed to any Equipment which are not readily removable
shall be made only in compliance with applicable law, including Internal Revenue
Service guidelines, shall be free and clear of all liens, encumbrances or rights
of others, and shall become the property of Lessor.
(c) It is the intention of the parties that all Equipment shall at all
times remain personal property of Lessor regardless of the degree of its
annexation to any real property and shall not by reason of any installation in,
or affixation to, real or personal property become a part thereof. Upon
Lessor's reasonable request, Lessee shall obtain and deliver to Lessor (to be
recorded at Lessee's expense) from any person having an interest in the property
where the Equipment is to be located, waivers of any lien, encumbrance or
interest which such person might have or hereafter obtain or claim with respect
to the Equipment. Lessee will not, without the prior written consent of Lessor
and subject to such conditions as Lessor may impose for its protection, affix or
install any Equipment to real property in such manner that the Equipment would
become a real property fixture.
(d) Any alterations or modifications to the Equipment that may, at any
time during the term of this Agreement, be required to comply with any
applicable law, rule or regulation shall be made at the expense of Lessee.
VIII. STIPULATED LOSS VALUE:
Lessee shall promptly and fully notify Lessor in writing if any unit of
Equipment then having a value exceeding One Hundred Thousand Dollars
($100,000.00) shall be or become worn out, lost, stolen, destroyed, irreparably
damaged in the reasonable determination of Lessee, or permanently rendered unfit
for use from any cause whatsoever (such occurrences being hereinafter called
"CASUALTY OCCURRENCES"). On the Rent Payment Date next succeeding
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<PAGE>
a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor the sum of
(x) the Stipulated Loss Value of such unit calculated in accordance with Annex C
to the applicable Schedule as of the Rent Payment Date next preceding such
Casualty Occurrence ("CALCULATION DATE"); and (y) all rental and other amounts
which are due hereunder as of the Payment Date. Upon payment of all sums due
hereunder, the Term as to such unit shall terminate and (except in the case of
the loss, theft or complete destruction of such unit) Lessor shall be entitled
to recover possession of such unit.
IX. LOSS OR DAMAGE:
Lessee hereby assumes and shall bear the entire risk of any loss, theft,
damage to, or destruction of, any unit of Equipment from any cause whatsoever
from the time the Equipment becomes subject to this Agreement.
X. INSURANCE:
Lessee agrees, at its own expense, to keep all Equipment insured for such
amounts as specified in Paragraph D of the applicable Schedule and against such
hazards as Lessor may require, including, but not limited to, insurance for
damage to or loss of such Equipment and liability coverage for personal
injuries, death or property damage, with Lessor named as additional insured and
with a loss payable clause in favor of Lessor, as its interest may appear,
irrespective of any breach of warranty or other act or omission of Lessee. All
such policies shall be with companies, and on terms, satisfactory to Lessor; and
such insurance with respect to property damage may have a deductible not in
excess of Fifty Thousand Dollars ($50,000.00). Lessee agrees to deliver to
Lessor evidence of insurance satisfactory to Lessor. No insurance shall be
subject to any co-insurance clause. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make proof of loss and claim for insurance, and to make
adjustments with insurers and to receive payment of and execute or endorse all
documents, checks or drafts in connection with payments made as a result of such
insurance policies; provided, however, that, so long as no Default has then
occurred hereunder and is continuing, Lessee shall have the exclusive right to
settle claims for loss or damage to the Equipment of Fifty Thousand Dollars
($50,000) or less. Any expense of Lessor in adjusting or collecting insurance
shall be borne by Lessee. Lessee will not make adjustments with insurers except
as expressly permitted above or with Lessor's written consent. Said policies
shall provide that the insurance may not be altered or canceled by the insurer
until after thirty (30) days' written notice to Lessor. Lessor may, at its
option, apply proceeds of insurance, in whole or in part, to (i) repair or
replace Equipment or any portion thereof, or (ii) satisfy any obligation of
Lessee to Lessor hereunder.
10
<PAGE>
XI. RETURN OF EQUIPMENT:
(a) Upon any expiration or termination of this Agreement or any Schedule,
Lessee shall promptly, at its own cost and expense: (i) perform any testing and
repairs required to place the affected units of Equipment in the same condition
and appearance as when received by Lessee (reasonable and ordinary wear and tear
excepted) and in good working order for their originally intended purpose; (ii)
if deinstallation, disassembly or crating is required, cause such units to be
deinstalled, disassembled and crated in accordance with the manufacturer's
recommendations (if any); and (iii) return such units, free and clear of all
liens and encumbrances (other than Lessor Liens), to a location within the
continental United States as Lessor shall direct. As used herein, "LESSOR
LIENS" means any lien on or with respect to the Equipment which results from:
(1) non-payment by Lessor of any Taxes other than any Taxes the payment of or
indemnification for which is Lessee's obligation hereunder; (2) claims against
or acts or omissions of Lessor arising out of events or conditions that are not
related to the transaction contemplated by the terms of this Agreement or are in
violation of any of the obligations of Lessor under the terms of this Agreement;
(3) claims against Lessor arising out of any transfer (whether voluntary or
involuntary) by Lessor of any portion of its interest in the Equipment or its
rights under this Agreement prior to the occurrence of a Default; or (4) any
other act of, claim against or lien created by, Lessor that does not result from
any action or omission of Lessee.
(b) Until Lessee fully has complied with the requirements of Paragraph (a)
above, Lessee's Rent payment obligation and all other obligations under this
Agreement shall continue from month to month notwithstanding any expiration or
termination of the Term. Lessor may terminate such continued leasehold interest
upon ten (10) days' notice to Lessee, whereupon Lessee's obligation to pay Rent
hereunder shall terminate. In addition to these rents, Lessor shall have all of
its other rights and remedies available as a result of the nonperformance of
Paragraph (a) above.
XII. DEFAULT:
(a) Each of the following is a "DEFAULT" under this Agreement: (1) Lessee
breaches its obligation to pay Rent or any other sum payable hereunder when due
and fails to cure the breach within ten (10) days; (2) Lessee breaches any of
its insurance obligations under Section X hereof; (3) Lessee breaches any of its
other obligations hereunder and fails to cure that breach within thirty (30)
days after Lessee's receipt of written notice thereof from Lessor; (4) any
representation or warranty made by Lessee in connection with this Agreement
(other than any such representation or warranty made in Section XV(c) hereof, as
to which Lessor's sole remedy shall be pursuant to Section XV(d) hereof) shall
be false or
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misleading in any material respect; (5) Lessee becomes insolvent or ceases to do
business as a going concern; (6) a petition is filed by or against Lessee under
any bankruptcy or insolvency laws and, if such petition is filed against Lessee,
such petition is not dismissed within ninety (90) days; (7) Lessee shall have
terminated its corporate existence, consolidated with, merged into, or conveyed
or leased substantially all of its assets as an entirety to any person where
Lessee is not the surviving entity (such actions being referred to as an
"EVENT"), unless: (x) such person is organized and existing under the laws of
the United States or any state, and not later than the date of the consummation
of the Event such person executes and delivers to Lessor an agreement containing
an effective assumption by such person of the due and punctual performance of
this Agreement; and (y) not less than ten (10) days prior to such Event, Lessee
notifies Lessor of the anticipated Event and provides to Lessor such information
as reasonably may be required by Lessor with respect to such person, and Lessor
is reasonably satisfied as to the creditworthiness of such person; (8) Lessee
shall be in default under any obligation for borrowed money, for the deferred
purchase price of property or any lease agreement for an original amount in
excess of Five Million Dollars ($5,000,000.00) ("MATERIAL INDEBTEDNESS") and as
a result of such default, the creditor has declared immediately due and payable
an amount in excess of Five Million Dollars ($5,000,000.00); or (9) Lessee shall
be in default under any other agreement between Lessor and Lessee having a then
current unpaid balance in excess of One Million Five Hundred Thousand Dollars
($1,500,000). Any provision of this Agreement to the contrary notwithstanding,
Lessor may exercise all rights and remedies hereunder independently with respect
to each Schedule.
(b) After Default, at the request of Lessor, Lessee shall comply with the
provisions of Section XI(a) hereof. Lessor may enter, with or without legal
process, any premises where any Equipment is located and take possession
thereof. Lessor may declare the following amount to be due and payable by
Lessee, and Lessee shall pay, immediately, the sum of: (i) as liquidated damages
for loss of a bargain and not as a penalty, the Stipulated Loss Value of the
Equipment (calculated in accordance with Annex D to the applicable Schedule as
of the Rent Payment Date next preceding the declaration of Default), and (ii)
all Rent and other sums then due hereunder. Lessor may, but shall not be
required to, sell Equipment at private or public sale, in bulk or in parcels,
with or without notice, and without having the Equipment present at the place of
sale; or Lessor may, but shall not be required to, lease, otherwise dispose of
or keep idle all or part of the Equipment (provided, however, that Lessor shall
in all events act in a commercially reasonable manner with respect to the
Equipment). The proceeds of sale, lease or other disposition, if any, shall be
applied in the following order of priorities: (1) to pay all of Lessor's costs,
charges and expenses incurred in taking, removing, holding, repairing and
selling, leasing or otherwise disposing of Equipment; then; (2) to the extent
not previously paid by Lessee,
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to pay Lessor all sums due from Lessee hereunder; then (3) to reimburse to
Lessee any sums previously paid by Lessee as liquidated damages; and (4) any
surplus shall be retained by Lessor. Lessee shall pay any deficiency in clauses
(1) and (2) forthwith.
(c) In addition to the foregoing rights, Lessor may cancel the lease as to
any or all of the Equipment.
(d) The foregoing remedies are cumulative, and any or all thereof may be
exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition
(and the time and place thereof), and the manner and place of any advertising.
If permitted by law, Lessee shall pay reasonable attorney's fees actually
incurred by Lessor in enforcing the provisions of this Lease and any ancillary
documents. Waiver of any Default shall not be a waiver of any other or
subsequent default.
XIII. ASSIGNMENT:
(a) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT
OR THE INTEREST OF LESSEE HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
except that Lessee may assign or sublease any or all of the interest of Lessee
hereunder (1) in connection with an Event permitted by Section XII (a)(7)
hereof, and/or (2) to any entity that is a wholly-owned subsidiary of Lessee
(provided that such entity is then solvent) or of which Lessee is then a
wholly-owned subsidiary.
(b) Lessor may, without the consent of Lessee, assign this Agreement or
any Schedule, or the right to enter into any Schedule; provided however, that
each such assignee (or the parent of such assignee) shall have a net worth or
combined capital and surplus of not less than Fifty Million Dollars
($50,000,000.00), and the interest in this Agreement or any Schedule assigned to
such assignee shall be not less than One Million Five Hundred Thousand Dollars
($1,500,000.00). General Electric Capital Corporation (or a financial
institution designated to serve as trustee) shall serve as fiscal agent for
Lessor and any assignee; and Lessee and Lessor each agrees that Lessee will pay
all Rent and other amounts payable under each Schedule only to such fiscal
agent. Each Schedule, incorporating by reference the terms and conditions of
this Agreement, constitutes a separate instrument of lease, and the Lessor named
therein or its assignee shall have all rights as "Lessor" thereunder separately
exercisable by such named Lessor or assignee as the case may be, exclusively and
independently of Lessor or any assignee with respect to other Schedules executed
pursuant hereto. Lessee further agrees to confirm in writing receipt of a
notice of assignment as reasonably may be requested by assignee. Lessee hereby
waives and agrees not to assert against any such assignee any defense, set-off,
recoupment claim or
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counterclaim which Lessee has or may at any time have against Lessor or any
other person for any reason whatsoever (no such assignment shall relieve Lessor
any such other person from any such defense, set-off, recoupment claim or
counter-claim with respect to such Lessor or any such other person, and Lessor
and each such other person shall remain subject thereto).
(c) Subject always to the foregoing, this Agreement inures to the benefit
of, and is binding upon, the successors and assigns of the parties hereto.
XIV. NET LEASE; NO SET-OFF, ETC.:
This Agreement is a net lease. Lessee's obligation to pay Rent and other
amounts due hereunder shall be absolute and unconditional; provided, however,
that Lessee shall be entitled to the benefit of any contest rights set forth
herein. Lessee shall not be entitled to any abatement or reductions of, or
set-offs against, said Rent or such other amounts, including, without
limitation, those arising or allegedly arising out of claims (present or future,
alleged or actual, and including claims arising out of strict tort or negligence
of Lessor) of Lessee against Lessor under this Agreement or otherwise. This
Agreement shall not terminate and the obligations of Lessee shall not be
affected by reason of any defect in or damage to, or loss of possession, use or
destruction of, any Equipment from whatsoever cause. It is the intention of the
parties that Rents and such other amounts due hereunder shall continue to be
payable in all events in the manner and at the times set forth herein unless the
obligation to do so shall have been terminated pursuant to the express terms
hereof. Notwithstanding the foregoing, Lessee shall have the right to assert
(a) in an independent action against Lessor any rights Lessee may have against
Lessor, or (b) in an independent action against any assignee of Lessor or any
other person, any rights Lessee may have against such assignee of Lessor or such
other person.
XV. INDEMNIFICATION:
(a) GENERAL INDEMNITY. (1) Lessee hereby agrees to indemnify, save and
keep harmless Lessor, its agents, employees, successors and assigns, from and
against any and all losses, damages, penalties, injuries, claims, actions and
suits, including legal expenses, of whatsoever kind and nature, in contract or
tort, and including, but not limited to, Lessor's strict liability in tort,
arising out of (i) the selection, manufacture, purchase, acceptance or rejection
of Equipment, the ownership of Equipment during the Term, and the delivery,
lease, possession, maintenance, uses, condition, return or operation of the
Equipment (including, without limitation, latent and other defects, whether or
not discoverable by Lessor or Lessee and any claim for patent,
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trademark or copyright infringement or environmental damage), or (ii) the
condition of Equipment sold or disposed of after use by Lessee, any sublessee or
employees of Lessee (except, in each case, for such as may be caused by Lessor's
or its agent's gross negligence, wilful misconduct or illegal act). Lessee
shall, upon request, defend any actions based on, or arising out of, any of the
foregoing.
