<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 27, 1998
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- --------------------
Commission File Number 0-14709
--------------------
HUTCHINSON TECHNOLOGY INCORPORATED
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0901840
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 WEST HIGHLAND PARK, HUTCHINSON, MINNESOTA 55350
--------------------------------------------- ----------------
(Address of principal executive offices) (Zip code)
(320) 587-3797
----------------------------------------------------
(Registrant's telephone number, including area code)
(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 preceding 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
------- -------
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 6, 1999 the registrant had 19,786,229 shares of Common Stock
issued and outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
December 27, September 27,
1998 1998
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 71,075 $ 58,942
Securities available for sale 10,005 11,921
Trade receivables, net 59,988 65,798
Other receivables 2,877 12,337
Inventories 29,485 25,780
Prepaid taxes and other expenses 19,888 19,507
------------------ -------------------
Total current assets 193,318 194,285
Property, plant and equipment, net 343,808 335,289
Other assets 19,560 19,904
------------------ -------------------
$556,686 $549,478
------------------ -------------------
------------------ -------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt $ 4,615 $ 4,613
Accounts payable and accrued expenses 57,444 61,822
Accrued compensation 23,997 24,371
Accrued income taxes 3,305 2,365
------------------ -------------------
Total current liabilities 89,361 93,171
Long-term debt, less current maturities 67,625 68,247
Convertible subordinated notes 150,000 150,000
Other long-term liabilities 1,205 1,230
Shareholders' investment:
Common stock, $.01 par value, 45,000,000 shares authorized,
19,786,000 and 19,780,000 issued and outstanding 198 198
Additional paid-in capital 153,089 152,957
Retained earnings 95,208 83,675
------------------ -------------------
Total shareholders' investment 248,495 236,830
------------------ -------------------
$556,686 $549,478
------------------ -------------------
------------------ -------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------
December 27, December 28,
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $155,275 $88,982
Cost of sales 121,690 89,478
------------------ -----------------
Gross profit (loss) 33,585 (496)
Selling, general and
administrative expenses 12,201 10,269
Research and development
expenses 4,670 5,161
------------------ -----------------
Income (loss) from operations 16,714 (15,926)
Other income, net 772 567
Interest expense (2,888) (147)
------------------ -----------------
Income (loss) before income taxes 14,598 (15,506)
Provision (benefit) for income taxes 3,065 (4,032)
------------------ -----------------
Net income (loss) $11,533 ($11,474)
------------------ -----------------
------------------ -----------------
Basic earnings (loss) per share $0.58 ($0.58)
Diluted earnings (loss) per share $0.52 ($0.58)
Weighted average common shares outstanding 19,783 19,629
Weighted average common and diluted shares outstanding 25,632 19,629
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------
December 27, December 28,
1998 1997
------------------ ------------------
<S> <C> <C>
Operating activities:
Net income (loss) $11,533 ($11,474)
Adjustments to reconcile net income (loss) to
cash provided by (used for) operating activities:
Depreciation and amortization 18,240 9,256
Deferred taxes 1,626 (1,938)
Change in operating assets and liabilities (Note 6) 14,703 2,304
------------------ ------------------
Cash provided by (used for) operating activities 46,102 (1,852)
------------------ ------------------
Investing activities:
Capital expenditures (35,397) (56,794)
Funding from GE lease receivable - 5,468
Increase in GE lease receivable - (8,623)
Sales of marketable securities 2,139 3,111
Purchases of marketable securities (223) (2,320)
------------------ ------------------
Cash used for investing activities (33,481) (59,158)
------------------ ------------------
Financing activities:
Repayments of long-term debt (620) (1,340)
Net proceeds from issuance of common stock 132 79
------------------ ------------------
Cash used for financing activities (488) (1,261)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 12,133 (62,271)
Cash and cash equivalents at beginning of period 58,942 98,340
------------------ ------------------
Cash and cash equivalents at end of period $71,075 $36,069
------------------ ------------------
------------------ ------------------
</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) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which requires presentation of comprehensive income on
the face of the financial statements. Comprehensive income would include such
items as unrealized holding gains/losses on securities available for sale,
foreign currency translation adjustments and minimum pension liability
adjustments. The Company adopted SFAS 130 in the first quarter of fiscal 1999.
The effect of adopting SFAS 130 was not significant as all other comprehensive
income items were not material.
In June 1998, the FASB released Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 1999. The Company has not yet determined the timing of adoption of SFAS 133.
While the Company does not expect the adoption to materially impact its results
of operations or financial position, adoption of SFAS 133 could increase
volatility in earnings for periods subsequent to adoption.
<PAGE>
(3) BUSINESS AND CUSTOMERS
The Company is the world's leading supplier of suspension assemblies for hard
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
hard disk drive industry. The Company also is evaluating other product
opportunities in the medical devices market but does not expect any
medical-related revenues in fiscal 1999. A breakdown of customer sales is as
follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------------------
December 27, December 28,
Percentage of Net Sales 1998 1997
- ----------------------- ----------------- -----------------
<S> <C> <C>
Five Largest Customers 85% 88%
IBM and affiliates 36 13
SAE Magnetics, Ltd/TDK 18 27
Yamaha Corporation 14 12
Seagate Technology Incorporated 10 17
Read-Rite Corporation 7 19
</TABLE>
(4) INVENTORIES
All inventories are stated at the lower of last-in, first-out ("LIFO") cost
or market. Inventories consist of the following:
<TABLE>
<CAPTION>
December 27, September 27,
1998 1998
----------------- -----------------
<S> <C> <C>
Raw materials $ 9,464 $ 9,320
Work in process 13,184 12,740
Finished goods 7,025 3,908
LIFO reserve (188) (188)
----------------- -----------------
$29,485 $25,780
----------------- -----------------
----------------- -----------------
</TABLE>
(5) NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), during the first quarter of fiscal 1998.
SFAS No. 128 requires the presentation of basic and diluted earnings per
share. Basic earnings (loss) per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of
common shares outstanding during the year. Diluted earnings (loss) per share
is computed under the treasury stock method and is calculated to compute the
dilutive effect of potential common shares. A reconciliation of these amounts
is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------
December 27, December 28,
1998 1997
------------------ -----------------
<S> <C> <C>
Net income (loss) $11,533 $(11,474)
Plus: interest expense on convertible subordinated notes 2,411 -
Less: additional profit-sharing expense
and tax benefit reduction 697 -
------------------ -----------------
Net income (loss) available for common shareholders 13,247 $(11,474)
------------------ -----------------
------------------ -----------------
Weighted average common shares outstanding 19,783 19,629
Dilutive potential common shares 5,849 -
------------------ -----------------
Weighted average common and diluted shares outstanding 25,632 19,629
------------------ -----------------
------------------ -----------------
Basic earnings (loss) per share $.58 $(.58)
Diluted earnings (loss) per share $.52 $(.58)
</TABLE>
(6) SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------
December 27, December 28,
1998 1997
------------------- ------------------
<S> <C> <C>
Changes in operating assets and liabilities:
Receivables, net $15,270 $ 4,559
Inventories (3,705) (8,200)
Prepaid and other (1,863) (94)
Accounts payable and accrued liabilities 5,026 6,065
Other non-current liabilities (25) (26)
------------------- ------------------
$14,703 $ 2,304
------------------- ------------------
------------------- ------------------
Cash paid (refunded) for:
Interest (net of amount capitalized) $ 51 $ 1,059
Income taxes (9,068) 2,548
</TABLE>
Capitalized interest for the thirteen weeks ended December 27, 1998 was
$973,000 compared to $1,441,000 for the comparable period in fiscal 1998.
(7) CREDIT FACILITY
On December 31, 1998, the Company entered into a credit facility agreement
(the "Facility"). The Facility allows the Company to borrow up to $50,000,000.
Advances under the Facility are secured by substantially all of the Company's
receivables and inventory and bear interest at LIBOR plus 2.25% or the prime
rate. The Company is also required to pay a .25% fee for any unused amounts
under the Facility.
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
GENERAL
Since the late 1980's, we have derived substantially all of our revenue from
the sale of our suspension assemblies. We currently sell over 300 variations
of conventional suspension assemblies based on several standard designs for
nano- and pico-sized heads. In fiscal 1997, we began volume production of our
TSA suspension assemblies.
The disk drive industry is highly cyclical, with periods of increased demand
and rapid growth followed by periods of oversupply and subsequent
contraction. Beginning in the third quarter of fiscal 1997 and continuing
throughout all of fiscal 1998, total suspension assembly unit sales in the
industry declined substantially. Total shipments of our suspension assemblies
peaked at 201 million units in the second quarter of fiscal
1997 and declined to 122 million units in the fourth quarter of fiscal 1998.
Demand for our conventional suspension assemblies started to recover during
the latter part of the fourth quarter of fiscal 1998 and continued to recover
in the first quarter of fiscal 1999. In the first quarter of fiscal 1999, we
shipped 89 million conventional suspension assemblies. While this is down
from the 128 million units shipped in the first quarter of fiscal 1998, it is
up from the 83 million units shipped in the fourth quarter of fiscal 1998.
Demand for our TSA suspension assemblies, which was not adversely affected by
the industry slowdown, continues to exceed our production capacity. In fiscal
1998, we shipped 85 million TSA suspension assemblies, up from 8 million
units shipped in fiscal 1997. In the first quarter of fiscal 1999, we shipped
55 million TSA suspension assemblies, representing approximately 38% of our
total unit volume and a majority of net sales in that period.
We expect that demand for our conventional suspension assemblies will
continue to increase modestly from the levels shipped in the first quarter of
fiscal 1999. Overall, however, we will ship fewer conventional suspension
assemblies in fiscal 1999 than we shipped in fiscal 1998. At the same time,
we anticipate continuing acceptance by the disk drive industry of our TSA
suspension assemblies and expect TSA suspension assemblies to account for
approximately half of our total unit shipments and a majority of our net
sales during fiscal 1999.
TSA suspension assemblies have a higher average selling price than
conventional suspension assemblies because of the improved performance and
other benefits they provide to our customers. We rapidly expanded our TSA
suspension assembly production capacity in fiscal 1998, but our high-volume
production of TSA suspension assemblies was not profitable in that year due
to production inefficiencies. With higher volumes, productivity gains and the
benefits of premium pricing on a particular program that required an
accelerated ramp-up, we produced TSA suspension assemblies profitably in the
first quarter of fiscal 1999. We expect further productivity gains as we
continue to increase our TSA suspension assembly output. Over time, we expect
these gains to result in gross margins that will eventually exceed our
historical gross margins on our conventional suspension assemblies.
Growth in our net sales depends, in part, on the successful expansion of our
TSA suspension assembly manufacturing capacity, our manufacturing work force
and our corporate infrastructure. To meet current and anticipated future
demand for TSA suspension assemblies, we are continuing our planned expansion
of TSA suspension assembly production capacity. In the fiscal year ended
September 27, 1998, our capital expenditures were approximately $207 million,
primarily related to expansion of TSA suspension assembly capacity. We made
capital expenditures of $35 million in the first quarter of fiscal 1999. We
currently anticipate spending an additional $135 million in capital
expenditures during the remainder of fiscal 1999, primarily for expansion of
TSA suspension assembly production capacity. We anticipate that we will
continue to make significant capital expenditures in fiscal 2000 to further
expand our TSA suspension assembly production capacity to accommodate
anticipated market growth.
Our ability to introduce new products on a timely basis is an important
factor in our continued success. New products have lower manufacturing yields
and are produced in lower quantities than more mature products. Manufacturing
yields generally improve as a product matures and production volumes
increase. Manufacturing yields also vary depending on the complexity and
uniqueness of product specifications. Because our business is capital
intensive and requires a high level of fixed costs, gross margins are also
extremely sensitive to changes in volume. Small variations in capacity
utilization or manufacturing yields generally have a significant impact on
gross margins. Both customer demand and our resulting forecasts often
fluctuate substantially. These factors, among others, create an environment
where scheduled production and capacity utilization can vary significantly
from week to week, leading to variability in gross margins.
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 27, 1998 VS. THIRTEEN WEEKS ENDED
DECEMBER 28, 1997.
Net sales for the thirteen weeks ended December 27, 1998 were $155,275,000,
an increase of $66,293,000 or 75% compared to the comparable period in fiscal
1998. This increase was primarily a result of substantially higher average
selling prices, a substantial portion of which was due to premium pricing on
a particular program that required an accelerated ramp-up, and a favorable
product mix of more TSA suspension assemblies. Modest increases in overall
suspension assembly sales volume also contributed to the increase in sales.
The TSA suspension assembly program that we benefited from in the recent
quarter is expected to continue into the second fiscal quarter although at
substantially lower pricing than we realized in the first fiscal quarter.
Gross profit for the thirteen weeks ended December 27, 1998 was $33,585,000,
compared to a gross loss of $496,000 for the comparable period in fiscal
1998. Gross profit (loss) as a percent of net sales increased from (1)% to
22%, primarily due to the premium pricing described above, improved
manufacturing efficiencies on TSA suspension assembly production and higher
TSA suspension assembly sales volume, offset partially by lower conventional
suspension assembly sales volume.
Research and development expenses for the thirteen weeks ended December 27,
1998 were $4,670,000 compared to $5,161,000 for the thirteen weeks ended
December 28, 1997. The decrease was mainly due to lower medical product
development expenses. As a percent of net sales, research and development
expenses decreased from 5% in the first quarter of fiscal 1998 to 3% in the
first quarter of fiscal 1999.
Selling, general and administrative expenses for the thirteen weeks ended
December 27, 1998 were $12,201,000, an increase of $1,932,000 or 19% compared
to the comparable period in fiscal 1998. The increased expenses were due
primarily to increased profit sharing and other incentive compensation costs
of $2,222,000 and higher depreciation and lease expense of $486,000. These
increases were partially offset by a decrease in travel and training expense
of $290,000, decreased recruitment and relocation expenses of $288,000 and
decreased bad debt expense of $223,000. As a percent of net sales, selling,
general and administrative expenses decreased from 12% in the first quarter
of fiscal 1998 to 8% in the first quarter of fiscal 1999.
Other income for the thirteen weeks ended December 27, 1998 was $772,000, an
increase of $205,000 from the comparable period in fiscal 1998, primarily due
to an increase in interest income as a result of higher average investment
balances.
Interest expense for the thirteen weeks ended December 27, 1998 increased
$2,741,000 from the comparable period in fiscal 1998, due to higher average
outstanding debt and a decrease in capitalization of interest of $468,000.
The income tax provision for the thirteen weeks ended December 27, 1998 was
based on an estimated effective tax for the fiscal year of 21% which was
below the statutory federal rate primarily due to the large portion of sales
that qualifies for the benefit of our Foreign Sales Corporation.
Net income for the thirteen weeks ended December 27, 1998 was $11,533,000,
compared to a net loss of $11,474,000 for the comparable period in fiscal
1998. As a percent of net sales, net income (loss) increased from (13)% to 7%
primarily due to higher average selling prices and modest sales volume
increases as noted above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash and cash equivalents, securities
available for sale, cash flow from operations and additional financing
capacity. As of December 27, 1998, we did not have available a revolving
credit or other similar borrowing facility. On December 31, 1998, we signed a
financing agreement with The CIT Group/Business Credit, Inc., establishing a
$50,000,000 credit facility secured by our accounts receivable and inventory.
Our cash and cash equivalents increased from $58,942,000 at September 27,
1998 to $71,075,000 at December 27, 1998. We generated cash from operating
activities of $46,102,000 for the thirteen weeks ended December 27, 1998.
In fiscal 1998, our cash and cash equivalents fluctuated significantly. Cash
and cash equivalents decreased from $98,340,000 at September 28, 1997 to
$36,069,000 at December 28, 1997, increased to $160,549,000 at March 29,
1998, decreased to $107,924,000 at June 28, 1998 and further decreased to
$58,942,000 at September 27, 1998. Cash used for capital expenditures totaled
$206,888,000 in fiscal 1998 and $35,397,000 in the first quarter of fiscal
1999. We financed these capital expenditures primarily through the issuance
of $150,000,000 in aggregate principal amount of Convertible Subordinated
Notes. The capital expenditures we made in fiscal 1998 were primarily related
to:
- - expansion of TSA suspension assembly production capacity, including
manufacturing and support equipment;
- - construction costs for our Sioux Falls, South Dakota plant; and
- - construction of an expansion to our Hutchinson, Minnesota plant.
The capital expenditures we made in the first quarter of fiscal 1999 were
primarily related to continued expansion of our TSA suspension assembly
production capacity.
We currently anticipate spending an additional $135,000,000 during the
remainder of fiscal 1999 and significant amounts thereafter, primarily for
continued expansion of TSA suspension assembly production capacity and new
technologies, production capacity and infrastructure to accommodate
anticipated market growth. In addition, the sale of our Convertible
Subordinated Notes in March 1998 increased our ratio of total debt to total
capitalization to 47.2% at December 27, 1998. Our obligations to pay interest
increased substantially as a result of this increased debt. To the extent
that a substantial portion of our cash flow from operations is used to pay
the principal of, and interest on, our debt, such cash flow will not be
available to fund future operations and capital expenditures.
We currently believe that our additional financing capacity, our cash and
cash equivalents, cash generated from operations and our existing credit
facility will be sufficient to meet our operating expenses, debt service
requirements and capital expenditures through fiscal 1999. We believe that we
may require significant additional financing to meet our capital requirements
beyond fiscal 1999. We expect to pursue additional debt or equity financing
to supplement our current capital resources. Our ability to obtain additional
financing will depend upon a number of factors, including our future
performance and financial results and general economic and capital market
conditions. We cannot be sure that we will be able to raise additional
capital on reasonable terms or at all.
Certain of our existing debt agreements contain covenants which may restrict
our ability to accept certain types of financing. At December 27, 1998, the
Company was in compliance with all such covenants. If the Company is not in
compliance with financial covenants in its financing agreements at the end of
any fiscal quarter, its future financial results and liquidity could be
materially adversely affected.
<PAGE>
There can be no assurance that the Company's business will generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will be realized or that the Company will be able to
obtain additional financing in an amount sufficient to enable the Company to
make necessary capital expenditures, service its indebtedness, fund its
operations or maintain compliance with financing agreement covenants.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs, microprocessors and
embedded date-reliant systems using two digits rather than four to define the
applicable year. If not corrected, date-related information and data could
cause many programs or systems to fail or to generate erroneous information.
Our products have no inherent time or date function. Our products will
operate regardless of the Year 2000 issue. However, we use computer systems
and programs that will be affected by Year 2000 issues.
In fiscal 1997, we began a comprehensive Year 2000 readiness program. The
program addressed:
- - business software and hardware;
- - manufacturing software and hardware used in the design, and/or manufacturing
of suspension assemblies; and
- - third party suppliers.
Although we do not currently expect any significant disruption to our
operations due to Year 2000 issues, we cannot be sure that we will be able to
assess, identify and correct all Year 2000 issues in a timely or successful
manner.
We completed remediation of our key business software in November 1997.
These key applications include purchased applications that address, but are
not limited to:
- - sales and order processing;
- - resource planning and scheduling;
- - procurement;
- - inventory control;
- - shipping; and
- - financial accounting and reporting.
We will complete additional testing of these systems during fiscal 1999
using "data-aging" software.
We completed an enterprise-wide inventory in May 1998 of all other business
software and hardware with potential Year 2000 issues. The inventory included
approximately 460 purchased and internally-developed business and desktop
software programs or packages. We consider 350 of these software programs or
packages critical. The inventory also included over 3,000 pieces of hardware,
including personal computers, servers and network devices. We have analyzed
all of the critical business and desktop software and substantially all of
the hardware included in the inventory for the existence and extent of Year
2000 issues. As of December 27, 1998, approximately 70% of the critical
software and approximately 85% of the hardware was Year 2000 compliant. We
believe that all of the critical business software and hardware included in
the inventory will be Year 2000 compliant by September 1999.
<PAGE>
We completed an enterprise-wide inventory in May 1998 of all
manufacturing software, hardware and embedded-chip technology with potential
Year 2000 issues. The inventory included:
- - all equipment and software used to design, build and test tools and machines;
- - all tools and machines used to design, build and test suspension assemblies;
and
- - software and equipment for all facility systems.
We expect to complete analysis of all of the items included in the inventory
for the existence and extent of Year 2000 issues in January 1999. As of
December 27, 1998, approximately 35% of such manufacturing software, hardware
and embedded-chip technology was Year 2000 compliant. We believe that all
manufacturing software, hardware and embedded-chip technology will be Year
2000 compliant by September 1999.
We are assessing our suppliers whose failure to become Year 2000 compliant
in a timely manner, if at all, could have a material adverse effect on us. We
distributed questionnaires on Year 2000 compliance status (and follow-up
letters, as necessary) to over 200 of our suppliers. We currently are
reviewing supplier responses and initiated follow-up activities in
December 1998 to evaluate, or mitigate, potential risks associated with
such suppliers due to Year 2000 issues.
As of December 27, 1998, the costs we have incurred for Year 2000 compliance
efforts have not been material. We currently estimate incurring an additional
$1,500,000 for Year 2000 remediation efforts. The projected costs of the
Company's Year 2000 compliance efforts are based on our best estimates, which
were derived using assumptions about future events. These estimates may
change as our efforts proceed and actual results could differ significantly
from current plans.