(2) In any event, Paragraph (a)(1) shall not apply to claims based on
any of the following: (i) indemnity for income taxes, that matter being covered
in Section XV(c) hereof; (ii) indemnity for income and other taxes for which
Lessee is not responsible hereunder; (iii) acts or events occurring with respect
to an item of Equipment after possession of such item of the Equipment has been
redelivered to Lessor at a time when a Default shall not have occurred and be
continuing (other than any such acts or events allegedly relating to or arising
out of actions or omissions by Lessee prior to the time when possession of the
item of Equipment has been redelivered to Lessor); (iv) breach of any agreement
made by Lessor hereunder or in any related documents executed pursuant hereto;
(v) any Lessor Lien; or (vi) any indemnity for environmental claims, those
matters being covered by Section XV(b) hereof.
(3) Lessee and Lessor agree to give each other, promptly upon
obtaining knowledge thereof, written notice of any claim or liability
indemnified against pursuant to Paragraph (a)(1) hereof; provided, however, that
the failure to provide such notice shall not release Lessee from its obligations
pursuant thereto except to the extent that such failure results in actual
prejudice to Lessee with respect to such claim or liability (and then Lessee
shall be released from its obligations pursuant hereto only to the extent of
such prejudice). Upon the payment in full of any indemnities as contained in
Paragraph (a)(1) hereof by Lessee, and provided that no Default shall then have
occurred and be continuing, Lessee shall be subrogated to any right of the
indemnified person (except against another indemnified person) with respect to
the matter against which indemnity has been given. Provided that no Default
shall then have occurred and be continuing, any payments received by such an
indemnified person from any person (except Lessee) as a result of any matter
with respect to which such indemnified person has been indemnified by Lessee
pursuant hereto, shall be paid over to Lessee to the extent necessary to
reimburse Lessee for indemnification payments previously made pursuant to this
Section XV(a). Nothing in this Section XV(a) shall constitute a guaranty by
Lessee of the residual value of any item of the Equipment at the end of the
Term.
(b) ENVIRONMENTAL INDEMNITY. Lessee shall defend, indemnify and hold
harmless Lessor and its Affiliates, successors and assigns, directors, officers,
employees and agents, from and against any Environmental Claim or Environmental
Loss and, unless Lessee is then contesting in good faith such Environmental
Claim or
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Environmental Loss and Lessee has set aside on its books appropriate reserves
therefor, Lessee shall fully and promptly pay, perform and discharge any such
Environmental Claim or Environmental Loss.
As used herein,
(1) "ADVERSE ENVIRONMENTAL CONDITION" shall refer to (i) the
existence or the continuation of the existence, of an Environmental
Emission (including, without limitation, a sudden or non-sudden
accidental or non-accidental Environmental Emission), of, or exposure
to, any Contaminant, odor or audible noise in violation of any
Applicable Environmental Law, at, in, by, from or related to any
Equipment, (ii) the environmental aspect of the transportation,
storage, treatment or disposal of materials in connection with the
operation of any Equipment in violation of any Applicable
Environmental Law, or (iii) the violation, or alleged violation, of
any Environmental Law connected with any Equipment.
(2) "AFFILIATE" shall refer, with respect to any given Person,
to any Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such Person.
(3) "CONTAMINANT" shall refer to those substances which are
regulated by or form the basis of liability under any Environmental
Law, including, without limitation, asbestos, polychlorinated
biphenyls ("PCBs"), and radioactive substances.
(4) "ENVIRONMENTAL CLAIM" shall refer to any accusation,
allegation, notice of violation, claim, demand, abatement or other
order or direction (conditional or otherwise) by any governmental
authority or any Person for personal injury (including sickness,
disease or death), tangible or intangible property damage, damage to
the environment or other adverse effects on the environment, or for
fines, penalties or restrictions, resulting from or based upon any
Adverse Environmental Condition.
(5) "ENVIRONMENTAL EMISSION" shall refer to any actual or
threatened release, spill, omission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, or into or out of any of the
Equipment, including, without limitation, the movement of any
Contaminant or other substance through or in the air, soil, surface
water, groundwater, or property.
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(6) "ENVIRONMENTAL LAW" shall mean any Federal, foreign, state or
local law, rule or regulation pertaining to the protection of the
environment, including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section
9601 ET SEQ.), the Hazardous Material Transportation Act (49 U.S.C. Section
1801 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section
1251 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.),
the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361
ET SEQ.), and the Occupational Safety and Health Act (19 U.S.C. Section
651 ET SEQ.), as these laws have been amended or supplemented, and any
analogous foreign, Federal, state or local statutes, and the regulations
promulgated pursuant thereto.
(7) "ENVIRONMENTAL LOSS" shall mean any loss, cost, damage,
liability, deficiency, fine, penalty or expense (including, without
limitation, reasonable attorneys' fees, engineering and other professional
or expert fees), investigation, removal, cleanup and remedial costs
(voluntarily or involuntarily incurred) and damages to, loss of the use of
or decrease in value of the Equipment arising out of or related to any
Adverse Environmental Condition.
(8) "PERSON" shall include any natural person, corporation, firm,
joint venture, partnership, limited liability company, association,
enterprise, trust, or other entity or organization, or any government or
political subdivision or any agency, department or instrumentality thereof.
(c) INCOME TAX INDEMNIFICATION. This Agreement has been entered into on
the assumption that this Agreement will be treated for Federal income tax
purposes as a true lease and Lessor will be treated as the owner and lessor of
the Equipment and Lessee will be treated as the lessee of the Equipment.
(1) TAX REPRESENTATIONS. Lessee hereby represents, warrants and
covenants that (i) assuming (without representing) that this Lease is a true
lease for Federal income tax purposes, on the Lease Commencement Date for any
unit of Equipment, such unit will qualify for all of the depreciation deductions
specified in Section C of the applicable Schedule ("TAX BENEFITS") in the hands
of Lessor (all references to Lessor in this Section include Lessor and each
assignee of Lessor and the consolidated taxpayer group of which Lessor and each
assignee of Lessor is a member), (ii) the Equipment does not and will not
constitute "limited use property"
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as provided in Rev. Proc. 76-30 (or any successor provision), (iii) each item of
Equipment has a recovery period within the meaning of Section 168(c) of the
Internal Revenue Code of 1986, as amended (the "CODE"), as set forth in Section
C of the applicable Schedule, (iv) throughout the Term hereof, no item of
Equipment shall be used in a way that results in the creation of an item of
income, gain, deduction, loss or credit to or for Lessor, the source of which is
outside the United States, (v) Lessor will not be required to include in its
gross income (A) any amount of Rent prior to the period for which such amount is
payable in accordance with the terms of this Agreement as a result of the
payment by Lessee prior to its due date, or (B) with respect to any such item of
Equipment, all or any part of the cost of any repairs, maintenance, alterations,
modifications, improvements or additions thereto, or any other expenditures by
Lessee with respect thereto, (vi) Lessee has not taken and will not take any
action in connection with filing its Federal, state or local income tax returns
that is inconsistent with the assumption set forth in the first paragraph of
this Paragraph (c) or with any of Lessee's representations set forth in this
subparagraph (1) of this Paragraph (c), (vii) at all times during the Term
hereof, none of the Equipment will constitute "public utility property" within
the meaning of Section 168(i)(10) of the Code, (viii) Lessee will not permit any
item of Equipment to be used by a tax-exempt entity within the meaning of
Section 168(h)(2) of the Code, (ix) on the Lease Commencement Date of each item
of Equipment, no improvements, modifications or additions to any item of
Equipment are required in order to render such item of Equipment complete for
its intended use, and Lessee will not have furnished any cost of the Equipment
or have any investment in the Equipment for which it has not been fully
reimbursed, and (x) at no time during the Term of this Agreement will Lessee
take or omit to take, nor will it permit any permitted sublessee, affiliate or
assignee to take or omit to take, any action (whether or not such action or
omission is otherwise permitted by Lessor or the terms of this Agreement), which
will result in the disqualification of any Equipment for, or recapture of, all
or any portion of such Tax Benefits.
(2) If (i) by reason of any breach by Lessee of any of the covenants,
warranties and representations set forth in Paragraph (c)(1) above, (A) tax
counsel of Lessor shall determine that there is no Reasonable Basis (as such
term is hereinafter defined) for Lessor to claim on its Federal income tax
return all or any portion of the Tax Benefits with respect to any Equipment, or
(B) any Tax Benefit claimed on the Federal income tax return of Lessor is
disallowed or adjusted by the Internal Revenue Service, or (C) any Tax Benefit
is recomputed or recaptured, or (ii) Lessor shall become liable for additional
tax (an "INCOME INCLUSION") as a result of Lessee having added an attachment or
made an alteration to the Equipment, including (without limitation) any such
attachment or alteration which would increase the productivity or capability of
the Equipment so as to violate the provisions of Rev. Proc. 75-21, 1975-1 C.B.
715, or Rev. Proc. 79-48, 1979 -2 C.B. 529
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(as either or both may hereafter be modified or superseded); (any such
determination, disallowance, adjustment, recomputation, recapture or Income
Inclusion being hereinafter called a "LOSS"); then Lessee shall pay to Lessor,
as an indemnity and as additional rent, such amount as shall, in the reasonable
opinion of Lessor, cause Lessor's after-tax economic yields and cash flows,
computed on the same assumptions, including tax rates, and were utilized by
Lessor in originally evaluating the transaction (such yields and flows being
hereinafter called the "NET ECONOMIC RETURN") to equal the Net Economic Return
that would have been realized by Lessor if such Loss had not occurred. Such
amount shall be payable upon demand accompanied by a statement describing in
reasonable detail such Loss and the computation of such amount. As used herein,
"REASONABLE BASIS" means that tax counsel may properly advise reporting a
particular position on a tax return in accordance with applicable opinions of
the American Bar Association from time to time in effect. The applicable
opinion as of the date of this Agreement is formal Opinion 85-352 issued by the
Standing Committee on Ethics and Professional Responsibility.
(3) If, at the conclusion of an audit and of such administrative
proceedings within the Internal Revenue Service, if any, as tax counsel of
General Electric Company shall determine in his sole discretion to take, the
Internal Revenue Service proposes an adjustment to a tax return of Lessor for
which Lessee would be required to indemnify Lessor pursuant to this Section
XV(c), and the amount of the indemnity which Lessee would be required to pay
would exceed Fifty Thousand Dollars ($50,000.00), Lessor promptly shall notify
Lessee of the proposed adjustment. If, within ten (10) days thereafter, Lessee
sends a written request to Lessor, Lessor promptly shall request Sullivan &
Cromwell (or other independent tax counsel selected by Lessor and reasonably
approved by Lessee) for such counsel's opinion whether the basis in law and in
fact in favor of allowance of the item proposed to be adjusted outweighs the
basis in law and in fact to the contrary. If the opinion is to that effect and
Lessee promptly requests Lessor to do so, Lessor shall contest the adjustment in
a court of competent jurisdiction selected by tax counsel of General Electric
Company in his sole discretion. Lessor shall not be required to take any action
set forth in this Paragraph (c)(3) unless and until Lessee shall have agreed to
indemnify Lessor in a manner satisfactory to Lessor for any liability or loss
which Lessor may incur as a result of taking such action and shall have agreed
to pay Lessor on demand all out-of-pocket costs and expenses (including the fees
and disbursements of independent tax counsel) incurred by Lessor in connection
with taking such action and, if tax counsel of General Electric Company
determines in his sole discretion to contest the adjustment by a proceeding for
refund of amounts paid based on the adjustment, Lessee shall have paid to Lessor
an amount equal to the sum of any tax, interest, penalties and additions to tax
which are required to be paid. Upon receipt by Lessor of a refund of any
amounts paid by it based on the adjustment in respect of which amounts it shall
have been paid an equivalent amount by Lessee,
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Lessor shall pay to Lessee the amount of such refund together with any interest
received by it on such amount. At any time, whether before or after commencing
to take the action set forth in this Paragraph (c)(3), Lessor may decline to
take any such action with respect to all or any portion of a proposed adjustment
by notifying Lessee in writing that Lessee is relieved of its obligation to
indemnify Lessor with respect to the adjustment or such portion, as the case may
be. Nothing in the foregoing shall require Lessor to appeal any adverse
judicial decision.
(4) Notwithstanding anything to the contrary in this Section XV(c),
Lessee shall not be obligated to indemnify Lessor with respect to a particular
Loss to the extent that the same occurred as a result of one or more of the
following events: (i) a transfer by Lessor of its interest in the Equipment or
this Agreement, in each case other than after the occurrence of a Default that
was not waived by Lessor; (ii) a Casualty Occurrence and the actual payment of
the applicable Stipulated Loss Value of the item of items of Equipment involved
in accordance with the terms of this Agreement, or an event that requires Lessee
to pay an amount determined with reference to the Stipulated Loss Value and the
actual payment of such amount or greater amount at the time required to be paid
by this Agreement; (iii) the failure by Lessor timely or properly to claim any
Tax Benefit on its tax return, or Lessor including in its gross income an Income
Inclusion, unless in each case (A) Lessor and Lessee have agreed that Lessor is
not entitled to claim such Tax Benefit or to exclude such Income Inclusion from
its gross income, as the case may be, or (B) Lessor shall have received an
opinion of tax counsel to Lessor that there is no Reasonable Basis for claiming
such Tax Benefit or for excluding such Income Inclusion from its gross income,
as the case may be; (iv) a loss or deferral of Tax Benefits resulting from the
application of Section 168(d)(3) of the Code; (v) the failure of Lessor to have
sufficient taxable income or liability for Federal income tax purposes against
which to benefit from the Tax Benefits; (vi) the failure of this Agreement to be
treated as a true lease for Federal income tax purposes other than as a result
of a breach of Lessee's representation made in Paragraph (c)(1); (vii) the
application of Section 467 of the Code or the Treasury Regulations thereunder;
(viii) any change in the Code or in the Treasury Regulations thereunder or in
Revenue Rulings or Revenue Procedures of the Internal Revenue Service, adopted
after the Lease Commencement Date; (ix) the application of Sections 55, 56, 57,
58, 59A, 465 and 469 of the Code or any successor provisions or any Treasury
Regulations thereunder; or (x) the status of Lessor for Federal income tax
purposes. In applying Paragraph (c)(2) above and this Paragraph (c)(4), there
shall first be determined whether indemnity is payable under Paragraph (c)(2)
without regard to this Paragraph (c)(4) and thereafter this Paragraph (c)(4)
shall be applied to determine if indemnity otherwise payable is nonetheless not
payable or the extent to which such indemnity shall be reduced.
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(d) SURVIVAL. All of Lessor's rights, privileges and indemnities
contained in this Section shall survive the expiration or other termination of
this Agreement and the rights, privileges and indemnities contained herein are
expressly made for the benefit of, and shall be enforceable by Lessor and its
successors and assigns.
XVI. DISCLAIMER:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY
ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT
MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED
HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY,
PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as
between Lessor and Lessee, are to be borne by Lessee. Without limiting the
foregoing, Lessor shall have no responsibility or liability to Lessee or any
other person with respect to any of the following (i) any liability, loss or
damage caused or alleged to be caused directly or indirectly by any Equipment,
any inadequacy thereof, any deficiency or defect (latent or otherwise) therein,
or any other circumstance in connection therewith; (ii) the use, operation or
performance of any Equipment or any risks relating thereto; (iii) any
interruption of service, loss of business or anticipated profits or
consequential damages; or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any Equipment. If, and so long as, no
Default exists under this Lease, Lessee shall be, and hereby is, authorized
during the term of this Lease to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor or
Lessee may have against any Supplier of the Equipment.
XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee hereby represents and warrants to Lessor that on the date hereof and
on the date of execution of each Schedule:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Agreement and all related documents (together, the "DOCUMENTS") and
is duly qualified to do business in the jurisdiction(s) where the Equipment is
or is to be located and in those other jurisdictions where the failure to be so
qualified would have a material adverse effect on Lessee's ability to carry on
its present business and operations.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and (assuming due execution and delivery by Lessor) constitute valid,
legal and binding agreements, enforceable
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in accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's articles of incorporation, charter or by-laws; or (ii)
result in any breach of, constitute a default under or result in the creation of
any lien, charge, security interest or other encumbrance upon any Equipment
pursuant to any indenture, mortgage, deed of trust, bank loan or credit
agreement or other instrument (other than this Agreement) to which Lessee is a
party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Lessee, which will have a material adverse effect on the ability of Lessee to
fulfill its obligations under this Agreement.
(f) The audited financial statements of Lessee for the fiscal year ended
September29, 1996, delivered to Lessor have been prepared in accordance with
GAAP consistently applied, and sinceSeptember 29, 1996, there has been no
material adverse change.
(g) Lessee is and will be at all times validly existing and in good
standing under the laws of the state of its incorporation (specified in the
first sentence of this Agreement).
(h) Subject to Section VI(b) hereof, the Equipment will at all times be
used for commercial or business purposes.
XVIII. INTENT; TITLE; SECURITY DEPOSIT:
(a) It is the express intent of the parties that this Agreement constitute
a true lease and not a sale of the Equipment. Title to the Equipment shall at
all times remain in Lessor, and Lessee shall acquire no ownership, title,
property, right, equity, or interest in the Equipment other than its leasehold
interest solely as Lessee subject to all the terms and conditions hereof.
Lessee hereby waives any and all rights and remedies conferred upon a lessee in
Section 2A-508(5) of Uniform Commercial Code Article 2A-Leases.
(b) Notwithstanding the express intent of the parties, should a court of
competent jurisdiction determine that this Agreement is
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not a true lease, but rather one intended as security, then solely in that event
and for the expressly limited purposes thereof, Lessee shall be deemed to have
hereby granted Lessor a security interest in the Equipment, and all accessions
thereto, substitutions and replacements therefor, and proceeds (including
insurance proceeds) thereof (but without power of sale); to secure the prompt
payment and performance as and when due of all obligations and indebtedness of
Lessee to Lessor under this Agreement and under any Schedule, now existing or
hereafter created. For the purposes of this Paragraph (b), this Agreement, the
Equipment Schedule, or a photocopy of either may be filed as a financing
statement under the Uniform Commercial Code.
(c) To secure the prompt payment and performance as and when due of all
obligations and indebtedness of Lessee to Lessor under this Agreement and under
any Schedule, now existing or hereafter created; Lessee: (1) shall pay to
Lessor, concurrently with the execution of such Schedule, a security deposit in
an amount calculated as the product of the percentage specified in such Schedule
and the Capitalized Lessor's Cost of the Equipment; and (2) hereby grants Lessor
a security interest in the cash comprising the security deposit from time to
time, proceeds (cash and non-cash) thereof, including any account into which
such cash may be deposited, and Lessee shall execute and deliver to Lessor, to
be recorded at Lessee's expense, such Uniform Commercial Code financing
statements with respect thereto as Lessor reasonably may require. Any interest
accrued with respect to the cash comprising the security deposit from time to
time shall be for the account of Lessor and shall not be added to the security
deposit. Upon indefeasible payment and performance in full of all obligations
of Lessee under this Agreement related to such Schedule and such Schedule,
Lessor promptly shall terminate the security interest granted herein with
respect to the applicable portion of the security deposit relating to such
Schedule and shall refund the applicable portion of the then current balance of
such security deposit to Lessee.
XIX. OPTIONS AT END OF BASIC TERM:
The provisions of this Section XIX and the options provided herein shall be
applicable to and exercisable with respect to all Schedules executed pursuant to
this Agreement during, respectively, (1) the Initial Commitment Period and (2)
any separate individual Additional Commitment Period, as to which the same
Person is the "Lessor" (either by being specified as the Lessor upon execution
of the Schedule or by assignment from the originally specified Lessor) (with
respect to the related Commitment Period, the "APPLICABLE SCHEDULES"). Lessee
shall have the option upon the expiration of the Basic Term of the first of such
Applicable Schedules to be executed pursuant to this Agreement, to renew the
Term of this Agreement with respect to, or to purchase, all (but not less than
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all) of the Equipment leased under all such Applicable Schedules executed
hereunder upon the following terms and conditions.
(a) Provided that Lessee is not then in Default under this Agreement with
respect to such Applicable Schedule(s), Lessee may elect to renew the Term with
respect to all, but not less than all, of the Equipment leased under all such
Applicable Schedules executed hereunder for a renewal term (the "RENEWAL TERM")
of not less than twelve (12) months or such longer term as may mutually be
acceptable to Lessor and Lessee, at a quarterly rent, payable in arrears, on the
first day of each calendar quarter, equal to the greater of (1) the Fair Market
Rental Value of the Equipment, or (2) one-half (1/2) the average quarterly Basic
Term Rent (provided, however, that in calculating such average quarterly Basic
Term Rent, the Rent due on the first Rent Payment Date shall not be included).
(b) Provided that Lessee is not then in Default under Section XII(a)(1) of
this Agreement with respect to such Applicable Schedule(s), Lessee may elect to
purchase on the Basic Term Expiration Date with respect to each such Applicable
Schedule all (but not less than all) of the Equipment leased under all such
Applicable Schedules executed hereunder on an AS IS BASIS, WHERE IS BASIS
without recourse to or warranty from Lessor express or implied ("AS IS BASIS")
(except that Lessor will warrant that the Equipment is free and clear of any
Lessor Liens), for cash equal to the greater of: (1) seven and one-half percent
(7.5%) of the Capitalized Lessor's Cost of the Equipment, or (2) the then Fair
Market Value of the Equipment, plus (in any event) all applicable sales taxes.
On the applicable Basic Term Expiration Date, Lessor shall receive in cash the
full purchase price (plus all applicable sales taxes), together with any Rent or
other sums then due hereunder on such date.
(c) "FAIR MARKET RENTAL VALUE" shall mean the rental which a willing
lessee (who is neither a Lessee in possession nor a used equipment dealer) would
pay for the rental of the Equipment in an arms'-length transaction to a willing
lessor under no compulsion to lease for a period similar to the Renewal Term.
If Lessor and Lessee are unable to agree on the Fair Market Rental Value at
least two hundred ten (210) days before expiration of the Basic Term, Lessor and
Lessee mutually shall agree and appoint an independent appraiser to determine
Fair Market Rental Value (provided, however, that if the parties are unable
mutually to agree on an independent appraiser, then each party shall appoint an
independent appraiser and such independent appraisers so appointed shall appoint
a third independent appraiser, and the average Fair Market Rental Value as
determined by such three independent appraisers shall be final, binding and
conclusive. Lessee shall bear all costs associated with any such appraisal.
"FAIR MARKET VALUE" shall mean the price which a willing buyer (who is neither a
lessee in possession nor a used equipment dealer) would pay for the Equipment in
an arm's-length transaction to a willing seller under no compulsion to sell;
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provided, however, that in such determination: (i) the Equipment shall be
assumed to be in the condition in which it is required to be maintained and
returned under this Agreement; (ii) in the case of any installed Equipment, that
Equipment shall be valued on an installed basis; and (iii) costs of removal from
the current location shall not be a deduction from such valuation. If Lessor
and Lessee are unable to agree on the Fair Market Value at least two hundred ten
(210) days before expiration of the Term, Lessor shall appoint an independent
appraiser (reasonably acceptable to Lessee) to determine Fair Market Value, and
that determination shall be final, binding and conclusive. Lessee shall bear
all costs associated with any such appraisal.
(d) If Lessee timely elects to renew the Term pursuant to Paragraph (a)
above, then upon expiration of the Renewal Term, provided that Lessee is not
then in Default under Section XII(a)(1) of this Agreement, Lessee shall have the
option pursuant to Paragraph (b) to purchase all (but not less than all) of the
Equipment leased under all such Applicable Schedules executed hereunder upon one
hundred eighty (180) days' irrevocable written notice to Lessor prior to the
expiration of the Renewal Term. If Lessee timely elects such purchase option,
then on the date of expiration of the Renewal Term, Lessor shall receive in cash
the full purchase price of the Equipment, equal to the then Fair Market Value of
the Equipment, plus all applicable sales taxes, together with any Rent or other
sums then due hereunder.
(e) If at the end of the Basic Term, Lessee neither renews the Lease nor
purchases the Equipment pursuant to its options to do so under Paragraphs (a)
and (b) above (either because Lessee is not entitled to, or elects not to, orif
Lessee fails timely to, do so), of if Lessee renews the Term and at the end of
the Renewal Term Lessee does not purchase the Equipment pursuant to its option
to do so under Paragraph (d) above (either because Lessee is not entitled to, or
elects not to, or fails timely to, do so), then on the date of expiration of the
Term with respect to the Applicable Schedule(s), Lessee shall return the
Equipment leased thereunder in full compliance with Section XI of this
Agreement. Lessee shall bear all costs associated with such appraiser's
determination and such costs, if any, to cause such Equipment to be in full
compliance with Section XI of this Agreement on or prior to the date of
expiration of the Term.
(f) Lessee may exercise its options pursuant to Paragraphs (a) or (b)
above upon at least two hundred forty (240) days' revocable written notice to
Lessor prior to the Basic Term Expiration Date with respect to each such
Schedule. Such revocable notice by Lessee to Lessor shall become irrevocable
unless Lessee provides written notice to Lessor expressly revoking such notice
on or before the later of (1) one hundred eighty (180) days prior to the Basic
Term Expiration Date with respect to each such Schedule, or (2) fifteen (15)
days after the date Fair Market Rental Value or Fair Market Value (as
applicable) is determined (whether by
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agreement or appraisal). If Lessee fails timely to elect either option pursuant
to Paragraphs (a) or (b) above, Lessee shall comply with its obligations
pursuant to Paragraph (e) above. If Lessee timely elects to renew the Term
pursuant to Paragraph (a) above, but fails timely to elect to purchase the
Equipment pursuant to Paragraph (d) above, Lessee shall comply with its
obligations pursuant to Paragraph (e) above.
(g) If Lessee elects to purchase items of the Equipment pursuant to the
option specified in this Section XIX, and satisfies all of its obligations with
respect thereto as specified herein, Lessor shall execute and deliver to Lessee
a bill of sale with respect to such Equipment, conveying title thereto on an AS-
IS BASIS (except that Lessor will warrant that the Equipment is free and clear
of any Lessor Liens).
XX. MISCELLANEOUS:
(a) EACH OF LESSOR AND LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF,
DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS
BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR
ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED
BETWEEN LESSEE AND LESSOR. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court (including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims). THIS WAIVER IS IRREVOCABLE MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
(b) Any cancellation or termination by Lessor that is permitted by and in
accordance with this Agreement, any Schedule, supplement or amendment hereto, or
the lease of any Equipment hereunder, shall not release Lessee from any then
outstanding obligations to Lessor hereunder.
(c) Time is of the essence of this Agreement. Lessor's failure at any
time to require strict performance by Lessee of any of the provisions hereof
shall not waive or diminish Lessor's right thereafter to demand strict
compliance therewith.