Although we expect to complete our Year 2000 remediation in 1999, there are
risks if our efforts are delayed or fail. A delay or failure in remedying a
Year 2000 issue, caused by computer hardware or software errors, or our
failure to be, or suppliers who may not be, Year 2000 compliant could, in a
worst case, interrupt our business. Any interruption in our business could
have a material adverse effect on our business, financial condition and
results of operations depending upon the extent and duration of the
interruption.
We will begin to develop contingency plans for Year 2000 readiness in
March 1999 to ensure that back-up processes are in place if we are unable to
complete remediation efforts by December 31, 1999. We expect to complete
these contingency plans by September 1999, but we cannot be sure that we
will complete such plans, or that any such plans will address all risks that
may actually arise.
MARKET TRENDS AND CERTAIN CONTINGENCIES
The Company expects that the expanding use of personal computers, enterprise
computing and storage, 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.
<PAGE>
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 with advanced air bearing designs, improving
other components such as motors and media 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, which are more sensitive to mechanical variation, may compel drive
manufacturers to use newer suspension technologies, such as the Company's TSA
suspension assemblies. Due to growth in customer demand for TSA suspensions, the
Company expects that TSA suspensions will make up approximately half of its unit
shipments in fiscal 1999.
The continual pursuit of increasing areal density may lead to further
value-added features for TSA suspensions which incorporate a second stage
actuator on the suspension to improve head positioning over increasingly tighter
data tracks, or which mount preamplifiers near the head to improve data transfer
signals. These changes require the Company to develop the competencies of an
electromechanical system supplier so that multiple functions may be consolidated
on the suspension assembly.
The introduction of new types or sizes of read/write heads and new disk drive
designs tends to initially 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
rapid development and implementation of new suspension types which temporarily
may reduce the Company's manufacturing yields and efficiencies. There can be no
assurance that such changes will not continue to affect the Company.
The Company generally experiences fluctuating selling prices due to product
maturity, competitive pricing pressures and new product offerings. While many of
the Company's current products are reaching or are in the mature phase of their
life cycle and thus are experiencing declining prices, its newer products, such
as TSA suspensions, have initially much higher selling prices.
The Company and certain users of the Company's products have from time to time
received, and may in the future receive, communications from third parties
asserting patents against the Company or its customers which may relate to
certain of the Company's manufacturing equipment or products or to products
which include the Company's products as a component. Although the Company to
date has not been a party to any such material intellectual property litigation,
certain of its customers have been sued on patents having claims closely related
to products sold by the Company. In the event any third party were to make a
valid infringement claim and a license were not available on terms acceptable to
the Company, the Company's operating results could be adversely affected. The
Company expects that, as the number of patents issued continues to increase, and
as the Company grows, the volume of intellectual property claims could increase.
On February 27, 1998, the Company commenced a lawsuit, in McLeod County District
Court in Glencoe, Minnesota, against five former employees and their
newly-formed company. The lawsuit alleges, among other things, breach of
non-compete, confidentiality and assignment of inventions agreements. On August
24, 1998, the Court entered an injunction against the defendants. Thereafter,
the Company filed motions to add a competitor and its parent corporation as
party defendants, with whom the enjoined defendants had a contract. The parties
entered into a Memorandum of Understanding dated September 20, 1998, setting
forth the material terms of an agreement to resolve the
<PAGE>
litigation. The parties currently are negotiating a formal settlement agreement,
consistent with the Memorandum.
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.
FORWARD-LOOKING STATEMENTS
The statements above under the headings "General" and "Market Trends and
Certain Contingencies" about demand for and shipments of disk drives and
suspension assemblies, including TSA suspensions, manufacturing capacity and
yields and selling prices, the statements above under the headings "General"
and "Liquidity and Capital Resources" about anticipated operating results and
gross margins, capital expenditures and capital resources, and the statements
above under the heading "Year 2000 Issue" about Year 2000 compliance, are
forward-looking statements based on current expectations. These statements
are subject to risks and uncertainties, including fluctuating order rates and
product mix, slower or faster customer acceptance of the Company's new
products, difficulties in producing its TSA suspensions, difficulties in
financing and expanding capacity, changes in manufacturing efficiencies,
difficulties in implementing Year 2000 compliance and the other risks and
uncertainties 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. Additional
discussion of these and other factors may be found in the Company's Annual
Report on Form 10-K for the year ended September 27, 1998 under the heading
"Risk Factors".
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS.
3.1 Restated Articles of Incorporation of the Company, as amended
by Articles of Amendment dated January 27, 1988 and as amended
by Articles of Amendment dated January 21, 1997 (incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1997, File No.
0-14709).
3.2 Restated By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 29, 1996, File No. 0-14709).
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), 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), Amendment dated as of February
24, 1997 (incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1997, File No. 0-14709), and Amendment dated as of
December 16, 1998.
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),
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), Amendment dated as of February 24, 1997
(incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, File No. 0-14709), and Amendment dated as of December
16, 1998.
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),
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), Amendment dated as of February 24, 1997
(incorporated by reference to Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, File No. 0-14709), and Amendment dated as of December
16, 1998.
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), 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
<PAGE>
23, 1996, File No. 0-14709), Second Amendment dated as of
February 24, 1997 (incorporated by reference to Exhibit 4.5 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1997, File No. 0-14709), Third Amendment dated
as of March 2, 1998, Fourth Amendment dated as of September
25, 1998, and Fifth Amendment dated December 23, 1998.
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), Amendment dated as of February 24, 1997
(incorporated by reference to Exhibit 4.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, File No. 0-14709), and Amendment dated as of December
16, 1998.
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), Amendment dated as of February 24, 1997
(incorporated by reference to Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30,
1997, File No. 0-14709), and Amendment dated as of December
16, 1998.
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), Amendment dated as of
February 24, 1997 (incorporated by reference to Exhibit 4.8 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1997, File No. 0-14709), and Amendment dated
as of December 16, 1998.
4.9 Financing Agreement between the Company and The CIT
Group/Business Credit, Inc., as Agent and a Lender, dated
December 31, 1998.
11.1 Statement Regarding Computation of Net Income Per Share.
27.1 Financial Data Schedule.
b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K dated December
17, 1998 reporting under Item 5 ("Other Events") of Form 8-K
the unauthorized filing on the EDGAR filing system of the
Securities and Exchange Commission, a draft form of the
Company's Annual Report on Form 10-K for the Fiscal Year
Ended September 27, 1998.
<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: January 7, 1999 By /s/Wayne M. Fortun
-------------------- ---------------------------------------
Wayne M. Fortun
President, Chief Executive Officer and
Chief Operating Officer
Date: January 7, 1999 By /s/John A. Ingleman
-------------------- ---------------------------------------
John A. Ingleman
Vice President, Chief Financial Officer
and Secretary
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
------------- ------------
<S> <C> <C>
4.2 Amendment dated as of December 16, 1998 to 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. . . . . . . . Electronically
Filed
4.3 Amendment dated as of December 16, 1998 to 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 . . . . . . . . . . . . . . . . . . . Electronically
Filed
4.4 Amendment dated as of December 16, 1998 to 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. . . . . . . . . . . . . . . . . . . . . . Electronically
Filed
4.5 Third Amendment dated as of March 2, 1998, Fourth Amendment
dated as of September 25, 1998, and Fifth Amendment dated
December 23, 1998 to the Credit Agreement between the
Company and The First National Bank of Chicago, dated as
of December 8, 1995. . . . . . . . . . . . . . . . . . . . . . . . . Electronically
Filed
4.6 Amendment dated as of December 16, 1998 to 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 . . . . . . . . . . . . . Electronically
Filed
4.7 Amendment dated as of December 16, 1998 to 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. . . . . . . . . . . . . . . . . Electronically
Filed
4.8 Amendment dated as of December 16, 1998 to 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. . . . . . . . Electronically
Filed
4.9 Financing Agreement between the Company and The CIT
Group/Business Credit, Inc., as Agent and a Lender,
dated December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . Electronically
Filed
11.1 Statement Regarding Computation of Net Income Per Share. . . . . . . Electronically
Filed
27.1 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . . . Electronically
Filed
</TABLE>
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Amerus Life Insurance Company
c/o Amerus Capital Management
699 Walnut Street, Suite 1700
Des Moines, Iowa 50309-3945
Modern Woodmen of America
1701 First Avenue
Rock Island, Illinois 61201
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Teachers Insurance and Annuity Association of America, Central Life
Assurance Company and Modern Woodmen of America (collectively, the
"Purchasers"), each dated as of April 20, 1994, as heretofore amended
(collectively, as amended, the "Agreements"), pursuant to which the Purchasers
purchased the 7.46% Senior Notes of the Company in the aggregate original
principal amount of $30,000,000 (the "Notes"). The addressees of this letter
agreement (collectively, the "Noteholders") are the registered holders of 100%
of the aggregate outstanding principal amount of the Notes as reflected in the
Note Register required to be maintained by the Company pursuant to Section 10.1
of each of the Agreements, and the Noteholders whose signatures are affixed
below hold 100% of the aggregate unpaid principal amount of the Notes
outstanding as of the date hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 5 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus 0.50%; and from and after the
Reduction Date each of the Notes shall bear interest at a rate equal to the rate
which would be borne by the Notes in the absence of this paragraph, plus 0.25%.
As
<PAGE>
used herein the term "Reduction Date" shall mean the date on which (a) any
unsecured indebtedness of the Company is given a rating of BBB- or better by
Standard & Poor's Rating Group, a division of McGraw Hill, Inc., or Baa3 or
better by Moody's Investors Service, Inc., or BBB- or better by Fitch IBCA, and
(b) each holder of Notes shall have been furnished with a copy of a letter from
the relevant rating agency or other evidence reasonably satisfactory to it of
such rating.
2. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 2 set forth,
such amendments to become effective as provided in paragraph 5 hereof:
(a) Section 1.1 of the Agreements is amended by (i) deleting the phrase
"the rate of 7.46% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A)"; and
(ii) deleting the phrase "the rate of 9.46% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in
Exhibit A)."
(b) Section 6.2(b) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that, for purposes of this clause (ii) (but not the foregoing
clause (i)), for Determination Dates with respect to 1999 fiscal quarters,
the percentage set forth above shall be 120% for the first 1999 fiscal
quarter, 80% for the second 1999 fiscal quarter, 105% for the third 1999
fiscal quarter and 140% for the final 1999 fiscal quarter.
(c) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate amount at any one time outstanding not exceeding the lesser
of (x) the Aggregate Commitment (as defined in the Credit Agreement) at
such time and (y) $1,500,000; (B) Funded Debt or Current Debt under a
working capital line in an aggregate principal amount at any one time
outstanding not exceeding $50,000,000 (the "Working Capital Facility")
which may be secured by Liens permitted by Section 6.4(n); and (C) Funded
Debt in connection with the South Dakota Revolving Economic Development &
Initiative ("REDI") Fund in an aggregate principal amount at any one time
outstanding not exceeding $1,500,000 which may be secured by Liens
permitted by Section 6.4(m);
(d) Section 6.3(b) of each of the Agreements is amended by restating such
section in its entirety as follows:
-2-
<PAGE>
(b) The Company will not on any date occurring during its 1999 fiscal
year or during the first quarter of its 2000 fiscal year permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 55% of
Total Capitalization; and will not on any other date permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 50% of
Total Capitalization.
(e) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(j), substituting a semicolon for the period at
the end of Section 6.4(k) and adding the following new paragraphs immediately
following Section 6.4(k):
(l) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.85% Senior Notes due 2003 and 8.07% Senior Note due 2006 issued
pursuant to Note Purchase Agreements, dated as of July 26, 1996, as
amended, between the Company and the institutional investors identified
therein (the interest rates on which Senior Notes due 2003 and Senior Note
due 2006 have been increased and the maturity of which Senior Note due 2006
has been changed, pursuant to an amendment to said Note Purchase
Agreements) and not securing any other indebtedness or obligations of the
Company or any Subsidiary;
(m) Liens securing Funded Debt incurred in connection with the South
Dakota REDI Fund permitted by Section 6.3(a)(iii)(C) on production
equipment of the Company located in South Dakota having a book value at the
time of the creation or incurrence of such Liens, as determined in good
faith by the Company, not exceeding 250% of the aggregate principal amount
of such Funded Debt secured thereby; provided that, no such Lien shall at
any time extend to or cover any property or asset of the Company or any of
its Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(n) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility; provided that (i) no such Lien
shall at any time extend to or cover any property or asset of the Company
or any of its Subsidiaries other than Working Capital Collateral and
(ii) in the event that any such Lien on Working Capital Collateral which is
created as permitted by this subdivision (n)
-3-
<PAGE>
shall thereafter be discharged, no further Lien on Working Capital
Collateral may be created pursuant to this subdivision (n).
(f) Section 6.10(a) of each of the Agreements is amended by restating
clause (i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(g) The definition of "Credit Agreement" in each of the Agreements is
amended by restating such definition in its entirety as follows:
CREDIT AGREEMENT: the Credit Agreement, dated as of December 8,
1995, by and among the Company, the Lenders identified (and as that
term is defined) therein and The First National Bank of Chicago, as
agent for said Lenders, as the same may be amended, modified and in
effect from time to time.
(h) Exhibit A to the Agreements is amended to be and read in its entirety
as set forth in Exhibit A to this Amendment.
3. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.85% Senior
Notes due 2003 and 8.07% Senior Note due 2006 issued pursuant to several
separate Note Purchase Agreements, dated as of July 26, 1996 as amended, (the
"1996 Agreements"; and said Senior Notes, as amended, the "1996 Notes"), between
the Company and the respective institutional investors identified therein, and
in order to secure the payment of principal, interest and other amounts owing
under or in respect of the Notes, the 1996 Notes, the Agreements and the 1996
Agreements and the performance and observance by the Company of its obligations
pursuant to the Notes, the 1996 Notes, the Agreements and the 1996 Agreements,
the Company will, on or prior to January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1996 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto
-4-
<PAGE>
(collectively, the "Mortgaged Properties"), such Trust Agreement and Mortgages
to be reasonably satisfactory in form and substance to the Noteholders and their
special counsel;
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1996 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1996 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments; and
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of
paragraph 4 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 3,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and
-5-
<PAGE>
the Mortgages shall provide for the release, at the Company's expense, of
unimproved portions of the Mortgaged Properties in connection with the
development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 2(c) of this Amendment.
4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1996 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 3 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 3 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1996
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
-6-
<PAGE>
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged Properties are subject only to (i) liens for taxes,
assessments and similar charges the payment of which is not currently due or the
payment of which is not at the time required by Section 6.16 of the Agreements,
(ii) easements, rights-of-way, servitudes, permits, exceptions, reservations and
similar encumbrances incurred in the ordinary course of business and not
interfering in any material respect with the ordinary conduct of the business of
the Company conducted thereon, and (iii) liens of mechanics, materialmen,
carriers, warehousemen, suppliers or vendors incurred in the ordinary course of
business for sums which are either not yet due, or the payment of which is not
at the time required by Section 6.16 of the Agreements, or for which such
reserve or other appropriate provisions as are required by GAAP have been made.
A Mortgage and Security Agreement between Hutchinson Industrial Corporation and
National City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is
recorded as an encumbrance with respect to the Mortgaged Property located in
Hutchinson, Minnesota, but the indebtedness such Mortgage and Security Agreement
secured has been refinanced and is not subject to such Mortgage. The Company
covenants and agrees that, on or before January 31, 1999, it will obtain and
record a Satisfaction of said Mortgage and Security Agreement. There are no
currently effective leases or occupancy agreements relating to any of the
Mortgaged Properties or any part thereof or any commitments to enter into any
such lease or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
-7-
<PAGE>
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, authorizations, directions and requirements of all
Governmental Bodies which are applicable to the Mortgaged Properties or any part
thereof, except to the extent failure to comply therewith, in any one case or in
the aggregate, has not had and will not have a Material Adverse Effect, and (ii)
all terms of any insurance policy covering or applicable to the Mortgaged
Properties or any part thereof, all requirements of the issuer of any such
policy, and all orders, rules, regulations and requirements of the National
Board of Fire Underwriters applicable to or affecting the Mortgaged Properties
or any part thereof or any use or condition thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect. The Company (i) has procured and
is in compliance with all permits, licenses and other authorizations necessary
in any material respect for any use of the Mortgaged Properties now being made
and for the proper erection, installation, operation and maintenance of any and
all improvements on the Mortgaged Properties and (ii) is in compliance with all
instruments of record and currently in force affecting the Mortgaged Properties
or any part thereof, to the extent noncompliance with any such permits,
licenses, authorizations or instruments of record would, individually or in the
aggregate, cause or permit a reversion or forfeiture of the Mortgaged Properties
or would have a Material Adverse Effect on the right, title or interest of the
Company in and to the Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
-8-
<PAGE>
(b) the representations and warranties of the Company set forth in
paragraph 4 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be continuing; and the Noteholders shall have
received an Officers' Certificate of the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 4
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 4 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
6. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment. Each
such new Note shall be made payable to and registered in the name of such
surrendering Noteholder.
7. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 3 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 3, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
--------------------------------------
Its CFO
-----------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
--------------------------------------
Its Director-Private Placements
-----------------------------------
AMERUS LIFE INSURANCE COMPANY
By /s/ Roger D. Fors
--------------------------------------
Its Vice President, Investment
Management & Research
-----------------------------------
MODERN WOODMEN OF AMERICA
By /s/ Nick S. Coin
--------------------------------------
Its Manager, Securities Division
-----------------------------------
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Amerus Life Insurance Company
c/o Amerus Capital Management
699 Walnut Street, Suite 1700
Des Moines, Iowa 50309-3945
Modern Woodmen of America
1701 First Avenue
Rock Island, Illinois 61201
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Teachers Insurance and Annuity Association of America, Central Life
Assurance Company and Modern Woodmen of America (collectively, the
"Purchasers"), each dated as of April 20, 1994, as heretofore amended
(collectively, as amended, the "Agreements"), pursuant to which the Purchasers
purchased the 7.46% Senior Notes of the Company in the aggregate original
principal amount of $30,000,000 (the "Notes"). The addressees of this letter
agreement (collectively, the "Noteholders") are the registered holders of 100%
of the aggregate outstanding principal amount of the Notes as reflected in the
Note Register required to be maintained by the Company pursuant to Section 10.1
of each of the Agreements, and the Noteholders whose signatures are affixed
below hold 100% of the aggregate unpaid principal amount of the Notes
outstanding as of the date hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 5 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus 0.50%; and from and after the
Reduction Date each of the Notes shall bear interest at a rate equal to the rate
which would be borne by the Notes in the absence of this paragraph, plus 0.25%.
As
<PAGE>
used herein the term "Reduction Date" shall mean the date on which (a) any
unsecured indebtedness of the Company is given a rating of BBB- or better by
Standard & Poor's Rating Group, a division of McGraw Hill, Inc., or Baa3 or
better by Moody's Investors Service, Inc., or BBB- or better by Fitch IBCA, and
(b) each holder of Notes shall have been furnished with a copy of a letter from
the relevant rating agency or other evidence reasonably satisfactory to it of
such rating.
2. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 2 set forth,
such amendments to become effective as provided in paragraph 5 hereof:
(a) Section 1.1 of the Agreements is amended by (i) deleting the phrase
"the rate of 7.46% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A)"; and
(ii) deleting the phrase "the rate of 9.46% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in
Exhibit A)."
(b) Section 6.2(b) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that, for purposes of this clause (ii) (but not the foregoing
clause (i)), for Determination Dates with respect to 1999 fiscal quarters,
the percentage set forth above shall be 120% for the first 1999 fiscal
quarter, 80% for the second 1999 fiscal quarter, 105% for the third 1999
fiscal quarter and 140% for the final 1999 fiscal quarter.
(c) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate amount at any one time outstanding not exceeding the lesser
of (x) the Aggregate Commitment (as defined in the Credit Agreement) at
such time and (y) $1,500,000; (B) Funded Debt or Current Debt under a
working capital line in an aggregate principal amount at any one time
outstanding not exceeding $50,000,000 (the "Working Capital Facility")
which may be secured by Liens permitted by Section 6.4(n); and (C) Funded
Debt in connection with the South Dakota Revolving Economic Development &
Initiative ("REDI") Fund in an aggregate principal amount at any one time
outstanding not exceeding $1,500,000 which may be secured by Liens
permitted by Section 6.4(m);
(d) Section 6.3(b) of each of the Agreements is amended by restating such
section in its entirety as follows:
-2-
<PAGE>
(b) The Company will not on any date occurring during its 1999 fiscal
year or during the first quarter of its 2000 fiscal year permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 55% of
Total Capitalization; and will not on any other date permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 50% of
Total Capitalization.
(e) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(j), substituting a semicolon for the period at
the end of Section 6.4(k) and adding the following new paragraphs immediately
following Section 6.4(k):
(l) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.85% Senior Notes due 2003 and 8.07% Senior Note due 2006 issued
pursuant to Note Purchase Agreements, dated as of July 26, 1996, as
amended, between the Company and the institutional investors identified
therein (the interest rates on which Senior Notes due 2003 and Senior Note
due 2006 have been increased and the maturity of which Senior Note due 2006
has been changed, pursuant to an amendment to said Note Purchase
Agreements) and not securing any other indebtedness or obligations of the
Company or any Subsidiary;
(m) Liens securing Funded Debt incurred in connection with the South
Dakota REDI Fund permitted by Section 6.3(a)(iii)(C) on production
equipment of the Company located in South Dakota having a book value at the
time of the creation or incurrence of such Liens, as determined in good
faith by the Company, not exceeding 250% of the aggregate principal amount
of such Funded Debt secured thereby; provided that, no such Lien shall at
any time extend to or cover any property or asset of the Company or any of
its Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(n) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility; provided that (i) no such Lien
shall at any time extend to or cover any property or asset of the Company
or any of its Subsidiaries other than Working Capital Collateral and
(ii) in the event that any such Lien on Working Capital Collateral which is
created as permitted by this subdivision (n)
-3-
<PAGE>
shall thereafter be discharged, no further Lien on Working Capital
Collateral may be created pursuant to this subdivision (n).
(f) Section 6.10(a) of each of the Agreements is amended by restating
clause (i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(g) The definition of "Credit Agreement" in each of the Agreements is
amended by restating such definition in its entirety as follows:
CREDIT AGREEMENT: the Credit Agreement, dated as of December 8,
1995, by and among the Company, the Lenders identified (and as that
term is defined) therein and The First National Bank of Chicago, as
agent for said Lenders, as the same may be amended, modified and in
effect from time to time.
(h) Exhibit A to the Agreements is amended to be and read in its entirety
as set forth in Exhibit A to this Amendment.
3. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.85% Senior
Notes due 2003 and 8.07% Senior Note due 2006 issued pursuant to several
separate Note Purchase Agreements, dated as of July 26, 1996 as amended, (the
"1996 Agreements"; and said Senior Notes, as amended, the "1996 Notes"), between
the Company and the respective institutional investors identified therein, and
in order to secure the payment of principal, interest and other amounts owing
under or in respect of the Notes, the 1996 Notes, the Agreements and the 1996
Agreements and the performance and observance by the Company of its obligations
pursuant to the Notes, the 1996 Notes, the Agreements and the 1996 Agreements,
the Company will, on or prior to January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1996 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto
-4-
<PAGE>
(collectively, the "Mortgaged Properties"), such Trust Agreement and Mortgages
to be reasonably satisfactory in form and substance to the Noteholders and their
special counsel;
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1996 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1996 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments; and
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of
paragraph 4 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 3,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and
-5-
<PAGE>
the Mortgages shall provide for the release, at the Company's expense, of
unimproved portions of the Mortgaged Properties in connection with the
development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 2(c) of this Amendment.
4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1996 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 3 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 3 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1996
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
-6-
<PAGE>
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged Properties are subject only to (i) liens for taxes,
assessments and similar charges the payment of which is not currently due or the
payment of which is not at the time required by Section 6.16 of the Agreements,
(ii) easements, rights-of-way, servitudes, permits, exceptions, reservations and
similar encumbrances incurred in the ordinary course of business and not
interfering in any material respect with the ordinary conduct of the business of
the Company conducted thereon, and (iii) liens of mechanics, materialmen,
carriers, warehousemen, suppliers or vendors incurred in the ordinary course of
business for sums which are either not yet due, or the payment of which is not
at the time required by Section 6.16 of the Agreements, or for which such
reserve or other appropriate provisions as are required by GAAP have been made.
A Mortgage and Security Agreement between Hutchinson Industrial Corporation and
National City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is
recorded as an encumbrance with respect to the Mortgaged Property located in
Hutchinson, Minnesota, but the indebtedness such Mortgage and Security Agreement
secured has been refinanced and is not subject to such Mortgage. The Company
covenants and agrees that, on or before January 31, 1999, it will obtain and
record a Satisfaction of said Mortgage and Security Agreement. There are no
currently effective leases or occupancy agreements relating to any of the
Mortgaged Properties or any part thereof or any commitments to enter into any
such lease or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
-7-
<PAGE>
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, authorizations, directions and requirements of all
Governmental Bodies which are applicable to the Mortgaged Properties or any part
thereof, except to the extent failure to comply therewith, in any one case or in
the aggregate, has not had and will not have a Material Adverse Effect, and (ii)
all terms of any insurance policy covering or applicable to the Mortgaged
Properties or any part thereof, all requirements of the issuer of any such
policy, and all orders, rules, regulations and requirements of the National
Board of Fire Underwriters applicable to or affecting the Mortgaged Properties
or any part thereof or any use or condition thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect. The Company (i) has procured and
is in compliance with all permits, licenses and other authorizations necessary
in any material respect for any use of the Mortgaged Properties now being made
and for the proper erection, installation, operation and maintenance of any and
all improvements on the Mortgaged Properties and (ii) is in compliance with all
instruments of record and currently in force affecting the Mortgaged Properties
or any part thereof, to the extent noncompliance with any such permits,
licenses, authorizations or instruments of record would, individually or in the
aggregate, cause or permit a reversion or forfeiture of the Mortgaged Properties
or would have a Material Adverse Effect on the right, title or interest of the
Company in and to the Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
-8-
<PAGE>
(b) the representations and warranties of the Company set forth in
paragraph 4 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be continuing; and the Noteholders shall have
received an Officers' Certificate of the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 4
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 4 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
6. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment. Each
such new Note shall be made payable to and registered in the name of such
surrendering Noteholder.
7. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 3 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 3, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
--------------------------------------
Its CFO
-----------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
--------------------------------------
Its Director-Private Placements
-----------------------------------
AMERUS LIFE INSURANCE COMPANY
By /s/ Roger D. Fors
--------------------------------------
Its Vice President, Investment
Management & Research
-----------------------------------
MODERN WOODMEN OF AMERICA
By /s/ Nick S. Coin
--------------------------------------
Its Manager, Securities Division
-----------------------------------
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Amerus Life Insurance Company
c/o Amerus Capital Management
699 Walnut Street, Suite 1700
Des Moines, Iowa 50309-3945
Modern Woodmen of America
1701 First Avenue
Rock Island, Illinois 61201
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Teachers Insurance and Annuity Association of America, Central Life
Assurance Company and Modern Woodmen of America (collectively, the
"Purchasers"), each dated as of April 20, 1994, as heretofore amended
(collectively, as amended, the "Agreements"), pursuant to which the Purchasers
purchased the 7.46% Senior Notes of the Company in the aggregate original
principal amount of $30,000,000 (the "Notes"). The addressees of this letter
agreement (collectively, the "Noteholders") are the registered holders of 100%
of the aggregate outstanding principal amount of the Notes as reflected in the
Note Register required to be maintained by the Company pursuant to Section 10.1
of each of the Agreements, and the Noteholders whose signatures are affixed
below hold 100% of the aggregate unpaid principal amount of the Notes
outstanding as of the date hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 5 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus 0.50%; and from and after the
Reduction Date each of the Notes shall bear interest at a rate equal to the rate
which would be borne by the Notes in the absence of this paragraph, plus 0.25%.
As
<PAGE>
used herein the term "Reduction Date" shall mean the date on which (a) any
unsecured indebtedness of the Company is given a rating of BBB- or better by
Standard & Poor's Rating Group, a division of McGraw Hill, Inc., or Baa3 or
better by Moody's Investors Service, Inc., or BBB- or better by Fitch IBCA, and
(b) each holder of Notes shall have been furnished with a copy of a letter from
the relevant rating agency or other evidence reasonably satisfactory to it of
such rating.
2. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 2 set forth,
such amendments to become effective as provided in paragraph 5 hereof:
(a) Section 1.1 of the Agreements is amended by (i) deleting the phrase
"the rate of 7.46% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A)"; and
(ii) deleting the phrase "the rate of 9.46% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in
Exhibit A)."
(b) Section 6.2(b) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that, for purposes of this clause (ii) (but not the foregoing
clause (i)), for Determination Dates with respect to 1999 fiscal quarters,
the percentage set forth above shall be 120% for the first 1999 fiscal
quarter, 80% for the second 1999 fiscal quarter, 105% for the third 1999
fiscal quarter and 140% for the final 1999 fiscal quarter.
(c) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate amount at any one time outstanding not exceeding the lesser
of (x) the Aggregate Commitment (as defined in the Credit Agreement) at
such time and (y) $1,500,000; (B) Funded Debt or Current Debt under a
working capital line in an aggregate principal amount at any one time
outstanding not exceeding $50,000,000 (the "Working Capital Facility")
which may be secured by Liens permitted by Section 6.4(n); and (C) Funded
Debt in connection with the South Dakota Revolving Economic Development &
Initiative ("REDI") Fund in an aggregate principal amount at any one time
outstanding not exceeding $1,500,000 which may be secured by Liens
permitted by Section 6.4(m);
(d) Section 6.3(b) of each of the Agreements is amended by restating such
section in its entirety as follows:
-2-
<PAGE>
(b) The Company will not on any date occurring during its 1999 fiscal
year or during the first quarter of its 2000 fiscal year permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 55% of
Total Capitalization; and will not on any other date permit the sum of
Consolidated Funded Debt PLUS Consolidated Current Debt to exceed 50% of
Total Capitalization.
(e) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(j), substituting a semicolon for the period at
the end of Section 6.4(k) and adding the following new paragraphs immediately
following Section 6.4(k):
(l) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.85% Senior Notes due 2003 and 8.07% Senior Note due 2006 issued
pursuant to Note Purchase Agreements, dated as of July 26, 1996, as
amended, between the Company and the institutional investors identified
therein (the interest rates on which Senior Notes due 2003 and Senior Note
due 2006 have been increased and the maturity of which Senior Note due 2006
has been changed, pursuant to an amendment to said Note Purchase
Agreements) and not securing any other indebtedness or obligations of the
Company or any Subsidiary;
(m) Liens securing Funded Debt incurred in connection with the South
Dakota REDI Fund permitted by Section 6.3(a)(iii)(C) on production
equipment of the Company located in South Dakota having a book value at the
time of the creation or incurrence of such Liens, as determined in good
faith by the Company, not exceeding 250% of the aggregate principal amount
of such Funded Debt secured thereby; provided that, no such Lien shall at
any time extend to or cover any property or asset of the Company or any of
its Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(n) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility; provided that (i) no such Lien
shall at any time extend to or cover any property or asset of the Company
or any of its Subsidiaries other than Working Capital Collateral and
(ii) in the event that any such Lien on Working Capital Collateral which is
created as permitted by this subdivision (n)
-3-
<PAGE>
shall thereafter be discharged, no further Lien on Working Capital
Collateral may be created pursuant to this subdivision (n).
(f) Section 6.10(a) of each of the Agreements is amended by restating
clause (i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(g) The definition of "Credit Agreement" in each of the Agreements is
amended by restating such definition in its entirety as follows:
CREDIT AGREEMENT: the Credit Agreement, dated as of December 8,
1995, by and among the Company, the Lenders identified (and as that
term is defined) therein and The First National Bank of Chicago, as
agent for said Lenders, as the same may be amended, modified and in
effect from time to time.
(h) Exhibit A to the Agreements is amended to be and read in its entirety
as set forth in Exhibit A to this Amendment.
3. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.85% Senior
Notes due 2003 and 8.07% Senior Note due 2006 issued pursuant to several
separate Note Purchase Agreements, dated as of July 26, 1996 as amended, (the
"1996 Agreements"; and said Senior Notes, as amended, the "1996 Notes"), between
the Company and the respective institutional investors identified therein, and
in order to secure the payment of principal, interest and other amounts owing
under or in respect of the Notes, the 1996 Notes, the Agreements and the 1996
Agreements and the performance and observance by the Company of its obligations
pursuant to the Notes, the 1996 Notes, the Agreements and the 1996 Agreements,
the Company will, on or prior to January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1996 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto
-4-
<PAGE>
(collectively, the "Mortgaged Properties"), such Trust Agreement and Mortgages
to be reasonably satisfactory in form and substance to the Noteholders and their
special counsel;
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1996 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1996 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments; and
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of
paragraph 4 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 3,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and
-5-
<PAGE>
the Mortgages shall provide for the release, at the Company's expense, of
unimproved portions of the Mortgaged Properties in connection with the
development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 2(c) of this Amendment.
4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1996 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 3 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 3 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1996
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
-6-
<PAGE>
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged Properties are subject only to (i) liens for taxes,
assessments and similar charges the payment of which is not currently due or the
payment of which is not at the time required by Section 6.16 of the Agreements,
(ii) easements, rights-of-way, servitudes, permits, exceptions, reservations and
similar encumbrances incurred in the ordinary course of business and not
interfering in any material respect with the ordinary conduct of the business of
the Company conducted thereon, and (iii) liens of mechanics, materialmen,
carriers, warehousemen, suppliers or vendors incurred in the ordinary course of
business for sums which are either not yet due, or the payment of which is not
at the time required by Section 6.16 of the Agreements, or for which such
reserve or other appropriate provisions as are required by GAAP have been made.
A Mortgage and Security Agreement between Hutchinson Industrial Corporation and
National City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is
recorded as an encumbrance with respect to the Mortgaged Property located in
Hutchinson, Minnesota, but the indebtedness such Mortgage and Security Agreement
secured has been refinanced and is not subject to such Mortgage. The Company
covenants and agrees that, on or before January 31, 1999, it will obtain and
record a Satisfaction of said Mortgage and Security Agreement. There are no
currently effective leases or occupancy agreements relating to any of the
Mortgaged Properties or any part thereof or any commitments to enter into any
such lease or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
-7-
<PAGE>
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, authorizations, directions and requirements of all
Governmental Bodies which are applicable to the Mortgaged Properties or any part
thereof, except to the extent failure to comply therewith, in any one case or in
the aggregate, has not had and will not have a Material Adverse Effect, and (ii)
all terms of any insurance policy covering or applicable to the Mortgaged
Properties or any part thereof, all requirements of the issuer of any such
policy, and all orders, rules, regulations and requirements of the National
Board of Fire Underwriters applicable to or affecting the Mortgaged Properties
or any part thereof or any use or condition thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect. The Company (i) has procured and
is in compliance with all permits, licenses and other authorizations necessary
in any material respect for any use of the Mortgaged Properties now being made
and for the proper erection, installation, operation and maintenance of any and
all improvements on the Mortgaged Properties and (ii) is in compliance with all
instruments of record and currently in force affecting the Mortgaged Properties
or any part thereof, to the extent noncompliance with any such permits,
licenses, authorizations or instruments of record would, individually or in the
aggregate, cause or permit a reversion or forfeiture of the Mortgaged Properties
or would have a Material Adverse Effect on the right, title or interest of the
Company in and to the Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
-8-
<PAGE>
(b) the representations and warranties of the Company set forth in
paragraph 4 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be continuing; and the Noteholders shall have
received an Officers' Certificate of the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1996 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 4
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 4 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
6. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment. Each
such new Note shall be made payable to and registered in the name of such
surrendering Noteholder.
7. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 3 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 3, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
--------------------------------------
Its CFO
-----------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
--------------------------------------
Its Director-Private Placements
-----------------------------------
AMERUS LIFE INSURANCE COMPANY
By /s/ Roger D. Fors
--------------------------------------
Its Vice President, Investment
Management & Research
-----------------------------------
MODERN WOODMEN OF AMERICA
By /s/ Nick S. Coin
--------------------------------------
Its Manager, Securities Division
-----------------------------------
<PAGE>
THIRD AMENDMENT TO
HUTCHINSON TECHNOLOGY INCORPORATED
CREDIT AGREEMENT
This Third Amendment (this "AMENDMENT") is entered into as of March
2, 1998 by and between HUTCHINSON TECHNOLOGY INCORPORATED (the "BORROWER")
and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (in such capacity, the
"AGENT") and Lender. The parties hereto agree as follows:
WHEREAS, the Borrower, the agent, and the Lender have entered into
that certain Credit Agreement dated as of December 8, 1995 as amended by the
First Amendment dated as of June 22, 1996 and the Second Amendment dated as
of February 24, 1997 (as so amended, the "AGREEMENT"); and
WHEREAS, the parties thereto desire to amend the Agreement in certain
respects more fully described hereinafter;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used and not otherwise defined
in this Amendment shall have the meanings attributed to them in the Agreement.
2. AMENDMENT OF AGREEMENT. The Agreement is hereby amended as
follows:
2.1. SECTION 1.1 OF THE AGREEMENT IS MODIFIED TO DELETE THE
DEFINITIONS OF "FACILITY LETTER OF CREDIT COMMITMENT" AND "FACILITY
TERMINATION DATE" CONTAINED THEREIN IN THEIR ENTIRETY AND TO SUBSTITUTE
THE FOLLOWING THEREFOR:
"FACILITY LETTER OF CREDIT COMMITMENT" MEANS $1,500,000.
"FACILITY TERMINATION DATE" MEANS MARCH 15, 1999.
2.2. SECTION 1.1 OF THE AGREEMENT IS FURTHER MODIFIED TO ADD THE
FOLLOWING DEFINITIONS IN THE APPLICABLE ALPHABETICAL LOCATION:
"FACILITY LETTER OF CREDIT BASE RATE" MEANS, WITH RESPECT TO A
FACILITY LETTER OF CREDIT, THE RULE DETERMINED BY THE AGENT TO BE THE RATE AT
WHICH ONE-MONTH DEPOSITS IN U.S. DOLLARS ARE OFFERED BY FIRST CHICAGO TO
FIRST-CLASS BANKS IN THE LONDON INTERBANK MARKET AT APPROXIMATELY 11 A.M.
(LONDON TIME) (i) INITIALLY ON THE EFFECTIVENESS OF THE THIRD AMENDMENT TO
THIS AGREEMENT AND THEREAFTER (ii) TWO BUSINESS DAYS PRIOR TO THE MONTHLY
ANNIVERSARY OF SUCH EFFECTIVE DATE, IN THE APPROXIMATE AMOUNT OF THE
OUTSTANDING FACILITY LETTERS OF CREDIT FOR A ONE-MONTH INTEREST PERIOD.
<PAGE>
"FACILITY LETTER OF CREDIT RATE" MEANS, WITH RESPECT TO EACH FACILITY
LETTER OF CREDIT, A RATE PER ANNUM EQUAL TO THE SUM OF (i) (a) THE FACILITY
LETTER OF CREDIT BASE RATE, DIVIDED BY (b) ONE MINUS THE APPLICABLE RESERVE
REQUIREMENT (EXPRESSED AS A DECIMAL), IF ANY, PLUS (ii) TWO PERCENT (2.00%)
PER ANNUM.
2.3 SECTION 2.1 OF THE AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
2.1 [INTENTIALLY BLANK].
2.4 SECTION 2.2.4(a) OF THE AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
(a) THE BORROWER HEREBY AGREES TO PAY THE ISSUING LENDER AND THE
LENDERS A FEE (CALCULATED FOR THE ACTUAL NUMBER OF DAYS ELAPSED ON THE BASIS
OF A YEAR CONSISTING OF 360 DAYS) ON ANY UNDRAWN PORTION OF EACH FACILITY
LETTER OF CREDIT FROM TIME TO TIME OUTSTANDING EQUAL TO THE GREATER OF (a)
THE FACILITY LETTER OF CREDIT RATE APPLICABLE FROM TIME TO TIME OR (b) $1,500
FOR EACH YEAR OR ANY PART THEREOF.
2.5 SECTION 2.2.5(a) OF THE AGREEMENT IS AMENDED TO DELETE THE FINAL
SENTENCE THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
AMOUNTS WHICH THE BORROWER HAS AGREED TO REIMBURSE THE LENDERS PURSUANT TO
THE PRECEDING SENTENCE SHALL BE DUE ON DEMAND AND SHALL BEAR INTEREST UNTIL
PAID AT A RATE PER ANNUM (CALCULATED FOR THE ACTUAL NUMBER OF DAYS ELAPSED ON
THE BASIS OF YEAR CONSISTING OF 360 DAYS) EQUAL TO THE FLOATING RATE PLUS 2%
PER ANNUM.
2.6 SECTION 2.2.5(b) OF THE AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
(b) [INTENTIONALLY BLANK.]
2.7 SECTION 2.5 OF THE AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
2.5 REDUCTION OF AGGREGATE COMMITMENTS. EFFECTIVE AS OF MARCH 2,
1998, THE AGGREGATE COMMITMENT IS REDUCED TO $1,500,000 AND FROM AND AFTER
MARCH 2, 1998, THE LENDERS SHALL NO LONGER HAVE ANY OBLIGATION TO MAKE LOANS
HEREUNDER.
2.8 SECTION 6.11 OF THE AGREEMENT IS AMENDED TO ADD THE FOLLOWING AT
THE END THEREOF:
Page 2
<PAGE>
(x) UNSECURED SUBORDINATED INDEBTEDNESS NOT OTHERWISE PERMITTED
UNDER THIS SECTION 6.11 IN AN AGGREGATE AMOUNT NOT EXCEEDING
$175,000,000 AT ANY ONE TIME OUTSTANDING, THE TERMS OF WHICH
SUBORDINATED INDEBTEDNESS, INCLUDING WITHOUT LIMITATION, THOSE
PERTAINING TO SUBORDINATION, DEFAULT, STANDSTILL, SINKING
FUND, AMORTIZATION, INTEREST RATE, CONVERSION FEATURES,
COVENANTS AND DEFAULTS, SHALL BE IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE AGENT AND THE LENDERS. AS THE
BORROWER KNOWS, OTHER BUSINESS UNITS AT THE AGENT ARE
PROVIDING OTHER FINANCIAL SERVICES AND PRODUCTS TO THE
BORROWER IN CONNECTION WITH THE PROPOSED SUBORDINATED
INDEBTEDNESS TRANSACTION. THE BORROWER ACKNOWLEDGES AND
CONSENTS TO THESE MULTIPLE ROLES, AND FURTHER ACKNOWLEDGES
THAT THE FACT THAT ANOTHER UNIT OR AFFILIATE OF THE AGENT IS
PROVIDING ANOTHER SERVICE OR PRODUCT OR PROPOSAL THEREFOR TO
THE BORROWER DOES NOT MEAN THAT SUCH SERVICE, PRODUCT, OR
PROPOSAL IS OR WILL BE ACCEPTABLE TO THE AGENT AND THE LENDERS.