(d) Lessee agrees, upon Lessor's request, to execute any UCC financing
statement or similar instrument necessary or expedient for filing, recording or
perfecting the interest of Lessor.
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(e) All notices required to be given hereunder shall be in writing,
personally delivered, delivered by overnight courier service, sent by facsimile
transmission (with confirmation of receipt), or sent by certified mail, return
receipt requested, addressed to the other party at its respective address stated
above or at such other address as such party shall from time to time designate
in writing to the other party; and shall be effective from the date of receipt.
(f) This Agreement and any Schedule and Annexes constitute the entire
agreement of the parties with respect to the subject matter hereof. NO
VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS
PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF EACH OF THE PARTIES HERETO. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(g) The representations, warranties and covenants of Lessee herein shall
be deemed to survive the closing hereunder. Lessor's obligations to acquire and
lease specific items of Equipment shall be conditioned upon Lessee providing to
Lessor such information with respect to Lessee's financial condition as Lessor
may require, and Lessor being satisfied that there shall have been no material
adverse change in the business or financial condition of Lessee from the date of
execution hereof. The obligations of Lessee under Sections IV, XI, and XV which
accrue during the term of this Agreement and obligations which by their express
terms survive the termination of this Agreement, shall survive the termination
of this Agreement.
(h) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated, to effect
such compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance (together
with interest thereon at the rate specified in Paragraph (j) of this Section)
shall constitute additional Rent due to Lessor within five (5) days after the
date Lessor sends notice to Lessee requesting payment. Lessor's effecting such
compliance shall not be a waiver of Lessee's default.
(i) Any Rent or other amount not paid to Lessor when due hereunder shall
bear interest, both before and after any judgment or termination hereof, at the
lesser of eighteen percent (18%) per annum or the maximum rate allowed by law.
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(j) Any provisions in this Agreement and any Schedule which are in
conflict with any statute, law or applicable rule shall be deemed omitted,
modified or altered to conform thereto.
(k) So long as no Default shall have occurred and be continuing hereunder,
and conditioned upon Lessee performing all of the covenants and conditions
hereof, as to claims of Lessor or persons claiming under Lessor, Lessee shall
peaceably and quietly hold, possess and use the Equipment during the Term of
this Agreement subject to the terms and conditions hereof.
(l) Whether or not any Equipment is leased hereunder, Lessee shall pay
upon demand as additional Rent hereunder all reasonable and necessary documented
transaction expenses which are (1) incurred by General Electric Capital
Corporation in connection with the preparation, negotiation and execution of
this Agreement; (2) incurred as a result of or in connection with any Default or
the exercise of remedies hereunder; (3) incurred as a result of the failure of
Lessee fully and timely to perform its obligations hereunder; and/or (4)
incurred upon receipt of a request from Lessee hereunder; including, but not
limited to, expenses of counsel, due diligence, appraisals, lien searches,
Uniform Commercial Code and/or Estoppel/Waiver Agreement filing fees, and field
audits.
XXI. CHOICE OF LAW:
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
XXII. CHATTEL PAPER:
To the extent that any Equipment Schedule would constitute chattel paper,
as such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction, no security interest therein may be created through the
transfer or possession of this Lease in and of itself without the transfer or
possession of the original of an Equipment Schedule executed pursuant to this
Lease and incorporating the Lease by reference; and no security interest in this
Lease and an Equipment Schedule may be created by the transfer or possession of
any counterpart of the Equipment Schedule other than the original thereof, which
shall be identified as the document marked "Original" and all other counterparts
shall be marked "Duplicate".
XXIII. SPECIAL PURCHASE OPTION:
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(a) The provisions of this Section XXIII and the option provided herein
shall be applicable to and exercisable with respect to all Schedules executed
pursuant to this Agreement during, respectively, (1) the Initial Commitment
Period, and (2) any Additional Commitment Period as to which the same Person is
the "Lessor" (either by being specified as the Lessor upon execution of the
Schedule or by assignment from the originally specified Lessor). Provided that
Lessee is not than in Default under Section XII(a)(1) of this Agreement and the
Term has not been earlier terminated, Lessee may upon at least thirty (30) days'
but not more than two hundred seventy (270) days' prior written irrevocable
notice to Lessor, purchase all (but not less than all) of the Equipment
described in such Applicable Schedules on an AS IS BASIS, on the FMV Special
Purchase Option Date specified in such Schedule, for cash equal to the FMV
Special Purchase Option Price of such Equipment (as specified in such Schedule).
Lessor and Lessee agree that the FMV Special Purchase Option Price is a
reasonable prediction of the Fair Market Value of the Equipment at the time the
option is exercisable. Lessor and Lessee agree that if Lessee makes any non-
severable improvement to the Equipment which increases the value of the
Equipment, then at the time of such option being exercised, Lessor and Lessee
shall adjust the FMV Special Purchase Option Price to reflect any addition to
the price anticipated to result from such improvement.
(b) If Lessee exercises the option specified in Paragraph (a) hereof, then
on the FMV Special Purchase Option Date, Lessee shall pay to Lessor any accrued
but unpaid Rent then due and any other sums due and unpaid on the FMV Special
Purchase Option Date, together with the FMV Special Purchase Option Price, plus
all applicable sales taxes, in cash.
(c) If Lessee elects to purchase items of the Equipment pursuant to the
option specified in this Section XXIII, and satisfies all of its obligations
with respect to such option as specified herein, Lessor shall execute and
deliver to Lessee a bill of sale with respect to such Equipment, conveying title
thereto on an AS-IS BASIS (except that Lessor will warrant that the Equipment is
free and clear of any Lessor Liens).
XXIV. FINANCIAL COVENANTS: So long as any payment or performance obligation of
Lessee hereunder remains unsatisfied, Lessee shall:
(a) maintain, as at the last day of each fiscal quarter, a Leverage Ratio
of not more than .45:1.0;
(b) maintain, as at the last day of each fiscal quarter, a ratio of (1)
earnings before interest and taxes for the most recently ended twelve (12) month
period, to (2) Interest Expense
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for the most recently ended twelve (12) month period of not less than 4.0:1.0;
and
(c) maintain, as at the last day of each fiscal quarter, a Fixed Charge
Coverage Ratio of not less than 1.5:1.0.
As used in this Section, the following terms shall have the following meanings:
"AGREEMENT ACCOUNTING PRINCIPLES" means GAAP as in effect from time to
time, applied in a manner consistent with that used in preparing the financial
statements referred to in Section V(b) hereof.
"CAPITALIZATION" means, as of any date of determination, Total Debt of
Lessee and its Subsidiaries plus total equity in Lessee (determined in
accordance with Agreement Accounting Principles).
"CAPITALIZED LEASE" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"CONTINGENT OBLIGATION" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract, or application for a Letter of Credit.
"FIXED CHARGE COVERAGE RATIO" means, as of the fiscal quarter-end of
determination thereof, the ratio of (i) the sum of earnings before Interest
Expense, taxes, and non-cash charges other than depreciation and amortization
(determined in accordance with Agreement Accounting Principles) and Rentals, all
for the most recently ended twelve-month period, to (ii) the sum of payments of
Interest Expense and Rentals, both for the most recently ended twelve-month
period, and current maturities of long-term debt as of such fiscal quarter-end;
all calculated for Lessee and its Subsidiaries on a consolidated basis.
"INDEBTEDNESS" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable
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arising in the ordinary course of such Person's business payable on terms
customary in the trade), (iii) obligations, whether or not assumed, secured by
Liens or payable out of the proceeds or production from property now or
hereafter owned or acquired by such Person, (iv) obligations which are evidenced
by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations,
(vi) net liabilities under interest rate swap, exchange or cap agreements, and
(vii) Contingent Obligations.
"INTEREST EXPENSE" means, for any period of determination, all interest
(without duplication), whether paid in cash or accrued as a liability, on
Indebtedness of the Lessee and its Subsidiaries on a consolidated basis during
such period (including imputed interest on Capitalized Lease Obligations) net of
capitalized interest.
"LETTER OF CREDIT" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"LEVERAGE RATIO" means, as of any date of determination, the ratio of (i)
Total Debt as of such date to (ii) Capitalization as of such date; all
calculated for Lessee and its Subsidiaries on a consolidated basis.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"PROPERTY" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of Property having an original term (including any
required renewals or any renewals at the option of the lessor or lessee) of one
year or more but does not include any amounts payable under Capitalized Leases
of such Person.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interest having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all
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references herein to a "Subsidiary" shall mean a Subsidiary of Lessee.
"TOTAL DEBT" means Indebtedness for borrowed money, guarantees, Letters of
Credit, obligations under non-compete agreements and Capitalized Lease
Obligations of Lessee and its Subsidiaries.
XXV. SPECIAL LESSOR OPTION: Lessee promptly will give notice to Lessor of the
occurrence of a Prepayment Event. If, within sixty (60) days after the later of
the occurrence of a Prepayment Event or the date on which Lessor has received
notice from Lessee that a Prepayment Event has occurred, Lessor notifies Lessee
in writing that Lessor desires the prepayment and cancellation of this Agreement
(such notice is hereafter referred to as a "CANCELLATION NOTICE"), then (a)
Lessee shall, on the Rent Payment Date next succeeding that date which is thirty
(30) days after its receipt of the Cancellation Notice, prepay in full the
greater of: (1) the then Fair Market Value of the Equipment, or (2) the then
applicable Stipulated Loss Value of the Equipment, calculated as of such Rent
Payment Date, together with all Rent and its other obligations then due
hereunder, and (b) effective upon the giving of such Cancellation Notice, any
unfunded portion of Lessor's Commitment automatically and permanently shall be
terminated and reduced to zero. Upon payment of such amount (plus all
applicable sales taxes) in cash, Lessor shall execute and deliver to Lessee a
bill of sale with respect to the Equipment leased hereunder, conveying title
thereto on an AS IS BASIS (except that Lessor will warrant that the Equipment is
free and clear of any Lessor Liens). As used herein, "PREPAYMENT EVENT" means:
(i) the acquisition by any Person (other than a holding company owning one
hundred percent)(100%) of the outstanding shares of voting stock of Lessee after
giving effect to such acquisition), or two or more Persons acting in concert, of
beneficial ownership (within the meaning of Rule 13D-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of more than
fifty percent (50%) of the outstanding shares of voting stock of Lessee (or more
than fifty percent (50%) of the outstanding shares of any holding company owning
one hundred percent (100%) of the outstanding shares of voting stock of Lessee);
or (ii) individuals who are Continuing Directors fail to constitute a majority
of the Board of Directors of Lessee. As used herein, "CONTINUING DIRECTOR"
means an individual who is a member of the Board of Directors of Lessee on the
date of this Agreement or who shall have become a member of the Board of
Directors of Lessee subsequent to such date and who shall have been nominated or
elected by the Board of Directors of Lessee at a time that a majority of the
members of the Board of Directors of Lessee are Continuing Directors.
XXVI. LICENSE OF INTELLECTUAL PROPERTY:
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(a) Lessee represents, warrants and covenants to Lessor as follows:
(i) with respect to each item of Equipment that Lessee is operating
as of the date hereof, the Related Intellectual Property (as hereinafter
defined) is sufficient for the purpose of operating each item of Equipment as
currently operated by Lessee for manufacturing suspensions;
(ii) with respect to each item of Equipment that Lessee is operating
as of the date hereof, Lessee owns (or holds a valid license or other rights to
use) the Related Intellectual Property;
(iii) with respect to each item of Equipment that Lessee is
operating as of the date hereof, Lessee has, and on the Return Date (as
hereinafter defined) Lessee shall have, the right to sublicense (or otherwise
assign or transfer rights to) the Related Intellectual Property to the extent
such Related Intellectual Property is not owned by Lessee;
(iv) with respect to each item of Equipment that Lessee is operating
Lessee shall take all such actions as reasonably may be necessary to preserve
the Related Intellectual Property so that such item of Equipment will be capable
of being operated for manufacturing suspensions on the Return Date; and
(v) with respect to the Related Intellectual Property described in
clause (e)(i) below, Lessee diligently shall pursue such applications in
accordance with its regular business practices.
(b) With respect to each item of Equipment that Lessee places into
operation after the date hereof:
(i) on the date on which such item of Equipment is initially
operated hereunder, Lessee shall have acquired such Related Intellectual
Property (or rights to use such Related Intellectual Property) as then is
reasonably necessary for the purposes for which such item is then used in
manufacturing suspensions; and
(ii) on the Return Date Lessee shall have the right to sublicense
(or otherwise assign or transfer rights to) the Related Intellectual Property
with respect to such item of Equipment to the extent such Related Intellectual
Property is not owned by Lessee.
(c) With respect to each item of Equipment, Lessor and Lessee acknowledge
that:
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(i) under certain circumstances specified in this Agreement, Lessor
may repossess such item of Equipment or Lessee may return such item of
Equipment to Lessor (in lieu of purchasing such item of Equipment); and
(ii) on the date on which such repossession or return occurs (the
"Return Date") Lessee may own or otherwise have an interest in the Related
Intellectual Property (as defined below) for such item of Equipment.