2.8 SECTIONS 6.13 AND 6.14 OF THE AGREEMENT IS AMENDED TO DELETE THE
TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
6.13. SALE OF ASSETS. THE BORROWER WILL NOT, NOR WILL IT PERMIT
ANY SUBSIDIARY TO, LEASE, SELL OR OTHERWISE DISPOSE OF ITS PROPERTY, TO
ANY OTHER PERSON EXCEPT FOR (i) LEASES, SALES, OR OTHER DISPOSITIONS OF
INVENTORY IN THE ORDINARY COURSE OF BUSINESS, (ii) LEASES, SALES, OR
OTHER DISPOSITIONS BY A SUBSIDIARY OF ANY OF ITS PROPERTY TO THE
BORROWER OR ANY WHOLLY-OWNED SUBSIDIARY OF THE BORROWER, (iii)
DISPOSITIONS OF PROPERTY THAT IS NO LONGER USED OR USEFUL BY OR IN THE
BORROWER'S OR THE DISPOSING SUBSIDIARY'S BUSINESS, (iv) SALES AND
LEASEBACKS PERMITTED UNDER SECTION 6.15, (v) CONTRIBUTIONS OF ASSETS TO
SUBSIDIARIES OTHER THAN HTI EXPORT LTD., (vi) LEASES, SALES OR OTHER
DISPOSITIONS OF ITS PROPERTY, INCLUDING, WITHOUT LIMITATION ACCOUNTS
RECEIVABLE SOLD IN CONFORMITY WITH SECTION 6.14 THAT, TOGETHER WITH ALL
OTHER PROPERTY OF THE BORROWER AND ITS SUBSIDIARIES PREVIOUSLY LEASED,
SOLD OR DISPOSED OF (OTHER THAN DISPOSITIONS PERMITTED UNDER CLAUSE (i)
THROUGH (v) HEREINABOVE) AS PERMITTED BY THIS CLAUSE (vi) DURING THE
TWELVE-MONTH PERIOD ENDING WITH THE MONTH IN WHICH ANY SUCH LEASE, SALE
OR OTHER DISPOSITION OCCURS, DO NOT CONSTITUTE A SUBSTANTIAL PORTION OF
THE PROPERTY OF THE BORROWER AND ITS SUBSIDIARIES, AND (vii)
DISPOSITIONS OF THE ASSETS OF DISSOLVED SUBSIDIARIES TO THE BORROWER OR
ANY SUBSIDIARY.
6.14. SALE OF ACCOUNTS. THE BORROWER WILL NOT, NOR WILL IT PERMIT
ANY SUBSIDIARY TO, SELL OR OTHERWISE DISPOSE OF ANY NOTES RECEIVABLE OR
ACCOUNTS RECEIVABLE, WITH OR WITHOUT RECOURSE; PROVIDED, THE BORROWER
SHALL BE PERMITTED
Page 3
<PAGE>
TO CONSUMMATE A TRUE SALE OF ALL OR A PORTION OF ITS ACCOUNTS RECEIVABLE
IN CONNECTION WITH AN ARMS-LENGTH ACCOUNTS RECEIVABLE FACTORING
TRANSACTION PROVIDED (i) ALL CONSENTS, IF ANY, REQUIRED IN CONNECTION
THEREWITH SHALL HAVE BEEN OBTAINED FROM EACH OTHER HOLDER OF THE
BORROWER'S INDEBTEDNESS FOR MONEY BORROWED; (ii) THE BORROWER SHALL HAVE
ESTABLISHED AND SHALL AT ALL TIMES THEREAFTER MAINTAIN A MINIMUM BALANCE
DEPOSIT ACCOUNT WITH THE AGENT IN THE AMOUNT OF $1,500,000; AND (iii) THE
BORROWER SHALL BE IN COMPLIANCE WITH THE TERMS OF SECTION 6.13(vi).
2.9. SECTION 6.19 OF THE AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
6.19. FINANCIAL COVENANTS.
6.19.1. LEVERAGE RATIO. THE BORROWER WILL MAINTAIN, AS AT THE LAST
DAY OF EACH FISCAL QUARTER, A LEVERAGE RATIO OF NOT GREATER THAN (a) 40%
AS OF THE END OF ANY FISCAL QUARTER PRIOR TO THE ISSUANCE OF THE
SUBORDINATED INDEBTEDNESS PERMITTED UNDER SECTION 6.11(x) AND (b) 50% AS
OF THE END OF ANY FISCAL QUARTER AFTER THE ISSUANCE OF THE SUBORDINATED
INDEBTEDNESS PERMITTED UNDER SECTION 6.11(x).
6.19.2. MINIMUM EBITDA. THE BORROWER WILL MAINTAIN EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION AND AMORTIZATION, AS DETERMINED AS OF THE
LAST DAY OF EACH FISCAL QUARTER FOR THE THREE MONTH PERIOD ENDING ON SUCH
DAY OF AT LEAST THE AMOUNT SET FORTH BELOW OPPOSITE THE DAY IN WHICH
SUCH QUARTER ENDS:
<TABLE>
<CAPTION>
QUARTER ENDED MINIMUM EBITDA
------------- --------------
<S> <C>
JUNE 30, 1998 ($12,000,000)
SEPTEMBER 30, 1998 $7,000,000
DECEMBER 31, 1998 $23,000,000
MARCH 31, 1999 $29,000,000
</TABLE>
6.19.3. MINIMUM NET WORTH. THE BORROWER WILL MAINTAIN, AS AT THE
LAST DAY OF EACH FISCAL QUARTER, SHAREHOLDER'S EQUITY FOR THE BORROWER
AND ITS CONSOLIDATED SUBSIDIARIES OF NOT LESS THAN THE SUM OF (a)
$217,000,000 PLUS (b) EIGHTY-FIVE PERCENT (85%) OF NET INCOME (IF
POSITIVE) CALCULATED SEPARATELY FOR EACH FISCAL QUARTER ENDING AFTER
DECEMBER 31, 1997, PLUS (c) ONE-HUNDRED PERCENT (100%) OF THE NET CASH
PROCEEDS RESULTING FROM THE ISSUANCE BY THE BORROWER OR ANY OF ITS
SUBSIDIARIES OF ANY CAPITAL STOCK.
Page 4
<PAGE>
6.19.4. CAPITAL EXPENDITURES. THE BORROWER WILL NOT, NOR WILL
IT PERMIT ANY SUBSIDIARY TO, EXPEND OR BE COMMITTED TO EXPEND CAPITAL
EXPENDITURES IN THE AGGREGATE FOR THE BORROWER AND ITS SUBSIDIARIES
EXCEEDING $210,000,000 IN ANY FISCAL YEAR OF THE BORROWER.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby confirms and
reaffirms that the representations and warranties contained in Article V of
the Agreement are true and correct in all material respects as of the
Effective Date (as defined in Paragraph 4 of this Amendment) except for
changes reflecting transactions permitted by the Agreement or otherwise
previously consented to by the Lenders, PROVIDED that such representations
and warranties shall be and hereby are amended as follows: each reference
therein to "this Agreement," including, without limitation, such a reference
included in the term "Loan Documents," shall be deemed to be a collective
reference to the Agreement, this Amendment, and the Agreement as amended by
this Amendment. A Default under and as defined in the Agreement as amended by
this Amendment shall be deemed to have occurred if any representation or
warranty made pursuant to the preceding sentence shall be materially false
as of the date on which it was made.
4. EFFECTIVE DATE. This Amendment shall become effective as of the
date first written above (the "EFFECTIVE DATE") upon receipt by the Agent of
each of the following:
(a) counterparts of this Amendment duly executed by the Borrower and the
Agent and the Lender;
(b) payment to the Agent for the account of the Lender an amendment fee
in connection with this Amendment in the amount of $200,000.
5. RATIFICATION. Except as amended hereby, the Agreement shall remain
in full force and effect and is hereby ratified, approved, and confirmed in
all respects. Upon the effectiveness of this Amendment, all references in the
Agreement to "this Agreement" (and all indirect references such as "hereby,"
"herein," "hereof" and "hereunder") shall be deemed to be references to the
Agreement as amended by this Amendment.
6. EXPENSES. The Borrower shall reimburse the Agent for any and all
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' fees of attorneys for the Agent, which attorneys may be employees
of the Agent) paid or incurred by the Agent in connection with the
preparation, review, execution and delivery of the various commitment letters
and financing proposals previously delivered to the Borrower and in
connection with this Amendment.
7. ENTIRE AGREEMENT. This Amendment, the Agreement as amended by this
Amendment, and the other Loan Documents embody the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings
Page 5
<PAGE>
among the parties hereto relating to the subject matter hereof; PROVIDED,
HOWEVER, nothing herein shall affect any commitment letter now or hereafter
issued by the Agent or any Lender to the Borrower.
8. COUNTERPARTS; FACSIMILE SIGNATURES. This Amendment may be executed
in any number of counterparts, all of which taken together shall constitute
one Amendment, and any parties hereto may execute this Amendment by signing
any such counterpart. Receipt by the Agent or the Agent's counsel of a
facsimile signature shall be effective as though an original counterpart was
received provided the party executing by facsimile shall be obligated to
promptly provide an original counterpart hereof to the Agent.
9. GOVERNING LAW. This Amendment shall be construed in accordance
with the internal laws (and not the law of conflicts) of the State of
Illinois, but giving effect to federal laws applicable to a national banking
association located in the State of Illinois.
Page 6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
HUTCHINSON TECHNOLOGY INCORPORATED
By /s/ John A. Ingleman
-------------------------------------
Name John A. Ingleman
Title CFO
THE FIRST NATIONAL BANK OF CHICAGO,
INDIVIDUALLY AND AS AGENT
By /s/ J. Garland Smith
-------------------------------------
J. Garland Smith
Managing Director
Page 7
<PAGE>
FOURTH AMENDMENT TO
HUTCHINSON TECHNOLOGY INCORPORATED
CREDIT AGREEMENT
This Fourth Amendment (this "AMENDMENT") is entered into as of
September 25, 1998 by and between HUTCHINSON TECHNOLOGY INCORPORATED (the
"BORROWER") and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (in such
capacity, the "AGENT") and Lender. The parties hereto agree as follows:
WHEREAS, the Borrower, the Agent and the Lender have entered into that
certain Credit Agreement dated as of December 8, 1995, as amended to date (as
so amended, the "AGREEMENT"); and
WHEREAS, the parties thereto desire to further amend the Agreement in
certain respects more fully described hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
(a) Section 6.11 of the Agreement is hereby amended to add the
following at the end thereof:
"(xi) Secured Indebtedness in an aggregate principal amount not
exceeding $5,000,000 at any one time outstanding under the
REDI-Loan program administered by the State of South Dakota,
PROVIDED that (x) the terms of such Indebtedness have been
approved by the appropriate agency of such State and (y) the
borrowing and repayment of such Indebtedness will not violate
any term, provision or restriction of any other Indebtedness of
the Borrower or any of its Subsidiaries."
(b) Section 6.18 of the Agreement is hereby amended to add the
following at the end thereof:
"(ix) Liens securing Indebtedness permitted under Section 6.11(xi)
hereof."
<PAGE>
(c) Section 6.19.2 of the Agreement is hereby amended by deleting the
table set forth therein and replacing it with a table reading in its entirety
as follows:
<TABLE>
<CAPTION>
QUARTER ENDED MINIMUM EBITDA
------------- --------------
<S> <C>
SEPTEMBER 27, 1998 ($22,500,000)
DECEMBER 27, 1998 ($ 5,000,000)
MARCH 28, 1999 $17,000,000
</TABLE>
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby confirms and
reaffirms that the representations and warranties contained in Article V of
the Agreement are true and correct in all material respects as of the
Effective Date (as defined in Section 4 of this Amendment) except for changes
reflecting transactions permitted by the Agreement or otherwise previously
consented to by the Lender, provided that such representations and warranties
shall be and hereby are amended as follows: each reference therein to "this
Agreement," including, without limitation, such a reference included in the
term "Loan Documents," shall be deemed to be a collective reference to the
Agreement, this Amendment, and the Agreement as amended by this Amendment. A
Default under and as defined in the Agreement as amended by this Amendment
shall be deemed to have occurred if any representation or warranty made
pursuant to the preceding sentence of this Section 3 shall be materially
false as of the date on which it was made.
4. CONDITIONS PRECEDENT. This Amendment shall become effective on and
as of the date first above written (the "EFFECTIVE DATE") provided that all
of the following conditions precedent shall have been satisfied:
(a) The Agent shall have received a counterpart of this Amendment
duly executed and delivered by the Borrower.
(b) No Default or Unmatured Default shall have occurred and be
continuing.
5. EFFECT ON THE AGREEMENT. Except as expressly amended hereby, all of
the representations, warranties, terms, covenants and conditions of the
Agreement and the other Loan Documents (a) shall remain unaltered, (b) shall
continue to be, and shall remain, in full force and effect in accordance with
their respective terms, and (c) are hereby ratified and confirmed in all
respects. Upon the effectiveness of this Amendment, all references in the
Agreement to "this Agreement" (and all indirect references such as "hereby",
"herein", "hereof" and "hereunder") shall be deemed to be references to the
Agreement as amended by this Amendment.
6. EXPENSES. The Borrower shall reimburse the Agent for any and all
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent in
connection with the preparation, review, execution and delivery of this
Amendment.
Page 2
<PAGE>
7. ENTIRE AGREEMENT. This Amendment, the Agreement as amended by this
Amendment and the other Loan Documents embody the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings among the parties hereto relating to the
subject matter hereof.
8. GOVERNING LAW. This Amendment shall be construed in accordance with
the internal laws (and not the law of conflicts) of the State of Illinois,
but giving effect to federal laws applicable to a national banking
association located in the State of Illinois.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Amendment by signing any such
counterpart. Receipt by the Agent or its counsel of a facsimile signature
shall be effective as though an original counterpart was received provided
the party executing by facsimile shall be obligated promptly to provide an
original counterpart hereof to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to Credit Agreement to be duly executed as of the date first above written.
HUTCHINSON TECHNOLOGY INCORPORATED
By: /s/ John A. Ingleman
----------------------------------
Print Name: John A. Ingleman
--------------------------
Title: Chief Financial Officer
-------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By: /s/ Lisa Whatley
----------------------------------
Print Name: Lisa Whatley
--------------------------
Title: Vice President
-------------------------------
Page 3
<PAGE>
FIFTH AMENDMENT TO
HUTCHINSON TECHNOLOGY INCORPORATED
CREDIT AGREEMENT
This Fifth Amendment (this "AMENDMENT") is entered into as of
December 23, 1998 by and between HUTCHINSON TECHNOLOGY INCORPORATED (the
"BORROWER") and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (in such
capacity, the "AGENT") and Lender. The parties hereto agree as follows:
WHEREAS, the Borrower, the Agent and the Lender have entered into that
certain Credit Agreement dated as of December 8, 1995, as amended to date (as
so amended, the "AGREEMENT"); and
WHEREAS, the parties thereto desire to further amend the Agreement in
certain respects more fully described hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
(a) The Commitment of The First National Bank of Chicago is hereby
permanently reduced to $1,219,068.
(b) Section 6.11 of the Agreement is hereby amended to add the
following at the end thereof:
"(xii) Secured Indebtedness in an aggregate principal amount not
exceeding $50,000,000 at any one time outstanding under a credit
facility agented by The CIT Group/Business Credit."
(c) Section 6.18 of the Agreement is hereby amended to add the
following at the end thereof:
"(x) Liens securing Indebtedness of the Borrower under private
placements otherwise permitted under Section 6.11 hereof.
(xi) Liens securing Indebtedness of the Borrower permitted under
Section 6.11(xii) hereof."
(d) Section 6.19.1 of the Agreement is hereby amended to read in its
entirety as follows:
<PAGE>
"6.19.1. LEVERAGE RATIO. The Borrower will maintain, as at the
last day of each fiscal quarter, a Leverage Ratio of not more than .55
to 1.0."
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby confirms and
reaffirms that the representations and warranties contained in Article V of
the Agreement are true and correct in all material respects as of the
Effective Date (as defined in Section 4 of this Amendment) except for changes
reflecting transactions permitted by the Agreement or otherwise previously
consented to by the Lender, provided that such representations and warranties
shall be and hereby are amended as follows: each reference therein to "this
Agreement," including, without limitation, such a reference included in the
term "Loan Documents," shall be deemed to be a collective reference to the
Agreement, this Amendment, and the Agreement as amended by this Amendment. A
Default under and as defined in the Agreement as amended by this Amendment
shall be deemed to have occurred if any representation or warranty made
pursuant to the preceding sentence of this Section 3 shall be materially false
as of the date on which it was made.
4. CONDITIONS PRECEDENT. This Amendment shall become effective on
and as of the date first above written (the "EFFECTIVE DATE") provided that
all of the following conditions precedent shall have been satisfied:
(a) The Agent shall have received a counterpart of this Amendment
duly executed and delivered by the Borrower.
(b) No Default or Unmatured Default shall have occurred and be
continuing.
5. UNDERTAKING TO RETURN LETTER OF CREDIT. Not later than February
28, 1999, Irrevocable Letter of Credit No. 320052 issued by The First
National Bank of Chicago in favor of Rabobank Nederland on February 7, 1996
shall have been returned by the beneficiary to The First National Bank of
Chicago for cancellation. Failure by the Borrower to return such letter of
credit shall constitute a Default under the Agreement.
6. EFFECT ON THE AGREEMENT. Except as expressly amended hereby,
all of the representations, warranties, terms, covenants and conditions of the
Agreement and the other Loan Documents (a) shall remain unaltered, (b) shall
continue to be, and shall remain, in full force and effect in accordance with
their respective terms, and (c) are hereby ratified and confirmed in all
respects. Upon the effectiveness of this Amendment, all references in the
Agreement to "this Agreement" (and all indirect references such as "hereby",
"herein", "hereof" and "hereunder") shall be deemed to be references to the
Agreement as amended by this Amendment.
7. EXPENSES. The Borrower shall reimburse the Agent for any and all
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent in
connection with the preparation, review, execution and delivery of this
Amendment.
Page 2
<PAGE>
8. ENTIRE AGREEMENT. This Amendment, the Agreement as amended by this
Amendment and the other Loan Documents embody the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings among the parties hereto relating to the subject
matter hereof.
9. GOVERNING LAW. This Amendment shall be construed in accordance with
the internal laws (and not the law of conflicts) of the State of Illinois, but
giving effect to federal laws applicable to a national banking association
located in the State of Illinois.
10. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Amendment by signing any such
counterpart. Receipt by the Agent or its counsel of a facsimile signature shall
be effective as though an original counterpart was received provided the party
executing by facsimile shall be obligated promptly to provide an original
counterpart hereof to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
Credit Agreement to be duly executed as of the date first above written.
HUTCHINSON TECHNOLOGY INCORPORATED
By: /s/ Ruth N. Bauer
-----------------------------------------
Print Name: Ruth N. Bauer
---------------------------------
Title: Treasurer
--------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By: /s/ J. Garland Smith
-----------------------------------------
Print Name: J. Garland Smith
---------------------------------
Title: First Vice President
--------------------------------------
Page 3
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
CIG & Co.
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Metropolitan Life Insurance Company and Metropolitan Insurance and
Annuity Company (each, a "Series A Purchaser" and collectively, the "Series A
Purchasers") and Teachers Insurance and Annuity Association of America (the
"Series B Purchaser"), each dated as of July 26, 1996, as heretofore amended
(each, as amended, an "Agreement" and collectively, the "Agreements"), providing
for the issuance to the Series A Purchasers of the 7.85% Senior Notes due 2003
of the Company in the aggregate original principal amount of $25,000,000 (the
"Series A Notes"), and the issuance to the Series B Purchaser of the 8.07%
Senior Note due 2006 of the Company in the original principal amount of
$25,000,000 (the "Series B Note"). The addressees of this letter agreement
(collectively, the "Noteholders"), are the registered holders of 100% of the
aggregate outstanding principal amount of the Series A Notes and the Series B
Note (collectively, the "Notes") as reflected in the Note Register required to
be maintained by the Company pursuant to Section 10.1 of each of the Agreements,
and the Noteholders whose signatures are affixed below hold 100% of the
aggregate unpaid principal amount of the Notes outstanding as of the date
hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 6 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus
<PAGE>
0.50%; and from and after the Reduction Date each of the Notes shall bear
interest at a rate equal to the rate which would be borne by the Notes in the
absence of this paragraph, plus 0.25%. As used herein the term "Reduction Date"
shall mean the date on which (a) any unsecured indebtedness of the Company is
given a rating of BBB- or better by Standard & Poor's Rating Group, a division
of McGraw Hill, Inc., or Baa3 or better by Moody's Investors Service, Inc., or
BBB- or better by Fitch IBCA, and (b) each holder of Notes shall have been
furnished with a copy of a letter from the relevant rating agency or other
evidence reasonably satisfactory to it of such rating.
2. MATURITY OF SERIES B NOTE. Notwithstanding anything to the contrary
in the Agreements or in the Series B Note, the Series B Note shall mature on
November 26, 2004. All other provisions of the Agreements and the Series B Note
regarding the payment of principal on the Series B Note shall remain unchanged.
3. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 3 set forth,
such amendments to become effective as provided in paragraph 6 hereof:
(a) Section 1.1 (a) of the Agreements is amended by (i) deleting the
phrase "the rate of 7.85% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-1)"; and (ii)
deleting the phrase "the rate of 9.85% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-1)".
(b) Section 1.1 (b) of the Agreements is amended by (i) deleting the
phrase "the rate of 8.07% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-2)"; (ii)
deleting the phrase "the rate of 10.07% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-2)"; and (iii) changing the reference to "November 26, 2006" in clause (iii)
thereof to "November 26, 2004".
(c) Section 3.1(b) of the Agreements is amended by (i) changing the
reference to "2001 through 2005" in the first sentence thereof to "2001 through
2003" and (ii) changing the reference to "November 26, 2006" in the penultimate
sentence thereof to "November 26, 2004".
(d) Section 6.2(a) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that for Determination Dates with respect to 1999 fiscal
quarters, the percentage set forth above shall be 120% for the first 1999
fiscal quarter, 80% for the second 1999 fiscal quarter, 105% for the third
1999 fiscal quarter and 140% for the final 1999 fiscal quarter.
(e) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
-2-
<PAGE>
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate principal amount at any one time outstanding not exceeding
$1,500,000; (B) Funded Debt or Current Debt under a working capital line in
an aggregate principal amount at any one time outstanding not exceeding
$50,000,000 (the "Working Capital Facility") which may be secured by Liens
permitted by Section 6.4(m); and (C) Funded Debt in connection with the
South Dakota Revolving Economic Development & Initiative ("REDI") Fund in
an aggregate principal amount at any one time outstanding not exceeding
$1,500,000 which may be secured by Liens permitted by Section 6.4(l);
(f) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(i)(iii), substituting a semicolon for the period
at the end of Section 6.4(j) and adding the following new paragraphs immediately
following Section 6.4(j):
(k) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.46% Senior Notes due 2004 issued pursuant to Note Purchase
Agreements, dated as of April 20, 1994, as amended, between the Company and
the institutional investors identified therein (the interest rate on which
Senior Notes has been increased pursuant to an amendment to said Note
Purchase Agreements), and not securing any other indebtedness or
obligations of the Company or any Subsidiary;
(l) Liens securing Funded Debt in connection with the South Dakota
REDI Fund permitted by Section 6.3(a)(iii)(C) on production equipment of
the Company located in South Dakota having a book value at the time of the
creation or incurrence of such Liens, as determined in good faith by the
Company, not exceeding 250% of the aggregate principal amount of such
Funded Debt secured thereby; provided that, no such Lien shall at any time
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(m) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility, provided that, (i) no such
Lien shall at any time
-3-
<PAGE>
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than Working Capital Collateral, and (ii) in the event
that any such Lien on Working Capital Collateral which is created as
permitted by this subdivision (m) shall thereafter be discharged, no
further Lien on Working Capital Collateral may be created pursuant to this
subdivision (m).
(g) Section 6.10 of each of the Agreements is amended by restating clause
(i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(h) The definition of "Coverage Period" in each of the Agreements is
amended by changing the date "1998" where it appears therein to "1999."
(i) Exhibits A-1 and A-2 to the Agreements are amended by restating such
exhibits in their entirety as set forth in Exhibits A and B to this Amendment.
4. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.46% Senior
Notes due 2004 issued pursuant to several separate Note Purchase Agreements,
dated as of April 20, 1994, as amended (the "1994 Agreements"; and said Senior
Notes, as amended, the "1994 Notes"), between the Company and the respective
institutional investors identified therein, and in order to secure the payment
of principal, interest and other amounts owing under or in respect of the Notes,
the 1994 Notes, the Agreements and the 1994 Agreements and the performance and
observance by the Company of its obligations pursuant to the Notes, the 1994
Notes, the Agreements and the 1994 Agreements, the Company will, on or prior to
January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1994 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto (collectively, the "Mortgaged Properties"), such
Trust Agreement and Mortgages to be reasonably satisfactory in form and
substance to the Noteholders and their special counsel;
-4-
<PAGE>
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1994 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1994 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments;
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of paragraph
5 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 4,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and the Mortgages shall provide for the release, at the Company's
expense, of unimproved portions of the Mortgaged Properties in connection with
the development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
-5-
<PAGE>
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 3(e) of this Amendment.
5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1994 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 4 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 4 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1994
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged
-6-
<PAGE>
Properties are subject only to (i) liens for taxes, assessments and similar
charges the payment of which is not currently due or the payment of which is not
at the time required by Section 6.16 of the Agreements, (ii) easements,
rights-of-way, servitudes, permits, exceptions, reservations and similar
encumbrances incurred in the ordinary course of business and not interfering in
any material respect with the ordinary conduct of the business of the Company
conducted thereon, and (iii) liens of mechanics, materialmen, carriers,
warehousemen, suppliers or vendors incurred in the ordinary course of business
for sums which are either not yet due, or the payment of which is not at the
time required by Section 6.16 of the Agreements, or for which such reserve or
other appropriate provisions as are required by GAAP have been made. A Mortgage
and Security Agreement between Hutchinson Industrial Corporation and National
City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is recorded as
an encumbrance with respect to the Mortgaged Property located in Hutchinson,
Minnesota, but the indebtedness such Mortgage and Security Agreement secured has
been refinanced and is not subject to such Mortgage. The Company covenants and
agrees that, on or before January 31, 1999, it will obtain and record a
Satisfaction of said Mortgage and Security Agreement. There are no currently
effective leases or occupancy agreements relating to any of the Mortgaged
Properties or any part thereof or any commitments to enter into any such lease
or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees,
-7-
<PAGE>
authorizations, directions and requirements of all Governmental Bodies which are
applicable to the Mortgaged Properties or any part thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect, and (ii) all terms of any insurance
policy covering or applicable to the Mortgaged Properties or any part thereof,
all requirements of the issuer of any such policy, and all orders, rules,
regulations and requirements of the National Board of Fire Underwriters
applicable to or affecting the Mortgaged Properties or any part thereof or any
use or condition thereof, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. The Company (i) has procured and is in compliance with all
permits, licenses and other authorizations necessary in any material respect for
any use of the Mortgaged Properties now being made and for the proper erection,
installation, operation and maintenance of any and all improvements on the
Mortgaged Properties and (ii) is in compliance with all instruments of record
and currently in force affecting the Mortgaged Properties or any part thereof,
to the extent noncompliance with any such permits, licenses, authorizations or
instruments of record would, individually or in the aggregate, cause or permit a
reversion or forfeiture of the Mortgaged Properties or would have a Material
Adverse Effect on the right, title or interest of the Company in and to the
Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
6. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
(b) the representations and warranties of the Company set forth in
paragraph 5 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be
-8-
<PAGE>
continuing; and the Noteholders shall have received an Officers' Certificate of
the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 5
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 5 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
7. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment in the
case of Series A Notes and in the form of Exhibit B hereto in the case of the
Series B Note. Each such new Note shall be made payable to and registered in
the name of such surrendering Noteholder.
8. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 4 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 4, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
---------------------------------
Its CFO
------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
---------------------------------
Its Director-Private Placements
------------------------------
CIG & CO.
By /s/ James R. Kuzemchak
---------------------------------
Its Partner
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
CIG & Co.
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Metropolitan Life Insurance Company and Metropolitan Insurance and
Annuity Company (each, a "Series A Purchaser" and collectively, the "Series A
Purchasers") and Teachers Insurance and Annuity Association of America (the
"Series B Purchaser"), each dated as of July 26, 1996, as heretofore amended
(each, as amended, an "Agreement" and collectively, the "Agreements"), providing
for the issuance to the Series A Purchasers of the 7.85% Senior Notes due 2003
of the Company in the aggregate original principal amount of $25,000,000 (the
"Series A Notes"), and the issuance to the Series B Purchaser of the 8.07%
Senior Note due 2006 of the Company in the original principal amount of
$25,000,000 (the "Series B Note"). The addressees of this letter agreement
(collectively, the "Noteholders"), are the registered holders of 100% of the
aggregate outstanding principal amount of the Series A Notes and the Series B
Note (collectively, the "Notes") as reflected in the Note Register required to
be maintained by the Company pursuant to Section 10.1 of each of the Agreements,
and the Noteholders whose signatures are affixed below hold 100% of the
aggregate unpaid principal amount of the Notes outstanding as of the date
hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 6 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus
<PAGE>
0.50%; and from and after the Reduction Date each of the Notes shall bear
interest at a rate equal to the rate which would be borne by the Notes in the
absence of this paragraph, plus 0.25%. As used herein the term "Reduction Date"
shall mean the date on which (a) any unsecured indebtedness of the Company is
given a rating of BBB- or better by Standard & Poor's Rating Group, a division
of McGraw Hill, Inc., or Baa3 or better by Moody's Investors Service, Inc., or
BBB- or better by Fitch IBCA, and (b) each holder of Notes shall have been
furnished with a copy of a letter from the relevant rating agency or other
evidence reasonably satisfactory to it of such rating.
2. MATURITY OF SERIES B NOTE. Notwithstanding anything to the contrary
in the Agreements or in the Series B Note, the Series B Note shall mature on
November 26, 2004. All other provisions of the Agreements and the Series B Note
regarding the payment of principal on the Series B Note shall remain unchanged.
3. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 3 set forth,
such amendments to become effective as provided in paragraph 6 hereof:
(a) Section 1.1 (a) of the Agreements is amended by (i) deleting the
phrase "the rate of 7.85% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-1)"; and (ii)
deleting the phrase "the rate of 9.85% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-1)".
(b) Section 1.1 (b) of the Agreements is amended by (i) deleting the
phrase "the rate of 8.07% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-2)"; (ii)
deleting the phrase "the rate of 10.07% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-2)"; and (iii) changing the reference to "November 26, 2006" in clause (iii)
thereof to "November 26, 2004".
(c) Section 3.1(b) of the Agreements is amended by (i) changing the
reference to "2001 through 2005" in the first sentence thereof to "2001 through
2003" and (ii) changing the reference to "November 26, 2006" in the penultimate
sentence thereof to "November 26, 2004".
(d) Section 6.2(a) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that for Determination Dates with respect to 1999 fiscal
quarters, the percentage set forth above shall be 120% for the first 1999
fiscal quarter, 80% for the second 1999 fiscal quarter, 105% for the third
1999 fiscal quarter and 140% for the final 1999 fiscal quarter.
(e) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
-2-
<PAGE>
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate principal amount at any one time outstanding not exceeding
$1,500,000; (B) Funded Debt or Current Debt under a working capital line in
an aggregate principal amount at any one time outstanding not exceeding
$50,000,000 (the "Working Capital Facility") which may be secured by Liens
permitted by Section 6.4(m); and (C) Funded Debt in connection with the
South Dakota Revolving Economic Development & Initiative ("REDI") Fund in
an aggregate principal amount at any one time outstanding not exceeding
$1,500,000 which may be secured by Liens permitted by Section 6.4(l);
(f) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(i)(iii), substituting a semicolon for the period
at the end of Section 6.4(j) and adding the following new paragraphs immediately
following Section 6.4(j):
(k) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.46% Senior Notes due 2004 issued pursuant to Note Purchase
Agreements, dated as of April 20, 1994, as amended, between the Company and
the institutional investors identified therein (the interest rate on which
Senior Notes has been increased pursuant to an amendment to said Note
Purchase Agreements), and not securing any other indebtedness or
obligations of the Company or any Subsidiary;
(l) Liens securing Funded Debt in connection with the South Dakota
REDI Fund permitted by Section 6.3(a)(iii)(C) on production equipment of
the Company located in South Dakota having a book value at the time of the
creation or incurrence of such Liens, as determined in good faith by the
Company, not exceeding 250% of the aggregate principal amount of such
Funded Debt secured thereby; provided that, no such Lien shall at any time
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(m) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility, provided that, (i) no such
Lien shall at any time
-3-
<PAGE>
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than Working Capital Collateral, and (ii) in the event
that any such Lien on Working Capital Collateral which is created as
permitted by this subdivision (m) shall thereafter be discharged, no
further Lien on Working Capital Collateral may be created pursuant to this
subdivision (m).
(g) Section 6.10 of each of the Agreements is amended by restating clause
(i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(h) The definition of "Coverage Period" in each of the Agreements is
amended by changing the date "1998" where it appears therein to "1999."
(i) Exhibits A-1 and A-2 to the Agreements are amended by restating such
exhibits in their entirety as set forth in Exhibits A and B to this Amendment.
4. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.46% Senior
Notes due 2004 issued pursuant to several separate Note Purchase Agreements,
dated as of April 20, 1994, as amended (the "1994 Agreements"; and said Senior
Notes, as amended, the "1994 Notes"), between the Company and the respective
institutional investors identified therein, and in order to secure the payment
of principal, interest and other amounts owing under or in respect of the Notes,
the 1994 Notes, the Agreements and the 1994 Agreements and the performance and
observance by the Company of its obligations pursuant to the Notes, the 1994
Notes, the Agreements and the 1994 Agreements, the Company will, on or prior to
January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1994 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto (collectively, the "Mortgaged Properties"), such
Trust Agreement and Mortgages to be reasonably satisfactory in form and
substance to the Noteholders and their special counsel;
-4-
<PAGE>
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1994 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1994 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments;
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of paragraph
5 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 4,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and the Mortgages shall provide for the release, at the Company's
expense, of unimproved portions of the Mortgaged Properties in connection with
the development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
-5-
<PAGE>
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 3(e) of this Amendment.
5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1994 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 4 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 4 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1994
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged
-6-
<PAGE>
Properties are subject only to (i) liens for taxes, assessments and similar
charges the payment of which is not currently due or the payment of which is not
at the time required by Section 6.16 of the Agreements, (ii) easements,
rights-of-way, servitudes, permits, exceptions, reservations and similar
encumbrances incurred in the ordinary course of business and not interfering in
any material respect with the ordinary conduct of the business of the Company
conducted thereon, and (iii) liens of mechanics, materialmen, carriers,
warehousemen, suppliers or vendors incurred in the ordinary course of business
for sums which are either not yet due, or the payment of which is not at the
time required by Section 6.16 of the Agreements, or for which such reserve or
other appropriate provisions as are required by GAAP have been made. A Mortgage
and Security Agreement between Hutchinson Industrial Corporation and National
City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is recorded as
an encumbrance with respect to the Mortgaged Property located in Hutchinson,
Minnesota, but the indebtedness such Mortgage and Security Agreement secured has
been refinanced and is not subject to such Mortgage. The Company covenants and
agrees that, on or before January 31, 1999, it will obtain and record a
Satisfaction of said Mortgage and Security Agreement. There are no currently
effective leases or occupancy agreements relating to any of the Mortgaged
Properties or any part thereof or any commitments to enter into any such lease
or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees,
-7-
<PAGE>
authorizations, directions and requirements of all Governmental Bodies which are
applicable to the Mortgaged Properties or any part thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect, and (ii) all terms of any insurance
policy covering or applicable to the Mortgaged Properties or any part thereof,
all requirements of the issuer of any such policy, and all orders, rules,
regulations and requirements of the National Board of Fire Underwriters
applicable to or affecting the Mortgaged Properties or any part thereof or any
use or condition thereof, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. The Company (i) has procured and is in compliance with all
permits, licenses and other authorizations necessary in any material respect for
any use of the Mortgaged Properties now being made and for the proper erection,
installation, operation and maintenance of any and all improvements on the
Mortgaged Properties and (ii) is in compliance with all instruments of record
and currently in force affecting the Mortgaged Properties or any part thereof,
to the extent noncompliance with any such permits, licenses, authorizations or
instruments of record would, individually or in the aggregate, cause or permit a
reversion or forfeiture of the Mortgaged Properties or would have a Material
Adverse Effect on the right, title or interest of the Company in and to the
Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
6. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
(b) the representations and warranties of the Company set forth in
paragraph 5 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be
-8-
<PAGE>
continuing; and the Noteholders shall have received an Officers' Certificate of
the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 5
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 5 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
7. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment in the
case of Series A Notes and in the form of Exhibit B hereto in the case of the
Series B Note. Each such new Note shall be made payable to and registered in
the name of such surrendering Noteholder.
8. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 4 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 4, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
---------------------------------
Its CFO
------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
---------------------------------
Its Director-Private Placements
------------------------------
CIG & CO.
By /s/ James R. Kuzemchak
---------------------------------
Its Partner
<PAGE>
Dated as of December 16, 1998
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
CIG & Co.
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Ladies and Gentlemen:
Reference is made to those certain Note Purchase Agreements between
Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), and
each of Metropolitan Life Insurance Company and Metropolitan Insurance and
Annuity Company (each, a "Series A Purchaser" and collectively, the "Series A
Purchasers") and Teachers Insurance and Annuity Association of America (the
"Series B Purchaser"), each dated as of July 26, 1996, as heretofore amended
(each, as amended, an "Agreement" and collectively, the "Agreements"), providing
for the issuance to the Series A Purchasers of the 7.85% Senior Notes due 2003
of the Company in the aggregate original principal amount of $25,000,000 (the
"Series A Notes"), and the issuance to the Series B Purchaser of the 8.07%
Senior Note due 2006 of the Company in the original principal amount of
$25,000,000 (the "Series B Note"). The addressees of this letter agreement
(collectively, the "Noteholders"), are the registered holders of 100% of the
aggregate outstanding principal amount of the Series A Notes and the Series B
Note (collectively, the "Notes") as reflected in the Note Register required to
be maintained by the Company pursuant to Section 10.1 of each of the Agreements,
and the Noteholders whose signatures are affixed below hold 100% of the
aggregate unpaid principal amount of the Notes outstanding as of the date
hereof.
The Company has informed the Noteholders that it desires to amend the
Agreements in certain respects as of the date hereof, and the Noteholders have
agreed to such amendments as more fully described below in this letter agreement
("this Amendment").
Now, therefore, the Company and the Noteholders (by their acceptance
hereof) hereby agree as follows:
1. INTEREST RATE CHANGE. Notwithstanding anything to the contrary in the
Agreements or the Notes, from and after the Effective Date (as defined in
paragraph 6 below) and until the Reduction Date (as defined below) each of the
Notes shall bear interest at a rate equal to the rate which would be borne by
the Notes in the absence of this paragraph, plus
<PAGE>
0.50%; and from and after the Reduction Date each of the Notes shall bear
interest at a rate equal to the rate which would be borne by the Notes in the
absence of this paragraph, plus 0.25%. As used herein the term "Reduction Date"
shall mean the date on which (a) any unsecured indebtedness of the Company is
given a rating of BBB- or better by Standard & Poor's Rating Group, a division
of McGraw Hill, Inc., or Baa3 or better by Moody's Investors Service, Inc., or
BBB- or better by Fitch IBCA, and (b) each holder of Notes shall have been
furnished with a copy of a letter from the relevant rating agency or other
evidence reasonably satisfactory to it of such rating.
2. MATURITY OF SERIES B NOTE. Notwithstanding anything to the contrary
in the Agreements or in the Series B Note, the Series B Note shall mature on
November 26, 2004. All other provisions of the Agreements and the Series B Note
regarding the payment of principal on the Series B Note shall remain unchanged.
3. AMENDMENTS.
The Agreements will be amended as hereafter in this paragraph 3 set forth,
such amendments to become effective as provided in paragraph 6 hereof:
(a) Section 1.1 (a) of the Agreements is amended by (i) deleting the
phrase "the rate of 7.85% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-1)"; and (ii)
deleting the phrase "the rate of 9.85% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-1)".
(b) Section 1.1 (b) of the Agreements is amended by (i) deleting the
phrase "the rate of 8.07% per annum" in clause (i) thereof and inserting in lieu
thereof the phrase "the Interest Rate (as defined in Exhibit A-2)"; (ii)
deleting the phrase "the rate of 10.07% per annum" in said clause (i) and
inserting in lieu thereof the phrase "the Overdue Rate (as defined in Exhibit
A-2)"; and (iii) changing the reference to "November 26, 2006" in clause (iii)
thereof to "November 26, 2004".
(c) Section 3.1(b) of the Agreements is amended by (i) changing the
reference to "2001 through 2005" in the first sentence thereof to "2001 through
2003" and (ii) changing the reference to "November 26, 2006" in the penultimate
sentence thereof to "November 26, 2004".
(d) Section 6.2(a) of each of the Agreements is amended by adding the
following before the period at the end thereof:
; provided that for Determination Dates with respect to 1999 fiscal
quarters, the percentage set forth above shall be 120% for the first 1999
fiscal quarter, 80% for the second 1999 fiscal quarter, 105% for the third
1999 fiscal quarter and 140% for the final 1999 fiscal quarter.