(d) With respect to each item of Equipment, Lessee hereby grants to Lessor
a paid-up, royalty-free, non-exclusive, worldwide license to use the Related
Intellectual Property in connection with operating such item of Equipment for
manufacturing suspensions (subject in each case to such limitations, if any, as
may restrict Lessee's use of the Related Intellectual Property), but not for any
other purpose. On the Return Date, Lessee shall deliver to Lessor copies of all
documentation with respect to the Related Intellectual Property, including all
updates and any source code with respect to all software. Lessor agrees to
protect the confidentiality of all Related Intellectual Property disclosed to
Lessor by using the same degree of care, but not less than a reasonable degree
of care, as Lessor uses to protect its own confidential information of a like
nature, to prevent the disclosure thereof. The term of this license shall
commence on the Return Date and continue until such item of Equipment is
dismantled, destroyed, abandoned or otherwise taken out of service by Lessor or
its assignee, at which time such license shall expire as to such item of
Equipment. Lessor may assign or transfer this license to any subsequent owner
or user of the item of Equipment (but not otherwise) and any such assignment or
transfer shall specifically reference this Section XXVI and be governed hereby.
(e) For each item of Equipment, the "Related Intellectual Property" shall
mean (in each case to the extent (1) used in connection with such item of
Equipment on the Return Date or (2) necessary for the operation of the Equipment
for manufacturing suspensions) all patents, computer software, instructions,
documentation, copyrights, trade secrets and other property and rights in the
nature of intellectual property used in connection with operating such item of
Equipment for manufacturing suspensions, including without limitation:
(i) the patents evidenced by Lessee's U.S. Application Serial Nos.
08/655,849, 08/656,639 and 08/657,778 filed on May 31, 1996, all U.S.
patents issuing from such applications and all U.S. and foreign
applications and patents claiming priority from such applications;
(ii) the application software embedded or stored in the item of
Equipment and executed to provide primary-control functions for the item of
Equipment; and
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(iii) the trade secrets that are by their nature incorporated into,
and part of, such item of Equipment;
(provided, however, that the Related Intellectual Property shall not include any
manufacturing execution system (MES) software such as that known to Lessee as
ADARS and Cell Control or SCADA; any product data management (PDM) software such
as that known to Lessee as PIMS; any manufacturing resource planning (MRP)
software; any enterprise resource planning (ERP) software; or any other
high-level enterprise software providing manufacturing set-up, operational
status, quality management or other non-primary-control functions, in each case
regardless of whether it may interface with such application software or reside
on the item of Equipment).
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35
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor have caused this Master Lease
Agreement to be executed by their duly authorized representatives as of the date
first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL HUTCHINSON TECHNOLOGY INCORPORATED
CORPORATION
By: /s/ David Avigdor By: /s/ John A. Ingleman
---------------------------- ------------------------------
Name: David Avigdor Name: John A. Ingleman
-------------------------- ----------------------------
Title: Transaction & Title: CFO
Syndication Senior ---------------------------
Manager
--------------------------
36
<PAGE>
EXHIBIT A
EQUIPMENT SCHEDULE
SCHEDULE NO. _______________
DATED THIS ___________ DAY OF ____________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER __, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
General Electric Capital Hutchinson Technology Incorporated
Corporation 40 West Highland Park
4 Northpark Drive Hutchinson, Minnesota 55350-9784
Suite 500
Hunt Valley, Maryland 21030
This Equipment Schedule is executed pursuant to, and incorporates by reference
the terms and conditions of, and capitalized terms not defined herein shall have
the meanings assigned to them in, the Master Lease Agreement identified above
("AGREEMENT;" said Agreement and this Schedule being collectively referred to as
"LEASE"). This Equipment Schedule, incorporating by reference the Agreement,
constitutes a separate instrument of lease.
A. EQUIPMENT.
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to
Lessee the Equipment listed on Annex A attached hereto and made a part hereof.
B. FINANCIAL TERMS.
1. Capitalized Lessor's Cost: $ ________________________________________.
2. Basic Term Lease Rate Factor: ______________________________________%.
3. Daily Lease Rate Factor: ___________________________________________%.
4. Basic Term (No. of Quarters): _______________________________________.
5. Basic Term Commencement Date: ________________________________, 199 .
6. Equipment Location: __________________________________________________
7. Lessee Federal Tax ID No.: ___________________________________________
8. Last Delivery Date: __________________________________________, 199 .
9. Stipulated Loss Value: See Annex D attached for calculation of the
Stipulated Loss Value of the Equipment during the Term.
10. Assumed Interest Rate: _________%.
C. TAX BENEFITS.
Depreciation Deductions:
a. Depreciation Method: 200% declining balance method, switching to
straight line method for the first taxable year for which using the
straight line method with
<PAGE>
respect to the adjusted basis as of the beginning of such year will
yield a larger allowance.
b. Recovery Period: five (5) years. .
c. Basis: 100% of Capitalized Lessor's Cost.
D. TERM AND RENT.
1. Basic Term Rent. Commencing on ___________, 199__, and on the same
day of each calendar quarter thereafter during the Basic Term, Lessee shall pay,
in arrears, as Rent ("BASIC TERM RENT") the product of the Basic Term Lease Rate
Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule.
Each date for the payment of Rent during the Basic Term and any Renewal Term is
herein referred to as a "RENT PAYMENT DATE". The Basic Term Lease Rate Factor
has been calculated and the Renewal Term lease rate factor will be calculated on
the basis of the Assumed Interest Rate which has been determined in accordance
with the Lease. Upon the occurrence of a Default, from and after the date on
which Lessor declares such Default and throughout the continuance thereof, the
Basic Term Lease Rate Factor or the Renewal Term lease rate factor, as
applicable, shall be recalculated on the basis of the Assumed Interest Rate plus
two hundred (200) basis points.
2. If any Rent Payment Date is not a Business Day, the Rent otherwise due
on such date shall be payable on the immediately preceding Business Day. As
used herein, "BUSINESS DAY" shall mean any day other than Saturday, Sunday, and
any day on which banking institutions located in the States of Connecticut,
Maryland or Minnesota are authorized by law or other governmental action to
close.
3. Contingent Rent. Contingent Rent calculated as hereinafter specified
shall accrue on a calendar quarterly basis and shall be payable by Lessee to
Lessor upon return of the Equipment pursuant to Section XIX(e). As used herein,
"CONTINGENT RENT" shall be calculated as the product of (x) sixty-five percent
(65%) of any per annum increase in the Consumer Price Index for all Items as
published by the Department of Labor Bureau of Economics and Statistics reported
during the preceding calendar quarter, and (y) the Capitalized Lessor's Cost of
the Equipment; provided, however, that the maximum Contingent Rent shall not
exceed that amount calculated as seven and one-half (7.5%) percent of the
Capitalized Lessor's Cost of the Equipment.
E. INSURANCE.
1. Public Liability: $2,000,000.00 primary coverage, plus $20,000,000.00
umbrella coverage, total liability per occurrence.
2. Casualty and Property Damage: An amount equal at all times to the
then Stipulated Loss Value of the Equipment.
2
<PAGE>
F. FMV SPECIAL PURCHASE OPTION DATE AND PRICE.
The FMV Special Purchase Option Date with respect to the Equipment
described on this Schedule shall be the [twenty-first (21st)/seventeenth (17th)]
Rent Payment Date. The FMV Special Purchase Option Price of the Equipment shall
be calculated as the product of _________ percent and the Capitalized Lessor's
Cost of the Equipment, plus all applicable sales taxes.
G. SECURITY DEPOSIT PERCENTAGE. The percentage of the Capitalized Lessor's
Cost of the Equipment required to be paid as a security deposit pursuant to
Section XVIII(c) of the Agreement is ___________ percent (__________ %).
This Schedule is not binding or effective with respect to the Agreement or
Equipment until executed on behalf of Lessor and Lessee by authorized
representatives of Lessor and Lessee, respectively.
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3
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL HUTCHINSON TECHNOLOGY INCORPORATED
CORPORATION
By: By:
---------------------------- ------------------------------
Name: Name:
-------------------------- ----------------------------
Title: Title:
-------------------------- ---------------------------
4
<PAGE>
ANNEX A
TO
SCHEDULE NO. ______________________________________
DATED THIS _____ DAY OF ________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER __, 1996
DESCRIPTION OF EQUIPMENT
Serial Type and Model Number Capitalized
Numbers or Description of Lessor's Cost per
of Equipment Units Unit
- ----------------------------------------------------------------------
[See Attachment]
Initials: __________ ____________
Lessor Lessee
<PAGE>
ANNEX B
TO
SCHEDULE NO. ___________
DATED THIS ___ DAY OF ______, 199__
TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER ___, 1996
CERTIFICATE OF ACCEPTANCE
To: General Electric Capital Corporation, its successors and assigns
Pursuant to the provisions of the above referenced Schedule and Master
Lease Agreement (collectively, the "LEASE"), Lessee hereby certifies and
warrants that: (a) all Equipment listed below has been delivered and installed
(if applicable); (b) Lessee has inspected the Equipment, and all such testing as
it deems necessary has been performed by Lessee, Supplier or the manufacturer;
and (c) Lessee accepts the Equipment for all purposes of the Lease, the purchase
documents and all attendant documents.
Lessee does further certify that as of the date hereof (i) Lessee is not in
default under the Lease; (ii) the representations and warranties made by Lessee
pursuant to or under the Lease are true and correct on the date hereof; and
(iii) Lessee has reviewed and approves of the purchase documents for the
Equipment, if any.
DESCRIPTION OF EQUIPMENT
MANUFACTURER SERIAL NUMBERS TYPE AND MODEL OF EQUIPMENT
- -------------------------------------------------------------------------------
[See Attached Annex A]
___________________________________
Lessee's Authorized Representative
Dated: __________ ___, 1996
<PAGE>
ANNEX C
TO
SCHEDULE NO. ________________
DATED THIS _____ DAY OF _________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER ___, 1996
STIPULATED LOSS VALUE TABLE*
Initials: _____________ ___________
Lessor Lessee
___________________
*The Stipulated Loss Value for any unit of Equipment shall be equal to the
Capitalized Lessor's Cost of such unit multiplied by the appropriate percentage
derived from the above table. In the event that the Lease is for any reason
extended, then the parties mutually shall agree upon a revised Stipulated Loss
Value Table to be applicable during such extended term.
<PAGE>
ANNEX D
TO
SCHEDULE NO. ________________
DATED THIS ________ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER ___, 1996
ESTOPPEL/WAIVER AGREEMENT
_____________________, 1996
___________________________
___________________________
___________________________
Gentlemen/Ladies:
General Electric Capital Corporation ("Lessor") has entered into, or is
about to enter into, a lease or similar agreement (the "Lease") with Hutchinson
Technology Incorporated ("Lessee"), pursuant to which Lessee has leased or will
lease from Lessor certain personal property (such property, together with any
replacements thereof, being referred to as the "Personal Property"). Some or
all of the Personal Property is, or will be, located at certain premises
described on Annex A (the "Premises"). This letter is being sent to you because
of your interest in the Premises.
By your signature below, you hereby agree (and we shall rely on your
agreement) that: (i) the Personal Property is, and shall remain, personal
property regardless of the method by which it may be, or become, affixed to the
Premises; (ii) your interest in the Personal Property and any proceeds thereof
(including, without limitation, proceeds of any insurance therefor) shall be,
and remain, subject to the ownership interests of Lessor (until and unless
Lessor shall formally release or transfer its interest in the Personal Property
to Lessee); (iii) Lessor, and its employees and agents, shall have the right
with prior notice, from time to time, to enter the Premises for the purpose of
inspecting the Personal Property; and (iv) Lessor, and its employees and agents,
shall have the right, upon any default by Lessee under the Lease, to enter the
Premises and to remove the Personal Property from the Premises. Lessor agrees
to reimburse you for any damages actually caused to the Premises by Lessor, or
its employees or agents, during any such removal. These agreements shall be
binding upon, and shall inure to the benefit of, any successors and assigns of
the parties hereto.
<PAGE>
We appreciate your cooperation in this matter of mutual interest.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
AGREED TO AND ACCEPTED BY:
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Date: _____________, 1996
Interest in the Premises (check applicable box)
/ / Owner
/ / Mortgagee
/ / Landlord
/ / Realty Manager
<PAGE>
EXHIBIT B
SCHEDULE OF RENTAL FACTORS
ETCHING EQUIPMENT:
- ------------------
25 QUARTER TERM: FPO AT QUARTER #21
- ------------------------------------
MONTH FACTOR AS A % OF EQUIPMENT COST FPO
----- ------------------------------- ---
DECEMBER Quarter # 1: 0.0%
Quarter # 2-13: 4.252202%
Quarter #14-25: 5.197136% 27.006342%
APRIL Quarter #1: 0.0%
Quarter # 2-13: 4.276789%
Quarter #14-25: 5.227186% 28.182698%
JULY Quarter #1: 0.0%
Quarter # 2-13: 4.274188%
Quarter #14-25: 5.224008% 27.662669%
OCTOBER Quarter #1: 0.0%
Quarter # 2-13: 4.263002%
Quarter #14-25: 5.210336% 27.036784%
ASSEMBLY EQUIPMENT:
- -------------------
21 QUARTER TERM: FPO AT QUARTER #17
- ------------------------------------
MONTH FACTOR AS A % OF EQUIPMENT COST FPO
----- ------------------------------- ---
DECEMBER Quarter # 1: 0.0%
Quarter # 2-11: 5.060681%
Quarter #12-21: 6.185276% 32.300254%
APRIL Quarter #1: 0.0%
Quarter # 2-11: 5.156284%
Quarter #12-21: 6.302125% 32.736245%
JULY Quarter #1: 0.0%
Quarter # 2-11: 5.126401%
Quarter #12-21: 6.265600% 32.706969%
OCTOBER Quarter #1: 0.0%
Quarter # 2-11: 5.092821%
Quarter #12-21: 6.224559% 32.423786%
<PAGE>
EXHIBIT C
SAMPLE SCHEDULE OF STIPULATED LOSS VALUES
With respect to the etching equipment (twenty-five quarter term)
Rent Payment SLV Percent
- ------------ -----------
1 104.507602
2 102.762345
3 100.870833
4 98.945480
5 96.683475
6 94.403339
7 92.018805
8 89.529824
9 86.934208
10 84.241991
11 81.452805
12 78.590414
13 75.622883
14 71.619970
15 67.502629
16 63.261340
17 58.893504
18 54.409557
19 49.822761
20 45.118410
21 40.294040
22 35.360925
23 30.335092
24 25.197136
25 20.000000
With respect to assembly equipment (twenty-one quarter term)
Rent Payment SLV Percent
1 104.571100
2 102.094777
3 99.461350
4 96.681477
5 93.752278
6 90.713023
7 87.562797
8 84.298792
9 80.918772
10 77.435984
11 73.865963
12 69.071383
13 64.143065
14 59.074888
15 53.886995
16 48.565585
<PAGE>
17 43.108032
18 37.510345
19 31.802892
20 25.966952
21 20.000000
2
<PAGE>
EXHIBIT D
AGENCY AGREEMENT
THIS AGENCY AGREEMENT ("Agreement"), dated as of the _____ day of December,
1996, between GENERAL ELECTRIC CAPITAL CORPORATION, its successors and assigns
("Lessor"), and HUTCHINSON TECHNOLOGY INCORPORATED, its successors and assigns
("Lessee"). Capitalized terms not defined herein shall have the meanings
assigned to them in the Lease (as that term is defined below).
RECITALS:
WHEREAS, General Electric Capital Corporation and Lessee have entered into
a Master Lease Agreement dated as of December , 1996, which contemplates
the execution of one or more Schedules incorporating by reference the terms and
conditions of the Master Lease Agreement. Each Schedule, incorporating by
reference the Master Lease Agreement, is hereinafter referred to as the "Lease".
WHEREAS, the equipment to be leased under the Lease will consist (a) in
part of various components ("Components") supplied by various vendors
("Suppliers") which will then be reconfigured and assembled by Lessee to produce
a unit of completed equipment intended to be leased, and (b) in part of
completed items of equipment supplied by various vendors (also referred to as
"Suppliers") that need no reconfiguration or assembly before they constitute
units of completed equipment intended to be leased ("Completed Items").
Components, when reconfigured and assembled by Lessee, and Completed Items, that
Lessee wishes to be covered by the Lease are referred to as "Equipment For
Lease".
WHEREAS, Lessor and Lessee desire to set forth the basis on which Lessee
shall issue its purchase orders with respect to Components and Completed Item
which Lessee wishes to be brought under the Lease.
WHEREAS, Lessor desires to appoint Lessee its agent to order, receive and
pay for, in the name and on behalf of Lessor, Components and Completed Item.
NOW, THEREFORE, in consideration of the above premises and the mutual
promises contained herein, as well as other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
GENERAL UNDERTAKING
Section 1.01 Ordering of Equipment. From time to time, Lessee shall issue
its purchase orders to, or shall enter into purchase agreements with, Suppliers.
<PAGE>
Section 1.02 Appointment. Lessor hereby appoints Lessee, and Lessee
hereby accepts such appointment, as the agent of Lessor, without any fee for
acting as such agent, pursuant to the terms and conditions of this Agreement,
for the purpose of (a) subject to the conditions set forth in Section 2.01
hereof, accepting Components and Completed Items on Lessor's behalf for leasing
to Lessee under the Lease; and (b) paying, on behalf of Lessor, any and all
amounts required to purchase the same from the respective Suppliers thereof
("Purchase Price"). It is specifically agreed that all of the power and
authority vested to Lessee herein shall be subject to any modifications as may
from time to time be made by Lessor.
Section 1.03 Powers. Except as otherwise may be expressly provided in
this Agreement, Lessee is hereby granted the authority to act, and hereby agrees
to act, on behalf of Lessor and in the name of Lessor, solely to the extent
necessary to carry out its duties under this Agreement.
Section 1.04 Lease. This Agreement is entered into in connection with and
subject to the terms of the Lease and in the event of a conflict between the
terms of this Agreement and the Lease, the Lease shall control. Lessee and
Lessor may from time to time hereafter enter into Schedules to the Lease, and it
is the intent of the parties that this Agreement facilitate the leasing of
Equipment under the Lease. NOTHING IN THIS AGREEMENT SHALL BE OR SHALL BE
DEEMED TO BE, A COMMITMENT ON THE PART OF LESSOR TO EXECUTE OR OTHERWISE ENTER
INTO ANY SCHEDULES AFTER THE DATE OF THIS AGREEMENT. Lessor's commitment to
enter into Schedules is set forth in the Lease.
ARTICLE II
DUTIES OF AGENT
Section 2.01 Equipment Orders.
(a) Lessee, pursuant to the agency granted to it by Lessor in Article
I hereof, may receive, accept and pay for Components and Completed Items. It is
contemplated that, upon reconfiguration and assembly of Components and the
purchase of Completed Items, Lessee will, on a quarterly basis, prepare and
submit to Lessor a list of Equipment For Lease that Lessee wishes to be covered
by the Lease and thereupon Lessee shall be unconditionally obligated to lease
such Components and Completed Items from Lessor pursuant to the terms and
conditions of the Lease and the applicable Schedule. Upon and as of the date of
acceptance by Lessee of Equipment For Lease as "Equipment" under the Lease and
satisfaction of the conditions precedent provided for herein and in the Lease,
upon satisfaction of the conditions of the Lease for subjecting such Equipment
For Lease to the terms of the Lease as "Equipment" thereunder, Lessor shall be
unconditionally obligated to purchase such Equipment for Lease pursuant to the
terms of the applicable purchase order and to lease such Equipment For Lease to
Lessee pursuant to the terms and conditions of the Lease and the applicable
Schedule, and the same shall thereupon become "Equipment"
2
<PAGE>
under the Lease and under this Agreement. Lessor may refuse to purchase
Equipment For Lease pursuant to such agency if Lessor determines, in its sole
discretion, that the foregoing conditions have not been satisfied; and such
refusal shall not constitute a breach by Lessor hereunder or under the Lease.
(b) Lessee must disclose in writing to all Suppliers that it is
ordering Components and Completed Items "as agent for a third party leasing
company to be designated". Lessee additionally agrees that all purchase orders
executed by Lessee shall: (1) not permit passage of title for Components or
Completed Items earlier than such acceptance by Lessee; and (2) not permit the
Supplier or any other person or entity to retain any security interest in, or
lien on, any Components or Completed Items. Prior to passage of risk of loss of
Components or Completed Items under the terms of the purchase orders, Lessee
shall insure the Equipment For Lease, and provide to Lessor evidence of
insurance, in accordance with the provisions of the Lease.
Section 2.02 Receipt of and Payment for Equipment. With respect to any
purchase order issued by Lessee pursuant hereto, Lessee agrees to pay and
perform all obligations of the purchaser in the time and manner required
thereby. Without limiting the foregoing, on a quarterly basis, Lessee shall
submit a list to Lessor of all Equipment For Lease that Lessee wishes to lease
pursuant to the Lease, and Lessee shall execute and deliver to Lessor a Schedule
describing such units of Equipment For Lease prepared by Lessor in accordance
with the Lease and submitted to Lessee, and Lessee shall also satisfy each of
the conditions of the Lease for subjecting such Equipment For Lease to the terms
of the Lease as "Equipment" thereunder.
Section 2.03 Reimbursement to Lessee. Lessee shall present to Lessor
documentation ("Purchase Documentation"), in form and substance satisfactory to
Lessor in its sole discretion, which includes (1) a list of Equipment For Lease
in connection with preparation of a related schedule, (2) the purchase orders
issued by Lessee with respect to the Components and Completed Items (which
purchase orders contain terms and conditions acceptable to Lessor in its sole
discretion), together with invoices issued in the name of Hutchinson Technology
Incorporated, as agent for a third party leasing company to be designated,
issued by Suppliers of Components and Completed Items stating the purchase price
of the same, together with invoices from Lessee for charges for reconfiguration
and assembly of Components, (3) evidence of the payment of the purchase price
paid to Suppliers of Components and Completed Items, and (4) a representation by
Lessee that such Equipment For Lease has then been or is ready to be placed in
service by Lessee in its business. The requirements of clauses (2) and (3)
above shall be deemed satisfied if Lessee provides such items with respect to
not less than ten percent (10%) and not more than fifteen percent (15%) of the
Components and Completed Items, provided that Lessor is reasonably satisfied
with such items provided with respect to such portion of the Components and
Completed Items. If the conditions of the Lease for subjecting such Equipment
For Lease to the terms
3
<PAGE>
of the Lease as "Equipment" thereunder have been satisfied on or before the Last
Delivery Date, promptly upon Lessor's receipt of the Purchase Documentation, if
no default pursuant to Section XII of the Lease Agreement or event which, with
the giving of notice or the lapse of time, or both, would constitute such a
default (a "Default"), has then occurred, Lessor shall reimburse Lessee for the
aggregate Purchase Price paid by Lessee for all Components and Completed Items
purchased hereunder in connection with such Schedule, plus Lessee's related
charges for reconfiguration and assembly as evidenced by Lessee's invoices
accepted by Lessor.
Section 2.04 Books and Records. Lessee shall maintain full and accurate
books and records of all related purchase orders, receipts and payments. All
such books and records shall be maintained in a form acceptable to Lessor in its
sole discretion. Such books and records shall be open for inspection and
examination by Lessor and its respective representatives and/or accountants
during Lessee's normal business hours.
ARTICLE III
TERMINATION
Section 3.01 Termination.
(a) Either party may terminate this Agreement at any time upon thirty
(30) days' prior written notice to the other party, which shall be effective
upon the receipt of such written notice. Notwithstanding the foregoing, if
Lessee invokes the protection of any bankruptcy or insolvency law, or any such
law is invoked against or with respect to Lessee or its property, without
further action this Agreement automatically shall terminate. Upon any such
termination, Lessor shall have no continuing obligation under Section 2.03
hereof.
(c) Any termination under this Section 3.01 automatically shall
result in the immediate revocation of all authority vested in Lessee under this
Agreement to order, accept or pay for any Components or Completed Items on
behalf of Lessor.
ARTICLE IV
EXCLUDED EQUIPMENT
Section 4.01 Excluded Equipment. If Equipment For Lease has been acquired
by Lessee hereunder as agent for Lessor and been paid for by Lessee but Lessee
has not been reimbursed or paid for the same by Lessor, and it is thereafter
determined for any reason that such Equipment For Lease will not be subjected to
the Lease (and, therefore, Lessor has and will have no obligation to pay for the
same), then as of the date such determination is made, such Equipment For Lease
automatically shall be deemed to have been excluded from the operation of this
Agreement, and this Agreement shall be ineffective to create or transfer any
legal or beneficial interest in such Equipment For Lease in Lessor, and Lessor
hereby disclaims any interest in such Equipment For Lease. Lessor agrees
4
<PAGE>
upon request by Lessee to execute and deliver to Lessee such bills of sale or
other instruments of transfer or disclaimer as Lessee reasonably may request for
the purpose of carrying out the provisions of this Section.
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5
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute and deliver this Agency Agreement as of the date
first above written.
GENERAL ELECTRIC CAPITAL HUTCHINSON TECHNOLOGY INCORPORATED
CORPORATION
By: By:
---------------------------- ------------------------------
Name: Name:
-------------------------- ----------------------------
Title: Title:
-------------------------- ---------------------------
6
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
1996 INCENTIVE PLAN
1. PURPOSE. The purpose of this 1996 Incentive Plan (the "Plan") is
to promote the interests of Hutchinson Technology Incorporated, a Minnesota
corporation (the "Company"), and its shareholders by providing personnel of
the Company and any subsidiaries thereof with an opportunity to acquire a
proprietary interest in the Company and thereby develop a stronger incentive
to put forth maximum effort for the continued success and growth of the
Company. In addition, the opportunity to acquire a proprietary interest in
the Company will aid in attracting and retaining personnel of outstanding
ability. This Plan provides for the issuance of certain awards consisting of
options granted as provided in paragraph 5 hereof and stock awards granted as
provided in paragraph 6 hereof.
2. ADMINISTRATION.
(a) GENERAL. This Plan shall be administered by a committee of
two or more directors of the Company (the "Committee") appointed by the
Company's Board of Directors (the "Board"). If the Board has not
appointed a committee to administer this Plan, then the Board shall
constitute the Committee. The Committee shall have the power, subject
to the limitations contained in this Plan, to fix any terms and conditions
for the grant or exercise of any award under this Plan. No director shall
serve as a member of the Committee unless such director shall be a
"non-employee director" as that term is defined in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor statute or regulation comprehending the same
subject matter. A majority of the members of the Committee shall
constitute a quorum for any meeting of the Committee, and the acts of
a majority of the members present at any meeting at which a quorum is
present or the acts unanimously approved in writing by all members of
the Committee shall be the acts of the Committee. Subject to the
provisions of this Plan, the Committee may from time to time adopt such
rules for the administration of this Plan as it deems appropriate.
The decision of the Committee on any matter affecting this Plan or the
rights and obligations arising under this Plan or any award granted
hereunder, shall be final, conclusive and binding upon all persons,
including without limitation the Company, shareholders and optionees.
(b) INDEMNIFICATION. To the full extent permitted by law, (i) no
member of the Committee or person to whom authority under this Plan is
delegated shall be liable for any action or determination taken or made in
good faith with respect to this Plan or any award granted hereunder and
(ii) the members of the Committee and each person to whom authority under
this Plan is delegated shall be entitled to indemnification by the Company
against and from any loss incurred by such member or person by reason of
any such actions and determinations.
<PAGE>
(c) DELEGATION OF AUTHORITY. The Committee may delegate all or
any part of its authority under this Plan to the Chief Executive Officer
of the Company for purposes of granting and administering awards granted
to persons other than persons who are then subject to the reporting
requirements of Section 16 of the Exchange Act ("Section 16 Individuals").