(e) Section 6.3(a)(iii) of each of the Agreements is amended by restating
such section in its entirety as follows:
-2-
<PAGE>
(iii) the Company may become and remain liable in respect of (A)
unsecured Funded Debt in accordance with the terms of the Credit Agreement
in an aggregate principal amount at any one time outstanding not exceeding
$1,500,000; (B) Funded Debt or Current Debt under a working capital line in
an aggregate principal amount at any one time outstanding not exceeding
$50,000,000 (the "Working Capital Facility") which may be secured by Liens
permitted by Section 6.4(m); and (C) Funded Debt in connection with the
South Dakota Revolving Economic Development & Initiative ("REDI") Fund in
an aggregate principal amount at any one time outstanding not exceeding
$1,500,000 which may be secured by Liens permitted by Section 6.4(l);
(f) Section 6.4 of each of the Agreements is amended by deleting the word
"and" at the end of Section 6.4(i)(iii), substituting a semicolon for the period
at the end of Section 6.4(j) and adding the following new paragraphs immediately
following Section 6.4(j):
(k) Liens securing, on an equal and ratable basis, the Notes and the
Company's 7.46% Senior Notes due 2004 issued pursuant to Note Purchase
Agreements, dated as of April 20, 1994, as amended, between the Company and
the institutional investors identified therein (the interest rate on which
Senior Notes has been increased pursuant to an amendment to said Note
Purchase Agreements), and not securing any other indebtedness or
obligations of the Company or any Subsidiary;
(l) Liens securing Funded Debt in connection with the South Dakota
REDI Fund permitted by Section 6.3(a)(iii)(C) on production equipment of
the Company located in South Dakota having a book value at the time of the
creation or incurrence of such Liens, as determined in good faith by the
Company, not exceeding 250% of the aggregate principal amount of such
Funded Debt secured thereby; provided that, no such Lien shall at any time
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than (i) such production equipment on which it was
originally imposed (and proceeds thereof) (the "South Dakota Collateral"),
or (ii) production equipment substituted for production equipment included
in the South Dakota Collateral (or other equipment previously substituted
therefor as permitted by this clause (ii)) so long as, concurrently with
any such substitution, the equipment for which such substitution is made
shall be released from such Lien and, after giving effect to any such
substitution, the aggregate book value of all equipment subject to such
Lien shall not exceed 250% of the aggregate principal amount of the Funded
Debt secured thereby; and
(m) Liens on inventory and receivables of the Company and its
Subsidiaries, and proceeds thereof and records and software related thereto
(collectively, "Working Capital Collateral") securing Debt of the Company
incurred under the Working Capital Facility, provided that, (i) no such
Lien shall at any time
-3-
<PAGE>
extend to or cover any property or asset of the Company or any of its
Subsidiaries other than Working Capital Collateral, and (ii) in the event
that any such Lien on Working Capital Collateral which is created as
permitted by this subdivision (m) shall thereafter be discharged, no
further Lien on Working Capital Collateral may be created pursuant to this
subdivision (m).
(g) Section 6.10 of each of the Agreements is amended by restating clause
(i) thereof in its entirety to read as follows:
(i) the aggregate amount of all Long Term Lease Rentals for which the
Company and its Subsidiaries shall be liable in any one fiscal year
(including the then current and each future fiscal year) under all Long
Term Leases shall not exceed 10% of Consolidated Net Worth as at the end of
the then most recently completed fiscal quarter of the Company for each
fiscal quarter other than 1999 and 2000 fiscal quarters, and 15% of
Consolidated Net Worth as at the end of the then most recently completed
fiscal quarter of the Company for each 1999 and 2000 fiscal quarter, and
(h) The definition of "Coverage Period" in each of the Agreements is
amended by changing the date "1998" where it appears therein to "1999."
(i) Exhibits A-1 and A-2 to the Agreements are amended by restating such
exhibits in their entirety as set forth in Exhibits A and B to this Amendment.
4. SECURITY. In order to induce the Noteholders to enter into this
Amendment and consent and agree to the amendments to the Agreements and the
Notes provided for herein, the Company covenants and agrees that, for the equal
and ratable benefit and security of the Notes and the Company's 7.46% Senior
Notes due 2004 issued pursuant to several separate Note Purchase Agreements,
dated as of April 20, 1994, as amended (the "1994 Agreements"; and said Senior
Notes, as amended, the "1994 Notes"), between the Company and the respective
institutional investors identified therein, and in order to secure the payment
of principal, interest and other amounts owing under or in respect of the Notes,
the 1994 Notes, the Agreements and the 1994 Agreements and the performance and
observance by the Company of its obligations pursuant to the Notes, the 1994
Notes, the Agreements and the 1994 Agreements, the Company will, on or prior to
January 31, 1999:
(a) enter into (i) a collateral agency or trust agreement for the benefit
of the holders from time to time of the Notes and the 1994 Notes ("Trust
Agreement") with a commercial bank or trust company ("Trustee") reasonably
satisfactory to the Noteholders; and (ii) mortgages or deeds of trust
(collectively, the "Mortgages") in favor or for the benefit of such Trustee with
respect to real property owned by the Company and located in Sioux Falls, South
Dakota, Eau Claire, Wisconsin and Hutchinson, Minnesota, more particularly
described on Schedule A hereto (collectively, the "Mortgaged Properties"), such
Trust Agreement and Mortgages to be reasonably satisfactory in form and
substance to the Noteholders and their special counsel;
-4-
<PAGE>
(b) furnish to the Noteholders and the Trustee copies of surveys of the
Mortgaged Properties and title reports in respect thereof, all acceptable in
form and detail to the Noteholders and their special counsel and if requested by
Noteholders holding not less than 66 2/3% in aggregate principal amount of the
Notes at the time outstanding, mortgage title policies in form and substance
satisfactory to the Noteholders and containing such endorsements as the
Noteholders may reasonably request;
(c) procure such property and general liability insurance relating to the
Mortgaged Properties, naming the Noteholders, the holders of the 1994 Notes and
the Trustee as additional insureds or loss payee, as appropriate, as is
customary for real estate secured financings with institutional investors
comparable to the Noteholders;
(d) cause to be furnished to each Noteholder and the Trustee an opinion or
opinions of counsel concerning such legal matters relating to the Trust
Agreement, the Mortgages and the transactions contemplated thereby as such
Noteholder or the Trustee may reasonably request;
(e) cause the Mortgages, and all other instruments and documents
(including financing statements) as shall be necessary or appropriate for the
purpose, to be duly recorded, published, registered and filed in such manner and
in such places as shall be required by law to establish, perfect, preserve and
protect the Mortgages as direct first mortgage or deed of trust liens in favor
of the Trustee for the benefit of the Notes and the 1994 Notes, and pay all
taxes, fees and other charges as shall be payable in connection with the
execution, delivery, recording, publishing, registration and filing of such
instruments;
(f) at the time of execution and delivery of the Mortgages, furnish an
Officers' Certificate to each Noteholder to the effect that each of the
representations and warranties set forth in clauses (d) through (h) of paragraph
5 of this Amendment are true and correct;
(g) furnish to each Noteholder and the Trustee environmental site
assessments concerning the Mortgaged Properties, prepared by independent
environmental consultants, which shall be satisfactory in form and substance to
the Noteholders and the Trustee; and
(h) furnish to the Noteholders and their special counsel all such
documents and papers relating to proceedings taken in connection with the
authorization and consummation of the matters contemplated by this paragraph 4,
all in form and substance reasonably satisfactory to the Noteholders and their
special counsel, as the Noteholders or such special counsel may reasonably
request.
The Company acknowledges and agrees that its failure to comply with the
foregoing covenant and agreement on or prior to January 31, 1999 shall
constitute an Event of Default under each of the Agreements for all purposes
thereof, with the same force and effect as if set forth in full as an Event of
Default in Section 8.1 of the Agreements. It is acknowledged that (i) the Trust
Agreement and the Mortgages shall provide for the release, at the Company's
expense, of unimproved portions of the Mortgaged Properties in connection with
the development and financing, including a sale leaseback transaction, of new
facilities or expansions of existing facilities, by the Company, and (ii)
-5-
<PAGE>
pursuant to the Trust Agreement and the Mortgages, the liens of the Mortgages
shall be subject to release and discharge, at the Company's expense, upon the
permanent release and discharge of any and all liens securing the Working
Capital Facility referred to in paragraph 3(e) of this Amendment.
5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
and covenants to and for the benefit of the Noteholders as follows:
(a) The execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (i) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (ii) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (A) any Governmental Body, or (B) except as set forth below, any
other Person, and (iii) after giving effect to the simultaneous amendment of the
1994 Agreements, do not and will not, except as set forth below, (A) violate
(1) any provision of any law, statute, rule or regulation or of the articles of
incorporation or by-laws of the Company, (2) any Order of any court,
administrative body or arbitrator or any rule, regulation or Order of any
Governmental Body binding upon the Company or any of its properties, or (3) any
provision of any loan or credit agreement, indenture, mortgage or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are or may be bound, or (B) result in any breach of or constitute
(alone or with notice or lapse of time or both) a default under any such loan or
credit agreement, indenture, mortgage or other agreement or instrument.
Compliance by the Company with the provisions of paragraph 4 of this Amendment
would violate the terms of the Credit Agreement. The Company covenants and
agrees that (I) on or before January 31, 1999 it will either (x) obtain an
amendment or waiver of all terms of the Credit Agreement which would be so
violated or (y) terminate the Credit Agreement, and (II) until such time as the
Company shall have complied in full with paragraph 4 hereof it will not effect
any borrowing under the Credit Agreement or permit any borrowing to remain
outstanding thereunder; provided that, a Facility Letter of Credit (as defined
in the Credit Agreement) in an amount not exceeding $1,500,000 issued under the
Credit Agreement, and any reimbursements for drafts drawn thereunder, shall not
be deemed "borrowings" for purposes of this clause (II).
(b) This Amendment, and the Agreements and the Notes as amended hereby,
constitute the legal, valid and binding obligations and agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) As of the date hereof, and after giving effect to the amendments to
the Agreements effected by this Amendment and to the amendments to the 1994
Agreements effected by a letter agreement delivered simultaneously herewith, no
Default or Event of Default has occurred and is continuing under and within the
meaning of the Agreements.
(d) The Company has good and marketable title to, and is lawfully seized
and possessed of, all of the Mortgaged Properties, and, except as set forth
below, such Mortgaged
-6-
<PAGE>
Properties are subject only to (i) liens for taxes, assessments and similar
charges the payment of which is not currently due or the payment of which is not
at the time required by Section 6.16 of the Agreements, (ii) easements,
rights-of-way, servitudes, permits, exceptions, reservations and similar
encumbrances incurred in the ordinary course of business and not interfering in
any material respect with the ordinary conduct of the business of the Company
conducted thereon, and (iii) liens of mechanics, materialmen, carriers,
warehousemen, suppliers or vendors incurred in the ordinary course of business
for sums which are either not yet due, or the payment of which is not at the
time required by Section 6.16 of the Agreements, or for which such reserve or
other appropriate provisions as are required by GAAP have been made. A Mortgage
and Security Agreement between Hutchinson Industrial Corporation and National
City Bank of Minneapolis, as Trustee, dated as of June 1, 1979, is recorded as
an encumbrance with respect to the Mortgaged Property located in Hutchinson,
Minnesota, but the indebtedness such Mortgage and Security Agreement secured has
been refinanced and is not subject to such Mortgage. The Company covenants and
agrees that, on or before January 31, 1999, it will obtain and record a
Satisfaction of said Mortgage and Security Agreement. There are no currently
effective leases or occupancy agreements relating to any of the Mortgaged
Properties or any part thereof or any commitments to enter into any such lease
or occupancy agreements.
(e) The Company holds and at all times heretofore the Company has held all
Environmental Permits required under all Environmental Laws currently in effect
applicable to the Mortgaged Properties or any of them, except to the extent
failure to have any such Environmental Permit has not had and will not have a
Material Adverse Effect; and the Company is and at all times heretofore the
Company has been in compliance with all terms and conditions of all such
Environmental Permits and all other limitations, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all Environmental Laws currently in effect applicable to the Mortgaged
Properties or any of them, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. Neither the Company nor, so far as is known to it, any
predecessor in interest to the Company in respect of any of the Mortgaged
Properties, has ever received from any Governmental Body or other Person any
notice of, and the Company has no knowledge of, any events, conditions or
circumstances that could prevent continued compliance in all material respects
with any Environmental Permits referred to in the preceding sentence or any
scheduled renewals thereof or any Environmental Laws currently in effect
applicable to the Mortgaged Properties or the Company's operations thereon, or
that could give rise to any liability on the part of the Company or form the
basis of any Environmental Claims involving the Mortgaged Properties or the
Company's operations thereon based on or related to (i) a violation of any
applicable Environmental Law currently in effect or (ii) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment of, any
Hazardous Substance in violation of any applicable Environmental Laws currentl
in effect (other than liabilities and Environmental Claims that have not had and
will not have, in any one case or in the aggregate, a Material Adverse Effect).
(f) The Mortgaged Properties and the Company's use and operation thereof
are in compliance in with (i) all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees,
-7-
<PAGE>
authorizations, directions and requirements of all Governmental Bodies which are
applicable to the Mortgaged Properties or any part thereof, except to the extent
failure to comply therewith, in any one case or in the aggregate, has not had
and will not have a Material Adverse Effect, and (ii) all terms of any insurance
policy covering or applicable to the Mortgaged Properties or any part thereof,
all requirements of the issuer of any such policy, and all orders, rules,
regulations and requirements of the National Board of Fire Underwriters
applicable to or affecting the Mortgaged Properties or any part thereof or any
use or condition thereof, except to the extent failure to comply therewith, in
any one case or in the aggregate, has not had and will not have a Material
Adverse Effect. The Company (i) has procured and is in compliance with all
permits, licenses and other authorizations necessary in any material respect for
any use of the Mortgaged Properties now being made and for the proper erection,
installation, operation and maintenance of any and all improvements on the
Mortgaged Properties and (ii) is in compliance with all instruments of record
and currently in force affecting the Mortgaged Properties or any part thereof,
to the extent noncompliance with any such permits, licenses, authorizations or
instruments of record would, individually or in the aggregate, cause or permit a
reversion or forfeiture of the Mortgaged Properties or would have a Material
Adverse Effect on the right, title or interest of the Company in and to the
Mortgaged Properties.
(g) Schedule A accurately sets forth, opposite the description of each
Mortgaged Property thereon, (i) the original book value, and (ii) the current
assessed valuation for property tax purposes, of such Mortgaged Property.
(h) No taking, conveyance or sale of all or any part of any Mortgaged
Property or interest therein or right accruing thereto, as a result of, or in
lieu or anticipation of the exercise of the right of appropriation,
confiscation, condemnation or eminent domain, or any change of grade affecting
any Mortgaged Property (any such taking, conveyance or sale, and any such change
of grade, a "Taking") has occurred and no proceedings or negotiations have
commenced which might result in any Taking. No damage to or loss or destruction
of any Mortgaged Property has occurred other than (i) any such damage, loss or
destruction which has been fully restored and in respect of which all costs of
restoration have been paid in full and (ii) damage, loss and destruction as to
which the costs of full restoration as estimated in good faith by the Company,
do not exceed $200,000 in the aggregate for any one Mortgaged Property.
6. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. The amendments to the
Agreements provided for in this Amendment shall not become effective until, and
shall become effective on, the date ("Effective Date") when, each and every one
of the following conditions shall have been satisfied:
(a) counterparts of this Amendment shall have been duly executed and
delivered by the Company and the holders of 100% in aggregate principal amount
of Notes at the time outstanding (as provided in Section 12(a) of the
Agreements);
(b) the representations and warranties of the Company set forth in
paragraph 5 of this Amendment shall be true and correct and no Default or Event
of Default shall have occurred and be
-8-
<PAGE>
continuing; and the Noteholders shall have received an Officers' Certificate of
the Company to the foregoing effect; and
(c) the Noteholders shall have received the favorable opinion of counsel
to the Company, dated the Effective Date, which opinion shall be in form and
substance satisfactory to the Noteholders, and shall be to the effects that
(i) the execution and delivery by the Company of this Amendment and the
performance by the Company of this Amendment and of the Agreements and the Notes
as amended hereby (A) have been duly authorized by all requisite corporate
action on the part of the Company (no action on the part of the shareholders of
the Company being required therefor), (B) after giving effect to the
simultaneous amendment of the 1994 Agreements, do not require the consent or
approval of (1) any Governmental Body, or (2) except as set forth in paragraph 5
above, to its knowledge, any other Person, (C) do not and will not, except as
set forth in paragraph 5 above, (1) violate (x) any provision of any applicable
law, statute, rule or regulation or of the articles of incorporation or by-laws
of the Company, (y) any Order known to such counsel of any court, administrative
body or arbitrator binding upon the Company or any of its properties or (z) any
provision of any material loan or credit agreement, indenture, mortgage or other
agreement or instrument known to such counsel to which the Company is a party or
by which it or any of its properties are or may be bound or (2) result in any
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such material loan or credit agreement, indenture, mortgage or
other agreement or instrument known to such counsel, and (ii) this Amendment,
and the Agreements and the Notes as amended hereby, constitute the legal, valid
and binding obligations and agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
7. EXCHANGE OF NOTES. At the request of any Noteholder holding a Note or
Notes, the Company will, at its expense, execute and deliver to such Noteholder,
in exchange for and upon surrender of such Note or Notes, a new Note or Notes,
as the case may be, in authorized denominations as requested by such Noteholder,
in the same aggregate unpaid principal amount or the aggregate unpaid principal
amount of the Note or Notes so surrendered, and of the same series as such
surrendered Note or Notes but in the form of Exhibit A to this Amendment in the
case of Series A Notes and in the form of Exhibit B hereto in the case of the
Series B Note. Each such new Note shall be made payable to and registered in
the name of such surrendering Noteholder.
8. MISCELLANEOUS. Except as specifically amended hereby, all terms and
provisions of each of the Agreements shall remain in full force and effect.
Without limiting the provisions of Section 15.1 of the Agreements, the Company
will (i) pay all expenses incurred by each Noteholder in connection with this
Amendment and the matters contemplated by paragraph 4 hereof, including the fees
and disbursements of special counsel for the Noteholders, (ii) pay, and save the
Noteholders harmless from and against, all costs and expenses incident to the
consummation of the matters described in paragraph 4, including, without
limitation, the fees and expenses of the Trustee, surveyor and title company
fees and recording fees. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
-9-
<PAGE>
together shall constitute one and the same instrument. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings assigned to
them by each of the Agreements.
-10-
<PAGE>
If you are in agreement with the foregoing, please so indicate by executing
the form of acknowledgment set forth below, whereupon this Amendment shall
become a binding agreement effective as of the date hereof.
Very truly yours,
HUTCHINSON TECHNOLOGY
INCORPORATED
By /s/ John A. Ingleman
---------------------------------
Its CFO
------------------------------
Agreed to and accepted as of
the date first above written.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Diane Hom
---------------------------------
Its Director-Private Placements
------------------------------
CIG & CO.
By /s/ James R. Kuzemchak
---------------------------------
Its Partner
<PAGE>
FINANCING AGREEMENT
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS AGENT),
THE LENDERS PARTY HERETO
(AS LENDERS)
AND
HUTCHINSON TECHNOLOGY INCORPORATED
(AS BORROWER)
DATED: DECEMBER 31, 1998
-----------------------------------
$50,000,000
-----------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3. Revolving Loans; Collections . . . . . . . . . . . . . . . . . 13
SECTION 4. [Intentionally Deleted]. . . . . . . . . . . . . . . . . . . .
SECTION 5. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7. Representations, Warranties and Covenants. . . . . . . . . . . 20
SECTION 8. Interest, Fees and Expenses. . . . . . . . . . . . . . . . . . 27
SECTION 9. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10. Events of Default and Remedies. . . . . . . . . . . . . . . . 30
SECTION 11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 13. Agreements Regarding the Lenders. . . . . . . . . . . . . . . 35
SECTION 14 Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
EXHIBITS
Exhibit A - Form of Assignment and Transfer Agreement
SCHEDULES
Schedule 1.1(a) - Permitted Foreign Account Debtors
Schedule 1.1(b) - Existing Funded Debt
Schedule 7.1(f) - Collateral Locations, Chief Executive Office and Tradenames
Schedule 7.7(c) - Environmental Matters
ii
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation with offices
located at 10 South LaSalle Street, Chicago, Illinois 60603 (hereinafter,
"CITBC"), any other entity becoming a Lender hereunder pursuant to Section 13.5
of this Agreement (CITBC and such other entities are referred to herein
individually as a "Lender" and collectively as the "Lenders"), and CITBC, in its
capacity as the Agent (the "Agent"), are pleased to confirm the terms and
conditions under which the Lenders, acting through the Agent, shall make
revolving loans and other financial accommodations to HUTCHINSON TECHNOLOGY
INCORPORATED (hereinafter, the "Company"), a Minnesota corporation with a
principal place of business at 40 West Highland Park, Hutchinson, Minnesota
55350.
SECTION 1. DEFINITIONS
1.1 For purposes of this Financing Agreement, the following terms shall be
defined in the following manner:
ACCEPTABLE FOREIGN CUSTOMERS shall mean the customers of the Company set
forth on SCHEDULE 1.1(a) attached hereto and all other customers of the Company
approved by the Agent in writing. For purposes of this Financing Agreement,
Yamaha Exporting, Inc. shall be deemed to be a foreign account debtor
notwithstanding the location of its chief executive office or principal place of
business.
ACCEPTABLE FOREIGN SUBSIDIARIES shall mean those Acceptable Foreign
Customers which are wholly-owned (directly or indirectly) of U.S. corporations
and are designated as "Acceptable Foreign Subsidiaries" on SCHEDULE 1.1(a)
attached hereto or in any other writing signed by the Agent.
ACCOUNTS shall mean all of the Company's now existing and future: (a)
accounts (as defined in the U.C.C.) and any and all other receivables (whether
or not specifically listed on schedules furnished to the Agent) including,
without limitation, all accounts created by or arising from all of the Company's
sale of goods or the rendition of services to its customers, and all accounts
arising from sales or rendition of services made under any of the Company's
trade names or styles, or through any of the Company's divisions; (b) any and
all instruments (as defined in the U.C.C.), documents (as defined in the
U.C.C.), contract rights (as defined in the U.C.C.) and chattel paper (as
defined in the U.C.C.), to the extent such items relate to the Company's sale of
goods or the rendition of services to its customers; (c) unpaid seller's rights
(including rescission, replevin, reclamation and stoppage in transit) relating
to the foregoing or arising therefrom; (d) rights to any goods represented by
any of the foregoing, including rights to returned or repossessed goods; (e)
reserves and credit balances arising hereunder; (f) guarantees or collateral for
any of the foregoing; (g) insurance policies or rights relating to any of the
foregoing; and (h) cash and non-cash proceeds of any and all the foregoing.
ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean eighty-five percent
(85%).
AGENT shall mean CITBC, solely in its capacity as Agent hereunder.
<PAGE>
AGENT'S BANK ACCOUNT shall have the meaning provided for in Section 3.4 of
this Financing Agreement.
ASSIGNMENT AND TRANSFER AGREEMENT shall mean an Assignment and Transfer
Agreement in the form attached hereto as EXHIBIT A.
ANNIVERSARY DATE shall mean, initially, the date occurring three (3) years
from the date hereof, and thereafter, the same date in each year subsequent
thereto.
AVAILABILITY shall mean at any time the excess of (a) the lesser of i) the
Line of Credit or ii) the Borrowing Base over (b) the sum of i) the outstanding
aggregate amount of all Obligations, ii) the Availability Reserve and iii) after
the occurrence of an Event of Default, all payments of the Company to the Agent
and the Lenders coming due within sixty (60) days from the date of computation.
AVAILABILITY RESERVE shall mean an amount equal to the sum of: (a) three
(3) months rental payments on all of the Company's leased premises for which the
Company has not delivered to the Agent a landlord's waiver in form and substance
satisfactory to the Agent, as adjusted from time to time hereafter upon delivery
to the Agent of any such waiver, the opening or closing of a Collateral location
or any change in rental payment; and (b) such other reserves as the Agent deems
necessary in its commercially reasonable judgment, including, without
limitation, reserves imposed as a result of i) negative forecasts and/or trends
in the Company's business, industry, prospects, profits, operations or financial
condition, or ii) other issues, circumstances or facts that could otherwise
negatively impact the Company, its business, prospects, profits, operations,
industry, financial condition or assets.
BLOCKED ACCOUNT AGREEMENT shall mean an agreement in form and substance
satisfactory to the Agent among the Company, the Agent and the financial
institution at which the Depository Account is maintained, regarding the control
of the Depository Account.
BORROWING BASE shall mean, subject to the second sentence of this
definition, the sum of (a) the outstanding Eligible Accounts Receivable of the
Company multiplied by the Accounts Receivable Advance Percentage, PLUS (b) the
lesser of i) the aggregate value of Eligible Inventory (as determined at the
lower of cost or market on a first-in, first-out basis determined in accordance
with GAAP) multiplied by the Inventory Advance Percentage or ii) $12,500,000.
For purposes of calculating the Borrowing Base, in no event shall (a) the
product of the outstanding Eligible Accounts Receivable of the Company owed by
Yamaha Exporting, Inc., Alps Electric Co., Ltd. and SAE Magnetics Ltd.
multiplied by the Accounts Receivable Advance Percentage, exceed $30,000,000 in
the aggregate or $15,000,000 individually, (b) the product of the outstanding
Eligible Accounts Receivable of the Company owed by all Acceptable Foreign
Customers (other than Acceptable Foreign Subsidiaries and Yamaha Exporting,
Inc., Alps Electric Co., Ltd. and SAE Magnetics Ltd.) multiplied by the Accounts
Receivable Advance Percentage, exceed ten percent
2
<PAGE>
(10%) of the product of all outstanding Eligible Accounts Receivable of the
Company (taking into account the limitations set forth in clause (a) above)
multiplied by the Accounts Receivable Advance Percentage, and (c) the product of
the outstanding Eligible Accounts Receivable of the Company owed by all
Acceptable Foreign Customers (other than Acceptable Foreign Subsidiaries)
multiplied by the Accounts Receivable Advance Percentage, exceed sixty percent
(60%) of the product of all outstanding Eligible Accounts Receivable of the
Company (taking into account the limitations set forth in clause (a) above)
multiplied by the Accounts Receivable Advance Percentage.
BUSINESS DAY shall mean any day on which the Agent, all Lenders, First
National Bank of Chicago and The Chase Manhattan Bank are open for business.
CHASE MANHATTAN RATE shall mean the rate of interest per annum announced by
The Chase Manhattan Bank in New York, New York from time to time as its prime
rate (The prime rate is not intended to be the lowest rate of interest charged
by The Chase Manhattan Bank to its customers.)
CLOSING DATE shall mean the date (on or after the date hereof) on which the
Lenders make the initial extension of credit to the Company hereunder, whether
in the form of Revolving Loans or Letters of Credit.
COLLATERAL shall mean all present and future Accounts, Inventory and Other
Collateral.
COLLATERAL MANAGEMENT FEE shall mean the sum of $25,000 which shall be paid
to the Agent, for its account, in accordance with Section 8.9 hereof, to offset
the expenses and costs of the Agent in connection with the Agent's record
keeping, periodic examinations and analyzing and evaluating the Collateral
(including, without limitation, all audits conducted by CIT other than those
conducted after the occurrence and during the continuance of an Event of
Default). The Collateral Management Fee shall not include the cost of appraisals
or evaluations of the Collateral conducted by independent appraisers which are
hired by the Agent when Availability is less than $10,000,000.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the
Company and its consolidated subsidiaries, if any, eliminating all inter-company
transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Company and each of its consolidated
subsidiaries, if any, showing all eliminations of inter-company transactions and
prepared in accordance with GAAP.
CUSTOMARILY PERMITTED LIENs shall mean: (a) liens of local or state
authorities for franchise or other like taxes provided the aggregate amount of
such liens shall not exceed $100,000 in the aggregate at any one time; (b)
statutory liens of landlords and liens of carriers, warehousemen, mechanics,
materialmen and other like liens imposed by law, created in the ordinary course
of business and for amounts not yet due (or which are being contested in good
faith by appropriate proceedings or other appropriate actions which are
sufficient to prevent imminent foreclosure of such
3
<PAGE>
liens) and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; and (c) deposits made
(and the liens thereon) in the ordinary course of business (including, without
limitation, security deposits for leases, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids,
contracts (other than for the repayment or guarantee of borrowed money or
purchase money obligations), statutory obligations and other similar obligations
arising as a result of progress payments under government contracts.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to
the sum of two and one-half percent (2.50%) above the Chase Manhattan Rate,
which the Agent and the Lenders shall be entitled to charge the Company on all
Obligations to the extent provided in Section 10.2 of this Financing Agreement.
DEPOSITORY ACCOUNT shall mean an account maintained by the Company (but in
the name of the Agent and the Company) and designated for the deposit of
proceeds of Collateral.
DOCUMENTATION FEES shall mean the Agent's standard fees relating to any and
all modifications, waivers, releases, amendments or additional collateral with
respect to this Financing Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined
in the U.C.C.) including, without limitation, all warehouse receipts, bills of
lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or non-negotiable, and all goods and Inventory relating
thereto and all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean any date prior to the initial Anniversary
Date on which the Company terminates this Financing Agreement or the Line of
Credit.
EARLY TERMINATION FEE shall: (a) mean the fee that the Lenders are entitled
to charge the Company in the event that the Company terminates the Line of
Credit and this Financing Agreement on an Early Termination Date in connection
with a refinancing of the Obligations with a credit facility provided by another
commercial lender that provides for loans and advances based upon a borrowing
base or any other formula calculated (in whole or in part) with reference to the
Company's accounts receivable or inventory; and (b) be equal to i) $500,000 if
such termination occurs prior to the date which is one (1) year following the
date hereof, ii) $250,000 if such termination occurs on or after the date which
is one (1) year following the date hereof but prior to the date which is two (2)
years following the date hereof, and iii) $125,000 if such termination occurs on
or after the date which is two (2) years following the date hereof but prior to
the initial Anniversary Date. No Early Termination Fee shall be due and
payable: (a) in the event that the
4
<PAGE>
Company terminates the Line of Credit and this Financing Agreement for any
reason other than in connection with a refinancing described in the preceding
sentence; or (b) even if such termination occurs in connection with a
refinancing described in the preceding sentence, in the event that the Company
terminates the Line of Credit and this Financing Agreement at any time after i)
CITBC resigns as (or otherwise ceases to remain) the sole Agent hereunder, ii)
CITBC ceases to hold a commitment equal to fifty-one percent (51%) or more of
the Line of Credit hereunder or iii) the Agent imposes x) reserves pursuant to
clause (b) of the definition of Availability Reserve or clause (b)(x) of the
definition of Eligible Accounts Receivable or y) any reserves against Eligible
Inventory, which when taken as a whole, reduce the Borrowing Base by fifty
percent (50%) or more of the amount of the Borrowing Base in existence prior to
the imposition of the first of such reserves.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's
Trade Accounts Receivable (including, without limitation, Trade Accounts
Receivable owed by Acceptable Foreign Customers) that are subject to a valid,
first priority and fully perfected security interest in favor of the Agent, for
the benefit of the Lenders, and which conform to the warranties contained herein
and at all times continue to be acceptable to the Agent in the exercise of its
reasonable business judgment, LESS, without duplication, the sum of (a) any
returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted or outstanding) and (b) reserves for: i) sales to the
United States of America or to any agency, department or division thereof; ii)
foreign sales other than sales x) to Acceptable Foreign Customers, to the extent
that such Accounts are payable in United States currency, or y) secured by
stand-by letters of credit (in form and substance reasonably satisfactory to the
Agent) issued or confirmed by, and payable at, banks having a place of business
in the United States of America and payable in United States currency; iii)
accounts that remain unpaid more than ninety (90) days from invoice date; iv)
contras; v) sales to any subsidiary of the Company, or to any company affiliated
with the Company or any subsidiary of the Company in any way; vi) bill and hold
(deferred shipment) or consignment sales; vii) sales to any customer which is
either w) insolvent, x) the debtor in any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law, y) negotiating, or has called a meeting of its creditors for purposes of
negotiating, a compromise of its debts or z) financially unacceptable to the
Agent in its reasonable credit judgment or has a credit rating unacceptable to
the Agent in its reasonable business judgment; viii) all sales to any customer
if fifty percent (50%) or more (twenty-five percent (25%) or more in the case of
Acceptable Foreign Customers) of either x) all outstanding invoices or y) the
aggregate dollar amount of all outstanding invoices, are unpaid more than ninety
(90) days from invoice date; ix) an amount representing, historically, returns,
discounts, claims, credits and allowances; and x) any other reasons deemed
necessary by the Agent in its reasonable business judgment.
ELIGIBLE INVENTORY shall mean the gross amount of Inventory held for sale
by the Company in the ordinary course of business and consisting of raw
materials and finished goods that (a) is subject to a valid, first priority and
fully perfected security interest in favor of the Agent, for the benefit of the
Lenders, (b) is not held on consignment and may be lawfully sold by the Company,
(c) conforms to the warranties contained herein and (d) at all times continues
to be acceptable to the Agent in the exercise of its reasonable business
judgment, LESS the value of Inventory not present in
5
<PAGE>
the United States of America, Inventory in transit, and any reserves against the
Company's Inventory established by the Agent in its reasonable business
judgment. Eligible Inventory shall not include Inventory in possession of a
warehouseman, bailee or other third party, unless such warehouseman, bailee or
third party has executed a notice of security interest agreement (in form and
substance satisfactory to the Agent) and the Agent, on behalf of the Lenders,
has taken all other action required to perfect its security interest in such
Inventory.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder
from time to time.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of
this Financing Agreement.
EXISTING FUNDED DEBT shall mean the Indebtedness and other obligations of
the Company described on Schedule 1.1(b) hereof.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to which
such accounting principles are to apply.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent
or otherwise, which are either (a) obligations in respect of borrowed money or
for the deferred purchase price of property, services or assets, other than
Inventory or (b) lease obligations which, in accordance with GAAP, have been, or
which should be capitalized.
INVENTORY shall mean all of the Company's present and hereafter acquired
inventory (as defined in the U.C.C.), including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same, and all
proceeds thereof of whatever sort.
INVENTORY ADVANCE PERCENTAGE shall mean fifty percent (50%).
INVESTMENT PROPERTY shall mean all of the Company's present and hereafter
acquired securities, securities entitlements, securities accounts and other
investment property (as such terms are defined in the U.C.C.).
ISSUING BANK shall mean the bank issuing Letters of Credit for the Company.
LETTERS OF CREDIT shall mean the letters of credit issued with the
assistance of the Lenders (acting through the Agent) by the Issuing Bank for or
on behalf of the Company.
6
<PAGE>
LETTER OF CREDIT GUARANTY shall mean the guaranty of the Company's
reimbursement obligation under the Issuing Bank's reimbursement agreement,
application for letter of credit or other like document which the Agent, on
behalf of the Lenders, delivers to the Issuing Bank.
LETTER OF CREDIT GUARANTY FEE shall mean the fee the Agent, for the benefit
of the Lenders, may charge the Company under Section 8.4 of this Financing
Agreement for issuing the Letter of Credit Guaranty or otherwise aiding the
Company in obtaining Letters of Credit.
LETTER OF CREDIT SUB-LINE shall mean $6,000,000 in the aggregate.
LIBOR shall mean at any time of determination and subject to availability,
for each Libor Period, the London Interbank Offered Rate paid in London on
dollar deposits from other banks for such Libor Period as quoted by The Chase
Manhattan Bank. In the event that The Chase Manhattan Bank ceases to quote such
a rate for any Libor Period requested by the Company, then LIBOR shall mean at
any time of determination and subject to availability, for each Libor Period,
the London Interbank Offered Rate paid in London on dollar deposits from other
banks for such Libor Period as determined by the Agent based upon information
presented by Telerate Systems on page 3750 as of 11:00 a.m. (London Time).
LIBOR LOAN shall mean those Revolving Loans for which the Company has
elected to use Libor for interest rate computations.
LIBOR PERIOD shall mean the Libor for one-month, two-month or three-month
U.S. dollar deposits, as selected by the Company.
LINE OF CREDIT shall mean the commitments of the Lenders to make Revolving
Loans pursuant to Section 3 of this Financing Agreement and to assist the
Company in obtaining Letters of Credit pursuant to Section 5 of this Financing
Agreement in the aggregate amount equal to $50,000,000. Initially, CITBC will
hold the entire $50,000,000 commitment under the Line of Credit.
LINE OF CREDIT FEE shall (a) mean the fee due to the Agent, for the benefit
of the Lenders, at the end of each month for the Line of Credit, and (b) be
determined by multiplying i) the difference between x) $50,000,000 and y) the
average daily balance of Revolving Loans and the average daily balance of
Letters of Credit outstanding during said month, by ii) one-quarter of one
percent (0.25%) per annum for the number of days in said month.
MATERIAL ADVERSE EFFECT shall mean a material adverse effect on either (a)
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company, (b) the ability of the Company to
perform its obligations under this Financing Agreement or (c) the ability of the
Agent or the Lenders to enforce the Obligations or their respective rights and
remedies under this Financing Agreement.
7
<PAGE>
OBLIGATIONS shall mean all loans and advances made or to be made by the
Agent and the Lenders to the Company or to others for the Company's account
(including, without limitation, all Revolving Loans and all Letters of Credit),
and any and all indebtedness and obligations which may at any time be owing by
the Company to the Agent or the Lenders under this Agreement, whether now in
existence or incurred by the Company from time to time hereafter, whether
secured by pledge, lien upon or security interest in any of the Company's assets
or property or the assets or property of any other person, firm, entity or
corporation, whether such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect, and whether the Company is
liable to the Agent or the Lenders for such indebtedness as principal, surety,
endorser, guarantor or otherwise. Obligations shall also include indebtedness
and liabilities owed by the Company to the Agent and the Lenders under any other
agreement or arrangement now or hereafter entered into among the Company, on one
hand, and the Agent and the Lenders, on the other hand, including, without
limitation: (a) indebtedness or obligations incurred by, or imposed on, the
Agent or any Lender as a result of environmental claims arising out of the
Company's operation, premises or waste disposal practices or sites; (b) the
Company's liability to the Agent or any Lender as maker or endorser on any
promissory note or other instrument for the payment of money; and (c) the
Company's liability to the Agent or any Lender under any instrument of guaranty
or indemnity, or arising under any guaranty, endorsement or undertaking which
the Agent or any Lender may make or issue to others for the Company's account,
including any accommodation extended with respect to applications for Letters of
Credit, the acceptance of drafts by the Agent or the endorsement of notes or
other instruments by the Agent for the Company's account and benefit.
OPERATING LEASES shall mean all leases of property (whether real, personal
or mixed) other than Capital Leases.
OTHER COLLATERAL shall mean: (a) all of the Company's cash, other monies
and property now or hereafter deposited into the Depository Account, or (to the
extent that any such cash, other money or propery constitutes proceeds of
Accounts and Inventory) otherwise in the possession or control of the Agent or
any Lender; (b) all of the Company's books, records, ledger cards, disks and
related data processing software at any time evidencing or containing
information relating to any of the Collateral described herein or otherwise
necessary or helpful in the collection thereof or realization thereon; and (c)
all cash and non-cash proceeds of the foregoing.
OUT-OF-POCKET EXPENSES shall mean all of the Agent's present and future
expenses incurred relative to this Financing Agreement, whether incurred
heretofore or hereafter, including, without limitation, (a) the cost of record
searches, (b) all costs and expenses incurred by the Agent in opening and
maintaining the Depository Account (other than the Agent's Bank Account),
depositing checks, receiving and transferring funds, and any charges imposed on
the Agent due to "insufficient funds" of deposited checks and the Agent's
standard fee relating thereto, (c) any amounts paid or incurred by the Agent
and/or the Lenders, or charged to the Agent and/or the Lenders by the Issuing
Bank, under any Letter of Credit Guaranty or the Company's reimbursement
agreement, application for Letter of Credit or other like document and which
pertain (either directly or indirectly) to such Letters of Credit, (d) all costs
and expenses of the Agent and its designated agents incurred in
8
<PAGE>
connection with i) the examination and inspection of the Company's books and
records and ii) verifications, inspections, appraisals, physical counts and
other valuations of the Inventory, and (e) all expenses, costs and fees set
forth in Section 10.3 of this Financing Agreement. Notwithstanding the
foregoing, Out-of Pocket Expenses shall not include the costs and expenses which
are intended to be offset by the Collateral Management Fee.
PERMITTED ENCUMBRANCES shall mean: (a) Customarily Permitted Liens; (b)
liens granted by the Company to the Agent, for the benefit of the Lenders; (c)
liens of judgment creditors provided such liens do not exceed, in the aggregate,
at any time, $250,000 (other than liens bonded or insured to the reasonable
satisfaction of the Agent); and (d) liens for taxes (other than taxes due to the
United States of America), so long as such taxes are i) not yet due and payable,
ii) being diligently contested in good faith by the Company by appropriate
proceedings and the liens securing such taxes are not senior to the liens of the
Agent, for the benefit of the Lenders.
PERMITTED INVESTMENTS shall mean: (a) readily marketable direct
obligations of the United States of America or of any agency or
instrumentality thereof, the obligations of which are backed by the full
faith and credit of the United States of America, or readily marketable
obligations unconditionally guaranteed by the United States of America or by
any such agency or instrumentality, in each case maturing within one year
from the date of acquisition thereof; (b) certificates of deposit, time
deposits or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by, or demand deposit accounts maintained with,
any commercial bank or trust company which is a member of the Federal Reserve
System, the long-term debt obligations of which are rated at least A by
Moody's Investors Service Inc. ("MOODY'S") or Standard & Poor's Ratings
Services, a division of The McGraw Hill Companies, Inc. ("S&P") and which has
combined capital and surplus of at least $250,000,000 (any such bank or trust
company, an "Eligible Bank"); (c) repurchase agreements with respect to
securities of the type referred to in the foregoing clause (a) transacted
with Eligible Banks, provided that each such repurchase agreement obligates
an Eligible Bank to repurchase the securities which are the subject thereof
no later than 30 days after the acquisition of such repurchase agreement; (d)
money-market preferred stock or money-market auction notes, in each case
maturing or redeemable at the option of the holder thereof no more than one
year after the date of acquisition thereof and having a rating of at least A3
by Moody's or at least A- by S&P, and Tax Exempt Obligations (as hereinafter
defined) in the form of auction rate reset notes that reset within one year
from the date of acquisition thereof; (e) obligations, the interest with
respect to which is exempt from federal income taxation under Section 103 of
the Internal Revenue Code, having a long term rating of at least A3 or A-, or
a short term rating of at least P-1 or A-1, by Moody's or S&P, respectively,
and having a maturity of less than two years ("Tax Exempt Obligations"), in
addition to those described in the foregoing clause (d); (f) open market
commercial paper of United States corporations maturing not later than 270
days after the issuance thereof and having a rating of at least P-2 by
Moody's or at least A-2 by S&P; (g) debt securities of United States
corporations having a long term rating of at least A3 by Moody's or at least
A- by S&P and having a maturity of less than two years; and (h) investments
in any mutual fund registered under the Investment Company Act of 1940, as
amended, the portfolio of which is limited to Investments of the character
described in the foregoing clauses (a) through (g).