The Chief Executive Officer of the Company may, in turn, delegate such
authority to such other officer of the Company as the Chief Executive
Officer may determine.
(d) ACTION BY BOARD. Notwithstanding subparagraph 2(a), above,
any grant of awards hereunder to any director of the Company who is not an
employee of the Company at the time of grant ("Non-Employee Director
Award"), and any action taken by the Company with respect to any
Non-Employee Director Award, including any amendment thereto, and any
modification of the terms, conditions or restrictions relating to any
stock award constituting a Non-Employee Director Award, any acceleration
of the vesting of any option constituting a Non-Employee Director Award,
any extension of the time within which any option constituting a
Non-Employee Director Award may be exercised, any determination pursuant
to paragraph 9 relating to the payment of the purchase price of Shares
(as defined in paragraph 3 below) subject to an option constituting a
Non-Employee Director Award, or any action pursuant to paragraph 10
relating to the payment of withholding taxes, if any, through the use of
Shares with respect to a Non-Employee Director Award shall be subject to
prior approval by the Board.
3. SHARES. The shares that may be made subject to awards granted
under this Plan shall be authorized and unissued shares of Common Stock of
the Company, par value $.02 per share ("Shares," and each individually a
"Share"), and they shall not exceed 1,000,000 Shares in the aggregate,
subject to adjustment as provided in paragraph 14, below, except that, if any
option lapses or terminates for any reason before such option has been
completely exercised, the Shares covered by the unexercised portion of such
option may again be made subject to options granted under this Plan.
4. ELIGIBLE PARTICIPANTS. Stock awards and options may be granted
under this Plan to any full-time employee of the Company, or any parent or
subsidiary thereof, including any such person who is also an officer or
director of the Company or any parent or subsidiary thereof. Stock awards
and non-statutory stock options (as defined in subparagraph 5(a) below) also
may be granted to (i) any other employee of the Company, or any parent or
subsidiary thereof, (ii) any director of the Company who is not an employee
of the Company or any parent or subsidiary thereof, (iii) other individuals
or entities who are not employees but who provide services to the Company or
a parent or subsidiary thereof in the capacity of an advisor or consultant,
and (iv) any individual or entity that the Company desires to induce to
become an employee, advisor or consultant, but any such grant shall be
contingent upon such individual or entity becoming employed by the Company or
a parent or subsidiary thereof. References herein
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to "employment" and similar terms (except "employee") shall include the
providing of services in the capacity of an advisor or consultant or as a
director. The employees and other individuals and entities to whom options
may be granted pursuant to this paragraph 4 are referred to herein as
"Eligible Participants."
5. TERMS AND CONDITIONS OF EMPLOYEE, ADVISOR, CONSULTANT AND
DIRECTOR OPTIONS.
(a) GENERAL. Subject to the terms and conditions of this Plan,
the Committee may, from time to time during the term of this Plan, grant
to such Eligible Participants as the Committee may determine options to
purchase such number of Shares of the Company on such terms and conditions
as the Committee may determine. In determining the Eligible Participants
to whom options shall be granted and the number of Shares to be covered by
each option, the Committee may take into account the nature of the
services rendered by the respective Eligible Participants, their present
and potential contributions to the success of the Company, and such other
factors as the Committee in its sole discretion may deem relevant. The
date and time of approval by the Committee of the granting of an option
shall be considered the date and the time of the grant of such option.
The Committee in its sole discretion may designate whether an option
granted to an employee is to be considered an "incentive stock option"
(as that term is defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or any amendment thereto) or a
non-statutory stock option (an option granted under this Plan that is not
intended to be an "incentive stock option"). The Committee may grant both
incentive stock options and non-statutory stock options to the same
employee. However, if an incentive stock option and a non-statutory stock
option are awarded simultaneously, such options shall be deemed to have
been awarded in separate grants, shall be clearly identified, and in no
event shall the exercise of one such option affect the right to exercise
the other. To the extent that the aggregate Fair Market Value (as defined
in paragraph 8 below) of Shares with respect to which incentive stock
options are exercisable for the first time by any employee during any
calendar year (under all plans of the Company and its parent and
subsidiary corporations) exceeds $100,000, such options shall be treated
as non-statutory stock options. The maximum number of Shares subject to
options that may be granted to any one Eligible Participant under the Plan
in any fiscal year of the Company may not exceed 100,000 Shares (subject
to adjustment pursuant to paragraph 14 hereof). Notwithstanding the
foregoing, no incentive stock option may be granted under this Plan unless
this Plan is approved by the shareholders of the Company within twelve
months after the effective date of this Plan.
(b) PURCHASE PRICE. The purchase price of each Share subject to
an option granted pursuant to this paragraph 5 shall be fixed by the
Committee, subject, however, to the remainder of this subparagraph 5(b).
For non-statutory stock options, such purchase price may be set at any
price the Committee may determine; provided, however, that such purchase
price shall be not less than 85% of the Fair Market Value of
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a Share on the date of grant. For incentive stock options, such purchase
price shall be no less than 100% of the Fair Market Value of a Share on
the date of grant, provided that if such incentive stock option is granted
to an employee who owns, or is deemed under Section 424(d) of the Code to
own, at the time such option is granted, stock of the Company (or of any
parent or subsidiary of the Company) possessing more than 10% of the total
combined voting power of all classes of stock therein (a "10%
Shareholder"), such purchase price shall be no less than 110% of the Fair
Market Value of a Share on the date of grant.
(c) VESTING. Each option agreement provided for in paragraph 7
shall specify when each option granted under this Plan shall become
exercisable with respect to the Shares covered by the option.
Notwithstanding the provisions of any option agreement provided for in
paragraph 7, the Committee may, in its sole discretion, declare at any
time that any option granted under this Plan shall be immediately
exercisable.
(d) TERMINATION. Each option granted pursuant to this paragraph
5 shall expire, and all rights to purchase Shares thereunder shall
terminate, on the earliest of:
(i) ten years after the date such option is granted (or in
the case of an incentive stock option granted to a 10% Shareholder,
five years after the date such option is granted) or on such date
prior thereto as may be fixed by the Committee on or before the date
such option is granted;
(ii) the expiration of the period after the termination of
the optionee's employment within which the option is exercisable as
specified in paragraph 11(b) or 11(c), whichever is applicable
(provided that the Committee may, in any option agreement provided for
in paragraph 7 or by Committee action with respect to any outstanding
option, extend the periods specified in paragraph 11(b) and 11(c)); or
(iii) the date, if any, fixed for cancellation pursuant
to paragraph 12(c) or 13 below.
6. TERMS AND CONDITIONS OF EMPLOYEE, ADVISOR, CONSULTANT AND
DIRECTOR STOCK AWARDS. The Committee may, from time to time during the term
of this Plan, grant stock awards to such Eligible Participants as the
Committee may determine, such stock awards consisting of grants of Shares to
be issued to the designated Eligible Participants. In determining the
Eligible Participants to whom stock awards shall be granted and the number of
Shares to be covered by each stock award, the Committee may take into account
the nature of the services rendered by the respective Eligible Participants,
their present and potential contributions to the success of the Company, and
such other factors as the Committee in its sole discretion may
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deem relevant. Shares issued pursuant to any stock award may be unrestricted
or may be subject to such conditions, limitations and restrictions, if any,
as the Committee may determine, including, if the Committee shall so provide
in the written agreement pursuant to paragraph 7 providing for a stock award,
or any amendment thereto, the lapse or modification of conditions or
restrictions with respect to the stock award upon the occurrence of a Change
In Control, as defined in paragraph 12. The maximum number of Shares that
may be granted as stock awards under this Plan shall not exceed 150,000
(subject to adjustment pursuant to paragraph 14 hereof) and the maximum
number of Shares that may be granted to any one Eligible Participant pursuant
to any stock award under this Plan in any fiscal year of the Company may not
exceed 100,000 Shares (subject to adjustment pursuant to paragraph 14 hereof).
7. OPTION AGREEMENTS. All options granted under this Plan shall
be evidenced by a written agreement in such form or forms as the Committee
may from time to time determine, which agreement shall, among other things,
designate whether the options being granted thereunder are non-statutory
stock options or incentive stock options. Stock awards granted under this
Plan may, but need not, be made subject to a written agreement in such form
or forms as the Committee may from time to time determine.
8. FAIR MARKET VALUE. For purposes of this Plan, the "Fair Market
Value" of a Share at a specified date shall, unless otherwise expressly
provided in this Plan, mean the closing sale price of a Share on the date
immediately preceding such date or, if no sale of Shares shall have occurred
on that date, on the next preceding day on which a sale of Shares occurred,
on the Composite Tape for New York Stock Exchange listed shares or, if Shares
are not quoted on the Composite Tape for New York Stock Exchange listed
shares, on the Nasdaq National Market or any similar system then in use or,
if Shares are not included in the Nasdaq National Market or any similar
system then in use, the mean between the closing "bid" and the closing
"asked" quotation of a Share on the date immediately preceding the date as of
which such Fair Market Value is being determined, or, if no closing bid or
asked quotation is made on that date, on the next preceding day on which a
quotation is made, on the Nasdaq SmallCap Market or any similar system then
in use, provided that if the Shares in question are not quoted on any such
system, Fair Market Value shall be what the Committee determines in good
faith to be 100% of the fair market value of a Share as of the date in
question. Notwithstanding anything stated in this paragraph 8, if the
applicable securities exchange or system has closed for the day by the time
the determination is being made, all references in this paragraph to the date
immediately preceding the date in question shall be deemed to be references
to the date in question.
9. MANNER OF EXERCISE OF OPTIONS. A person entitled to exercise
an option granted under this Plan may, subject to its terms and conditions
and the terms and conditions of this Plan, exercise it in whole at any time,
or in part from time to time, by delivery to the Company at its principal
executive office, to the attention of its Vice President, Human Resources, of
written notice of exercise, specifying the number of Shares with respect to
which the option is being exercised. The purchase price of the Shares with
respect to which an option
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is being exercised shall be payable in full at the time of exercise, provided
that, to the extent permitted by law, the holder of an option may
simultaneously exercise an option and sell all or a portion of the Shares
thereby acquired pursuant to a brokerage or similar relationship and use the
proceeds from such sale to pay the purchase price of such Shares. The
purchase price of each Share on the exercise of any option shall be paid in
full in cash (including check, bank draft or money order) or, at the
discretion of the person exercising the option, by delivery to the Company of
unencumbered Shares, by a reduction in the number of Shares delivered upon
exercise of the option, or by a combination of cash and such Shares (in each
case such Shares having an aggregate Fair Market Value on the date of
exercise equal to the amount of the purchase price being paid through such
delivery or reduction of Shares); provided, however, that no person shall be
permitted to pay any portion of the purchase price with Shares if the
Committee, in its sole discretion, determines that payment in such manner is
undesirable. The granting of an option to a person shall give such person no
rights as a shareholder except as to Shares issued to such person.
10. TAX WITHHOLDING. Delivery of Shares pursuant to a stock award
or upon exercise of any non-statutory stock option granted under this Plan
shall be subject to any required withholding taxes. A person receiving a
stock award or exercising a non-statutory stock option may, as a condition
precedent to receiving the Shares, be required to pay the Company a cash
amount equal to the amount of any required withholdings. In lieu of all or
any part of such a cash payment, the Committee may, but shall not be required
to, provide in any option agreement provided for in paragraph 7 (or provide
by Committee action with respect to any outstanding option) that a person
exercising an option may cover all or any part of the required withholdings,
and any additional withholdings up to the amount needed to cover the
individual's full FICA and federal, state and local income tax liability with
respect to income arising from the exercise of the option, through the
delivery to the Company of unencumbered Shares, through a reduction in the
number of Shares delivered to the person exercising the option or through a
subsequent return to the Company of Shares delivered to the person exercising
the option (in each case, such Shares having an aggregate Fair Market Value
on the date of exercise equal to the amount of the withholding taxes being
paid through such delivery, reduction or subsequent return of Shares).
11. TRANSFERABILITY AND TERMINATION OF EMPLOYMENT.
(a) TRANSFERABILITY. During the lifetime of an optionee, only such
optionee or his or her guardian or legal representative may exercise
options granted under this Plan, and no option granted under this Plan
shall be assignable or transferable by the optionee otherwise than by
will or the laws of descent and distribution or pursuant to a domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder; provided,
however, that any optionee may transfer a non-statutory stock option
granted under this Plan to a member or members of his or her immediate
family (i.e., his or her children, grandchildren and spouse) or to one
or more trusts for the benefit of such family members or
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partnerships in which such family members are the only partners, if (i)
the option agreement with respect to such options expressly so provides
either at the time of initial grant or by amendment to an outstanding
option agreement and (ii) the optionee does not receive any consideration
for the transfer. Any options held by any such transferee shall continue
to be subject to the same terms and conditions that were applicable to
such options immediately prior to their transfer and may be exercised
by such transferee as and to the extent that such option has become
exercisable and has not terminated in accordance with the provisions
of the Plan and the applicable option agreement. For purposes of any
provision of this Plan relating to notice to an optionee or to vesting
or termination of an option upon the death, disability or termination
of employment of an optionee, the references to "optionee" shall mean
the original grantee of an option and not any transferee.
(b) TERMINATION OF EMPLOYMENT DURING LIFETIME. During the lifetime
of an optionee, an option granted to such optionee may be exercised only
while the optionee is employed by the Company or by a parent or
subsidiary thereof, and only if such optionee has been continuously so
employed since the date the option was granted, except that:
(i) an option shall continue to be exercisable for three
months after termination of the optionee's employment but only to the
extent that the option was exercisable immediately prior to such
optionee's termination of employment;
(ii) in the case of an optionee who is disabled (as hereinafter
defined) while employed, an option shall continue to be exercisable
for one year after termination of such optionee's employment; and
(iii) as to any optionee whose termination occurs following
a declaration pursuant to paragraph 13 below, an option may be
exercised at any time permitted by such declaration.
(c) TERMINATION UPON DEATH. With respect to an optionee whose
employment terminates by reason of death, any option granted to such
optionee may be exercised within one year after the death of such
optionee.
(d) VESTING UPON DISABILITY OR DEATH. In the event of the disability
(as hereinafter defined) or death of an optionee, any option granted
to such optionee that was not previously exercisable shall become
immediately exercisable in full if the disabled or deceased optionee
shall have been continuously employed by the Company or a parent or
subsidiary thereof between the date such option was granted and the date
of such disability or death. "Disability" of an optionee shall mean any
physical or mental incapacitation whereby such optionee is therefore
unable for a period of twelve
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consecutive months or for an aggregate of twelve months in any
twenty-four consecutive month period to perform his or her duties for
the Company or any parent or subsidiary thereof. "Disabled," with
respect to any optionee, shall mean that such optionee has incurred a
Disability.
(e) TRANSFERS AND LEAVES OF ABSENCE. Neither the transfer of
employment of a person to whom an option is granted between any
combination of the Company, a parent corporation or a subsidiary thereof,
nor a leave of absence granted to such person and approved by the
Committee, shall be deemed a termination of employment for purposes of
this Plan. The terms "parent" or "parent corporation" and "subsidiary"
as used in this Plan shall have the meaning ascribed to "parent
corporation" and "subsidiary corporation", respectively, in
Sections 424(e) and (f) of the Code.
(f) RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan,
or in any option granted pursuant to this Plan, shall confer upon any
optionee any right to continued employment by the Company or any parent
or subsidiary of the Company or limit in any way the right of the Company
or any such parent or subsidiary to terminate such optionee's employment
at any time.
(g) EXPIRATION DATE. In no event shall any option be exercisable at
any time after the time it shall have expired in accordance with
paragraph 5(d) of this Plan. When an option is no longer exercisable,
it shall be deemed to have lapsed or terminated and will no longer be
outstanding.
12. CHANGE IN CONTROL.
For purposes of this Plan, a "Change in Control" of the Company shall
be deemed to occur if any of the following occur:
(a) (1) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) acquires or becomes a "beneficial owner" (as
defined in Rule 13d-3 or any successor rule under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors
("Voting Securities"), provided, however, that the following shall
not constitute a Change in Control pursuant to this paragraph (a)(1):
(A) any acquisition or beneficial ownership by the Company or a
Subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit
plan (or related trust) sponsored or maintained by the Company or
one or more of its Subsidiaries;
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(C) any acquisition or beneficial ownership by any corporation with
respect to which, immediately following such acquisition, more
than 70% of both the combined voting power of the Company's then
outstanding Voting Securities and the Shares of the Company is
then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting
Securities and Shares of the Company immediately prior to such
acquisition in substantially the same proportions as their
ownership of such Voting Securities and Shares, as the case may
be, immediately prior to such acquisition;
(2) A majority of the members of the Board of Directors of the
Company shall not be Continuing Directors. "Continuing Directors"
shall mean: (A) individuals who, on the date hereof, are directors of
the Company, (B) individuals elected as directors of the Company
subsequent to the date hereof for whose election proxies shall have
been solicited by the Board of Directors of the Company or (C) any
individual elected or appointed by the Board of Directors of the
Company to fill vacancies on the Board of Directors of the Company
caused by death or resignation (but not by removal) or to fill
newly-created directorships;
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation of the Company or a statutory
exchange of outstanding Voting Securities of the Company, unless
immediately following such reorganization, merger, consolidation or
exchange, all or substantially all of the persons who were the
beneficial owners, respectively, of Voting Securities and Shares of
the Company immediately prior to such reorganization, merger,
consolidation or exchange beneficially own, directly or indirectly,
more than 70% of, respectively, the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors and the then outstanding shares of common stock,
as the case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange, of the Voting
Securities and Stock of the Company, as the case may be; or
(4) Approval by the shareholders of the Company of (x) a
complete liquidation or dissolution of the Company or (y) the sale or
other disposition of all or substantially all of the assets of the
Company (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such sale or
other disposition, more than 70% of, respectively, the combined voting
power of the then outstanding voting
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securities of such corporation entitled to vote generally in the
election of directors and the then outstanding shares of common
stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who were the
beneficial owners, respectively, of the Voting Securities and
Shares of the Company immediately prior to such sale or other
disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Voting
Securities and Shares of the Company, as the case may be.
(b) ACCELERATION OF VESTING. Notwithstanding anything in
subparagraph 5(c) above to the contrary, if a Change of Control of the
Company shall occur, then, without any action by the Committee or the Board,
each option granted under this Plan and not already exercised in full or
otherwise terminated, expired or canceled shall become immediately
exercisable in full.
(c) CASH PAYMENT. If a Change in Control of the Company shall
occur, then, so long as a majority of the members of the Board are Continuing
Directors, the Committee, in its sole discretion, and without the consent of
the holder of any option affected thereby, may determine that some or all
outstanding options shall be cancelled as of the effective date of any such
Change in Control and that the holder or holders of such cancelled options
shall receive, with respect to some or all of the Common Shares subject to
such options, as of the date of such cancellation, cash in an amount, for
each Share subject to an option, equal to the excess of the per Share Fair
Market Value of such Shares immediately prior to such Change in Control of
the Company over the exercise price per Share of such options.
(d) LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding
anything in subparagraph 12(b) or 12(c) above or paragraph 13 below to the
contrary, if, with respect to an optionee, the acceleration of the
exercisability of an option or the payment of cash in exchange for all or
part of an option as provided in subparagraph 12(b) or 12(c) above or
paragraph 13 (which acceleration or payment could be deemed a "payment"
within the meaning of Section 280G(b)(2) of the Code), together with any
other payments which such optionee has the right to receive from the Company
or any corporation which is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of
which the Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), then such acceleration of
exercisability and payments pursuant to subparagraph 12(b) or 12(c) above or
paragraph 13 shall be reduced to the largest amount as, in the sole judgment
of the Committee, will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Code.
13. DISSOLUTION, LIQUIDATION, MERGER. In the event of (a) the
proposed dissolution or liquidation of the Company, (b) a proposed sale of
substantially all of the assets of
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the Company or (c) a proposed merger, consolidation of the Company with or
into any other entity, regardless of whether the Company is the surviving
corporation, or a proposed statutory share exchange with any other entity
(the actual effective date of the dissolution, liquidation, sale, merger,
consolidation or exchange being herein called an "Event"), the Committee may,
but shall not be obligated to, either (i) if the Event is a merger,
consolidation or statutory share exchange, make appropriate provision for the
protection of outstanding options granted under this Plan by the
substitution, in lieu of such options, of options to purchase appropriate
voting common stock (the "Survivor's Stock") of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation of
the Company or such surviving corporation, or, alternatively, by the delivery
of a number of shares of the Survivor's Stock which has a Fair Market Value
as of the effective date of such merger, consolidation or statutory share
exchange equal to the product of (x) the excess of (A) the Event Proceeds per
Share (as hereinafter defined) covered by the option as of such effective
date over (B) the exercise price per Share of the Shares subject to such
option, times (y) the number of Shares covered by such option or (ii)
declare, at least twenty days prior to the Event, and provide written notice
to each optionee of the declaration, that each outstanding option, whether or
not then exercisable, shall be canceled at the time of, or immediately prior
to the occurrence of, the Event (unless it shall have been exercised prior to
the occurrence of the Event). In connection with any declaration pursuant to
clause (ii) of the preceding sentence, the Committee may, but shall not be
obligated to, cause payment to be made, within twenty days after the Event,
in exchange for each cancelled option to each holder of an option that is
cancelled, of cash equal to the amount (if any), for each Share covered by
the canceled option, by which the Event Proceeds per Share (as hereinafter
defined) exceeds the exercise price per Share covered by such option. At the
time of any declaration pursuant to clause (ii) of the first sentence of this
paragraph 13, each option that has not previously expired pursuant to
subparagraph 5(d)(i) or 5(d)(ii) of this Plan or been cancelled pursuant to
paragraph 12(c) of this Plan shall immediately become exercisable in full and
each holder of an option shall have the right, during the period preceding
the time of cancellation of the option, to exercise his or her option as to
all or any part of the Shares covered thereby. In the event of a declaration
pursuant to clause (ii) of the first sentence of this paragraph 13, each
outstanding option granted pursuant to this Plan that shall not have been
exercised prior to the Event shall be canceled at the time of, or immediately
prior to, the Event, as provided in the declaration, and this Plan shall
terminate at the time of such cancellation, subject to the payment
obligations of the Company provided in this paragraph 13. Notwithstanding
the foregoing, no person holding an option shall be entitled to the payment
provided in this paragraph 13 if such option shall have expired pursuant to
subparagraph 5(d)(i) or 5(d)(ii) of this Plan or been cancelled pursuant to
paragraph 12(c) of this Plan. For purposes of this paragraph 13, "Event
Proceeds per Share" shall mean the cash plus the fair market value, as
determined in good faith by the Committee, of the non-cash consideration to
be received per Share by the shareholders of the Company upon the occurrence
of the Event.
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14. ADJUSTMENTS. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering, or
extraordinary dividend or divestiture (including a spin-off), or any other
change in the corporate structure or Shares of the Company, the Committee (or
if the Company does not survive any such transaction, a comparable committee
of the Board of Directors of the surviving corporation) may, without the
consent of any holder of an option, make such adjustment as it determines in
its discretion to be appropriate as to the number and kind of securities
subject to and reserved under this Plan and, in order to prevent dilution or
enlargement of rights of participants in this Plan, the number and kind of
securities issuable upon exercise of outstanding options and the exercise
price thereof.
15. SUBSTITUTE OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of
other corporations who are about to become employees of the Company, or any
parent or subsidiary thereof, or whose employer is about to become a
subsidiary of the Company, as the result of a merger or consolidation of the
Company or a subsidiary of the Company with another corporation, the
acquisition by the Company or a subsidiary of the Company of all or
substantially all the assets of another corporation or the acquisition by the
Company or a subsidiary of the Company of at least 50% of the issued and
outstanding stock of another corporation. The terms and conditions of the
substitute options so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Board at the time of the grant may
deem appropriate to conform, in whole or in part, to the provisions of the
stock options in substitution for which they are granted, but with respect to
stock options which are incentive stock options, no such variation shall be
permitted which affects the status of any such substitute option as an
incentive stock option.
16. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) GENERAL. No certificate for Shares distributable under
this Plan shall be issued and delivered unless the issuance of such
certificate complies with all applicable legal requirements including,
without limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended, and the Exchange
Act.
(b) RULE 16B-3. With respect to Section 16 Individuals,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of this Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
17. GOVERNING LAW. To the extent that federal laws do not
otherwise control, this Plan and all determinations made and actions taken
under this Plan shall be governed by the laws of the State of Minnesota,
without regard to the conflicts of law provisions thereof, and construed
accordingly.
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18. AMENDMENT AND DISCONTINUANCE OF PLAN. The Board may at any
time amend, suspend or discontinue this Plan; provided, however, that no
amendment to this Plan shall, without the consent of the holder of the
option, alter or impair any option previously granted under this Plan. To
the extent considered necessary to comply with applicable provisions of the
Code, any such amendments to this Plan may be made subject to approval by the
shareholders of the Company.
19. TERM.
(a) EFFECTIVE DATE. This Plan shall be effective as of
November 19, 1996, provided that this Plan is approved and ratified by the
affirmative vote of the holders of a majority of the outstanding Shares
present or represented and entitled to vote in person or by proxy at a
meeting of the shareholders of the Company no later than March 31, 1997.
Awards may be granted hereunder prior to such shareholder approval, but
such awards shall be subject to such shareholder approval. If this Plan
is not so approved by such holders, any awards granted under this Plan
subject to such approval shall be null and void.
(b) TERMINATION. This Plan shall remain in effect until all
Shares subject to it are distributed or this Plan is terminated under
paragraph 18 above. No award of an incentive stock option shall be made
under this Plan more than ten years after the effective date of this Plan
(or such other limit as may be required by the Code) if such limitation is
necessary to qualify the option as an incentive stock option.
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HUTCHINSON TECHNOLOGY INCORPORATED
STATEMENT REGARDING COMPUTATION
OF NET INCOME PER SHARE - UNAUDITED
(In thousands, except per share data)
Thirteen Weeks Ended
---------------------------
December 29, December 24,
1996 1995
------------ -----------
NET INCOME $11,117 $2,862
------------ -----------
------------ -----------
NET INCOME PER SHARE -
PRIMARY:
Weighted average common
shares outstanding 5,454 5,447
Dilutive effect of stock options
outstanding after application
of treasury stock method 175 176
------------ -----------
5,629 5,623
------------ -----------
------------ -----------
PRIMARY
NET INCOME PER SHARE $1.97 $.51
------------ -----------
------------ -----------
NET INCOME PER SHARE -
FULLY DILUTED:
Weighted average common
shares outstanding 5,454 5,447
Dilutive effect of stock options
outstanding after application
of treasury stock method 253 176
------------ -----------
5,707 5,623
------------ -----------
------------ -----------
FULLY DILUTED
NET INCOME PER SHARE $1.95 $.51
------------ -----------
------------ -----------
<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> 109,000
<OTHER-SE> 144,928,000
<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> 1.97
<EPS-DILUTED> 1.95
<FN>
<F1>Other Expenses reflect research and development expenses.
</FN>
</TABLE>