9
<PAGE>
REQUIRED LENDERS shall mean (a) at all times while there are (2) two or
fewer Lenders hereunder, all of the Lenders, and (b) at all times while there
are three (3) or more Lenders hereunder, those Lenders holding at least
sixty-six and two-thirds percent (66 2/3%) of the commitments under the Line of
Credit.
REVOLVING LOANS shall mean the loans and advances made from time to time to
or for the account of the Company by the Agent and the Lenders pursuant to
Section 3 of this Financing Agreement.
REVOLVING LOAN ACCOUNT shall have the meaning specified in Section 3.6 of
this Financing Agreement.
SETTLEMENT DATE shall mean Friday of each week (unless such day is not a
Business Day, in which case the Settlement Date shall be the immediately
preceding Business Day), and more frequently, in the Agent's discretion, upon
the occurrence of an Event of Default or a continuing decline or increase in the
outstanding balance of Revolving Loans.
TANGIBLE NET WORTH shall mean, for the Company and its subsidiaries on a
consolidated basis, (a) the excess of the assets over liabilities MINUS (b) the
sum of i) intangible assets (including, without limitation, goodwill) ii) all
obligations owed to the Company by subsidiaries and affiliates and iii) loans
and advances to shareholders, directors, officers and employees of the Company,
all determined in accordance with GAAP on a basis consistent with the latest
audited statements of the Company.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which arises
from the sale of Inventory or the rendition of services in the ordinary course
of business.
U.C.C. shall mean the Uniform Commercial Code as in effect from time to
time in the State of Illinois.
SECTION 2. CONDITIONS PRECEDENT
2.1 The obligation of the Agent and the Lenders to make the initial loans
hereunder is subject to the satisfaction of, or waiver of, immediately prior to
or concurrently with the making of such loans, the following conditions
precedent:
(a) LIEN SEARCHES - The Agent shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to the Agent for all locations
presently occupied or used by the Company.
(b) CASUALTY INSURANCE - The Company shall have delivered to the Agent
evidence satisfactory to the Agent that casualty insurance policies listing the
Agent, on behalf of the Lenders,
10
<PAGE>
as loss payee, are in full force and effect, all as required by paragraph (a) of
Section 7.5 of this Financing Agreement.
(c) UCC FILINGS - Any documents (including without limitation, financing
statements) required to be filed in order to create, in favor of the Agent, for
the benefit of the Lenders, a first and exclusive perfected security interest in
the Collateral with respect to which a security interest may be perfected by a
filing under the U.C.C. shall have been properly filed in each office in each
jurisdiction required. The Agent shall have received acknowledgement copies of
all such filings (or, in lieu thereof, the Agent shall have received other
evidence satisfactory to the Agent that all such filings have been made); and
the Agent shall have received evidence that all necessary filing fees, taxes and
other expenses related to such filings have been paid in full.
(d) OPINIONS - Subject to the filing, priority and remedies provisions of
the Uniform Commercial Code, the provisions of the Bankruptcy Code, insolvency
statutes or other like laws, the equity powers of a court of law and such other
matters as may be agreed upon with the Agent, counsel for the Company shall have
delivered to the Agent a legal opinion satisfactory to the Agent opinion, INTER
ALIA, that this Financing Agreement and all other documents executed by the
Company and delivered to the Agent in connection with this Financing Agreement
are x) valid, binding and enforceable according to their respective terms, y)
duly authorized and z) do not violate any terms, provisions, representations or
covenants in the charter, by-laws or other organizational agreement of the
Company or, to the best knowledge of such counsel, of any loan agreement,
mortgage, deed of trust, note, security or pledge agreement or indenture to
which the Company is a signatory or by which the Company or any of the Company's
assets are bound.
(e) ADDITIONAL DOCUMENTS - The Company shall have executed and delivered
to the Agent all loan documents necessary to consummate the lending arrangement
contemplated among the Company and the Lenders.
(f) BOARD RESOLUTIONS - The Agent shall have received a copy of the
resolutions of the board of directors of the Company authorizing the execution,
delivery and performance of i) this Financing Agreement and ii) any related
agreements, certified by the Secretary or Assistant Secretary of the Company as
of the date hereof, together with a certificate of the Secretary or Assistant
Secretary of the Company as to the incumbency and signature of the officers of
the Company executing such agreements and any certificate or other documents to
be delivered by the Company or such officers pursuant hereto.
(g) ORGANIZATION - The Agent shall have received i) a copy of the Articles
of Incorporation of the Company, certified by the applicable authority in the
Company's State of organization, ii) copies of the Bylaws of the Company,
certified by the Secretary or Assistant Secretary of the Company, and iii)
recently issued good standing certificates for the Company issued by the
applicable authority in the States of Minnesota, South Dakota and Wisconsin.
11
<PAGE>
(h) OFFICER'S CERTIFICATE - The Agent shall have received an executed
Officer's Certificate satisfactory in form and substance to the Agent,
certifying that i) the representations and warranties of the Company contained
herein are true and correct in all material respects on and as of the date
hereof, ii) the Company is in compliance with all of the terms and provisions
set forth herein and iii) no Default or Event of Default has occurred.
(i) ABSENCE OF DEFAULT - No Default, Event of Default or Material Adverse
Effect shall have occurred.
(j) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this
Financing Agreement, there shall be no i) litigation, investigation or
proceeding (judicial or administrative) pending or threatened against the
Company or the Company's assets, by any agency, division or department of any
county, city, state or federal government, ii) injunction, writ or restraining
order restraining or prohibiting the consummation of the financing arrangements
contemplated under this Financing Agreement or iii) to the best knowledge of the
Company, suit, action, investigation or proceeding (judicial or administrative)
pending or threatened against the Company or the Company's assets, which, in the
opinion of the Agent, if adversely determined could have a Material Adverse
Effect.
(k) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to the
Agent all information necessary for the Agent to issue wire transfer
instructions on behalf of the Company for the initial and subsequent loans
and/or advances to be made under this Financing Agreement including, but not
limited to, disbursement authorizations in form acceptable to the Agent.
(l) EXAMINATION & VERIFICATION - The Agent shall have completed to the
satisfaction of the Agent an examination and verification of the Company's
Accounts, Inventory, books and records.
(m) LIMITED LICENSES - The Company shall have granted to the Agent limited
licenses to use the Company's trademarks, patents and other intellectual
property after an Event of Default in order to finish and sell the Inventory of
the Company in connection with a liquidation of the Collateral.
(n) FINANCIAL MATTERS - The Agent shall have received the Company's
financial statements for the fiscal year ended September 27, 1998, together with
the unqualified opinion of the Company's auditors issued in connection therewith
(such financial statements shall confirm that no Material Adverse Effect has
occurred since the date of the Company's audited financial statements for the
prior fiscal year).
(o) DOCUMENTS AND OTHER MATTERS RELATING TO OTHER INDEBTEDNESS - The Agent
shall have reviewed and be satisfied with the terms and conditions of the
documents governing or evidencing the Indebtedness of the Company set forth on
SCHEDULE 1.1(b) attached hereto. In addition, the Company shall have received
i) all consents and waivers from the holders of such Indebtedness as the Agent
deems necessary in connection with the execution and delivery of this
12
<PAGE>
Financing Agreement by the Company and the consummation of the transactions
contemplated hereby (including, without limitation, the grant by the Company, in
favor of the Agent, of all security interests set forth in Section 6 hereof and
the limited license referred to in paragraph (m) above), and ii) waivers of all
existing defaults with respect to such Indebtedness from the requisite holders
thereof.
2.2 Upon the execution of this Financing Agreement and the initial
disbursement of loans hereunder, all of the above conditions precedent shall
have been deemed satisfied except as the Company and the Agent shall otherwise
agree herein or in a separate writing.
SECTION 3. REVOLVING LOANS; COLLECTIONS
3.1 The Agent and the Lenders agree, subject to the terms and conditions
of this Financing Agreement, and subject to Availability and within the Line of
Credit (but subject to the Lenders' right to make "overadvances"), to make loans
and advances to the Company on a revolving basis in amounts up to the Borrowing
Base. Each request shall constitute, unless otherwise disclosed in writing to
the Agent and the Lenders, a representation and warranty by the Company that
after giving effect to the requested advance, no Default or Event of Default
then exists, and that such requested Revolving Loan is within the Line of Credit
then in effect and Availability. All requests for loans and advances must be
received by an officer of the Agent no later than 12:00 p.m., Chicago time, on
the Business Day on which such loans and advances are required. Should the Agent
(in accordance with the provisions Section 14.10 hereof) or the Lenders for any
reason honor requests for advances in excess of the limitations set forth
herein, such advances shall be considered "overadvances" and shall be made by
the Agent or the Lenders in its or their sole discretion, subject to any
additional terms the Agent or the Lenders may deem necessary.
3.2 In furtherance of the continuing assignment and security interest in
the Company's Accounts, the Company will, upon the creation of Accounts, execute
and deliver to the Agent, in such form and manner as the Agent may reasonably
require, solely for the Agent's convenience in maintaining records of
collateral, such confirmatory schedules of Accounts as the Agent may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts as the Agent may reasonably require. In addition, upon
the Agent's request the Company shall provide the Agent with copies of
agreements with, or purchase orders from, the Company's customers, and copies of
invoices to customers, proof of shipment or delivery and such other
documentation and information relating to said Accounts and other collateral as
the Agent may reasonably require. Failure to provide the Agent with any of the
foregoing shall in no way affect, diminish, modify or otherwise limit the
security interests granted herein. The Company hereby authorizes the Agent to
regard the Company's printed name or rubber stamp signature on assignment
schedules or invoices as the equivalent of a manual signature by one of the
Company's authorized officers or agents.
3.3 The Company hereby represents and warrants to the Agent and the
Lenders that: (a) each Trade Account Receivable is based on an actual and bona
fide sale and delivery of goods or rendition
13
<PAGE>
of services to customers, made by the Company in the ordinary course of its
business; (b) the Inventory being sold and the Trade Accounts Receivable created
are the exclusive property of the Company and are not and shall not be subject
to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; (c) the
invoices evidencing such Trade Accounts Receivable are in the name of the
Company; and (d) the customers of the Company have accepted the goods or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without dispute, offset, defense, counterclaim or
contra, except for normal returns, disputes and other matters arising in the
ordinary course of business of which the Company has advised the Agent pursuant
to Section 3.5 hereof. The Company confirms to the Agent that any and all taxes
or fees relating to its business, its sales, the Accounts or goods relating
thereto, are its sole responsibility and that same will be paid by the Company
when due and that none of said taxes or fees represent a lien on or claim
against the Accounts. The Company also represents and warrants to the Agent and
the Lenders that the Company is a duly and validly existing corporation, and is
qualified in all states where the failure to so qualify would have a Material
Adverse Effect. The Company agrees to maintain such books and records regarding
Accounts as the Agent may reasonably require and agrees that the books and
records of the Company will reflect the interest of the Agent, on behalf of the
Lenders, in the Accounts. All of the books and records of the Company will be
available to the Agent and the Lenders at normal business hours, including any
records handled or maintained for the Company by any other company or entity.
3.4 The Company may and will enforce, collect and receive all Accounts and
other proceeds from sales of Inventory for the Lenders' benefit and on the
Lenders' behalf, but at the Company's expense. All checks, cash, notes or other
instruments or property received by the Company with respect to sales of
Inventory shall be held by the Company in trust for the Agent, for the benefit
of the Lenders, separate from the Company's other property and funds, and
deposited directly into the Depository Account on each Business Day. Prior to
February 28, 1999, the Company shall deliver to the Lender the Blocked Account
Agreement which shall provide, among other things, that so long as (a) no Event
of Default exists or (b) Availability equals or exceeds $10,000,000 (regardless
of the existence of any Event of Default), amounts on deposit in the Depository
Account shall be available for transfer, at the Company's request, to the
Company's operating account (or to any other bank or investment account
maintained by the Company). Subject to the terms of the next sentence, funds
remaining on deposit in the Depository Account at the end of each Business Day,
at the Company's option, may remain on deposit in the Depository Account or be
wire transferred to the Agent's bank account at The Chase Manhattan Bank in New
York, New York ("Agent's Bank Account") for application against the obligations
in accordance with the terms hereof. Upon the occurrence and continuance of an
Event of Default or at any time that Availability is less than $10,000,000, the
Agent may, at its option (and upon the request of the Required Lenders, shall)
restrict the Company's access to funds deposited in the Depository Account in
accordance with the terms of the Blocked Account Agreement and cause all funds
deposited in the Depository Account to be wire transferred to the Agent's Bank
Account on each Business Day. The Company agrees to take all actions reasonably
required by the Agent or any financial institution at which the Depository
Account is maintained in order to effectuate the transfer of funds contemplated
above. All amounts received
14
<PAGE>
by the Agent from the Depository Account and any other proceeds of the
Collateral deposited into the Agent's Bank Account will be credited to the
Company's Revolving Loan Account upon the Agent's receipt of "collected funds"
at the Agent's Bank Account on the Business Day of receipt, if received no later
than 1:00 pm, New York time, or on the next succeeding Business Day, if received
after 1:00 pm, New York time. No checks, drafts or other instrument received by
the Agent shall constitute final payment to the Lenders unless and until such
instruments have actually been collected.
3.5 The Company agrees to notify the Agent promptly of any matters
materially affecting the value, enforceability or collectibility of the Accounts
and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections and all reclaimed or repossessed merchandise or goods. The
Company agrees to issue credit memoranda promptly (with duplicates to the Agent
upon request after the occurrence of an Event of Default) upon accepting returns
or granting allowances, and may continue to do so until the Agent has notified
the Company following the occurrence and during the continuance of an Event of
Default that all future credits or allowances are to be made only after the
Agent's prior written approval. Upon the occurrence of an Event of Default and
until such time as such Event of Default is waived, and on notice from the
Agent, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with the Agent's
name and held by the Company for the account of the Agent, on behalf of the
Lenders, as owner and assignee.
3.6 The Agent shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by the Agent and the Lenders to the Company
or for the Company's account, and with any other Obligations, including any and
all costs, expenses and reasonable attorney's fees which the Agent may incur in
connection with the exercise by or for the Agent of any of the rights or powers
herein conferred upon the Agent, or in the prosecution or defense of any action
or proceeding to enforce or protect any rights of the Agent or the Lenders in
connection with this Financing Agreement or the Collateral assigned hereunder,
or any Obligations. The Company will be credited with all amounts received by
the Agent from the Company or from others for the Company's account, including,
as above set forth, all amounts received by the Agent in payment of Accounts and
sales of Inventory, and such amounts will be applied to payment of the
Obligations. In no event shall prior recourse to any Accounts, Inventory or
other security granted to or by the Company be a prerequisite to the Agent's or
the Lenders' rights to demand payment of any Obligation.
3.7 After the end of each month, the Agent shall promptly send the Company
and the Lenders a statement showing the accounting for the charges, loans,
advances and other transactions occurring among the Agent, the Lenders and the
Company during that month. The monthly statements shall be deemed correct and
binding upon the Company and the Lenders, and shall constitute accounts stated
between the Company and the Lenders, unless the Agent receives a written
statement of the exception from the Company or any Lender within thirty (30)
days of the date of the monthly statement.
15
<PAGE>
3.8 If at any time (a) the sum of the outstanding balance of Revolving
Loans and outstanding balance of Letters of Credit exceed the Line of Credit, or
(b) Availability is less than zero, the amount of such excess (in the case of
clause (a)) or the amount of the Obligations required to be repaid to make
Availability greater than zero (in the case of clause (b)), shall be immediately
due and payable to the Agent, for the benefit of the Lenders.
SECTION 4. [INTENTIONALLY DELETED]
SECTION 5. LETTERS OF CREDIT
In order to assist the Company in establishing or opening Letters of Credit
with an Issuing Bank to cover the purchase of Inventory or other purposes
acceptable to the Agent, the Company has requested that the Agent, on behalf of
the Lenders, join in the applications for such Letters of Credit, and/or
guarantee payment or performance of such Letters of Credit and any drafts or
acceptances thereunder through the issuance of a Letter of Credit Guaranty,
thereby lending the Lenders' credit to the Company, and the Agent and the
Lenders have agreed to do so. These arrangements shall be handled by the Agent
subject to the terms and conditions set forth below.
5.1 Within the Line of Credit and Availability, the Lenders (acting
through the Agent) shall assist the Company in obtaining Letters of Credit in an
aggregate amount outstanding at any time equal to or less than Letter of Credit
Sub-Line. The Lenders' assistance for amounts in excess of the limitation set
forth herein shall at all times and in all respects be in the Agent's sole
discretion. It is understood that the terms, conditions and purpose of each
Letter of Credit (and any modifications thereof) shall be subject to the prior
approval of the Agent in the exercise of its reasonable discretion, provided
that for purposes of this Financing Agreement, providing credit support for the
Company's obligations under existing industrial revenue bonds issued for the
benefit of the Company and the Company's obligations with respect to acceptable
workers compensation programs shall be deemed to be approved purposes. Any and
all outstanding Letters of Credit shall be treated as a Revolving Loan for
Availability purposes. Notwithstanding anything herein to the contrary, upon
the occurrence of a Default and/or Event of Default, the Agent's and the
Lenders' assistance in connection with any Letter of Credit Guaranty shall be in
the Agent's sole discretion until such Default and/or Event of Default is
waived.
5.2 The Agent shall have the right, without notice to the Company, to
charge the Company's Revolving Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind incurred by the Agent under
any Letter of Credit Guaranty at the earlier of (a) payment by the Agent, on
behalf of the Lenders, under such Letter of Credit Guaranty, or (b) the
occurrence of an Event of Default. Any amount charged to the Company's
Revolving Loan Account shall be deemed a Revolving Loan made by the Agent to the
Company hereunder, and shall incur interest at the rate provided for Revolving
Loans which are not Libor Loans under Section 8.1 of this Financing Agreement.
16
<PAGE>
5.3 The Company unconditionally indemnifies the Agent and the Lenders
against, and holds the Agent and the Lenders harmless from, any and all loss,
claim or liability incurred by the Agent or the Lenders arising from any
transactions or occurrences relating to Letters of Credit established or opened
for the Company's account, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such loss
or claim due to any action taken by any Issuing Bank, other than for any such
loss, claim or liability arising out of the gross negligence or willful
misconduct by the Agent under the Letters of Credit Guaranty. The Company
further agrees to hold the Agent and the Lenders harmless from any errors or
omission, negligence or misconduct by the Issuing Bank. The Company's
unconditional obligations to the Agent and the Lenders hereunder shall not be
modified or diminished for any reason or in any manner whatsoever, other than as
a result of the Agent's gross negligence or willful misconduct. The Company
agrees that any charges incurred by the Agent for the Company's account by the
Issuing Bank shall be conclusive on the Agent and the Lenders, and may be
charged to the Company's Revolving Loan Account.
5.4 Neither the Agent nor any Lender shall be responsible for: (a) the
existence, character, quality, quantity, condition, packing, value or delivery
of the goods purporting to be represented by any documents; (b) any difference
or variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; (c) the validity,
sufficiency or genuineness of any documents or of any endorsements thereon, even
if such documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (d) the time, place, manner or order in
which shipment is made; (e) partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of Credit or
documents; (f) any deviation from instructions; (g) delay, default, or fraud by
the shipper and/or anyone else in connection with the Collateral or the shipping
thereof; or (h) any breach of contract between the shipper or vendors and the
Company. Furthermore, without being limited by the foregoing, neither the Agent
nor any Lender shall be responsible for any act or omission with respect to or
in connection with any Collateral.
5.5 The Company agrees that any action taken by the Agent or any Lender,
if taken in good faith, or any action taken by any Issuing Bank, under or in
connection with the Letters of Credit, the guarantees, the drafts or
acceptances, or the Collateral, shall be binding on the Company and shall not
put the Agent or any Lender in any resulting liability to the Company, provided
that nothing herein shall be deemed to constitute a waiver by the Company of any
rights that the Company may have against an Issuing Bank for a breach of any
agreement between the Company and such Issuing Bank. In furtherance thereof but
subject to Section 5.6 below, the Agent shall have the full right and authority
to clear and resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to execute
any and all steamship or airways guaranties (and applications therefor),
indemnities or delivery orders; to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents; and to agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances; all in the sole name of
the Agent, on behalf of the Lenders, and the
17
<PAGE>
Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from the Agent, all
without any notice to or any consent from the Company.
5.6 Without the Agent's express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders; to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; and (b) after the
occurrence of an Event of Default which is not waived, not to i) clear and
resolve any questions of non-compliance of documents or ii) give any
instructions as to acceptances or rejection of any documents or goods.
5.7 The Company agrees that any necessary import, export or other licenses
or certificates for the import or handling of the Collateral will have been
promptly procured; all foreign and domestic governmental laws and regulations in
regard to the shipment and importation of the Collateral, or the financing
thereof will have been promptly and full complied with; and any certificates in
that regard that the Agent may at any time request will be promptly furnished.
In this connection, the Company warrants and represents to the Agent and the
Lenders that all shipments made under any such Letters of Credit are in
accordance with the laws and regulations of the countries in which the shipments
originate and terminate, and are not prohibited by any such laws and
regulations. The Company assumes all risk, liability and responsibility for,
and agrees to pay and discharge, all present and future local, state, federal or
foreign taxes, duties, or levies. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision, where
the Collateral is or may be located, or wherein payments are to be made, or
wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Company's risk, liability and responsibility.
5.8 Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, the Agent, for the benefit of the Lenders, shall acquire by
subrogation, any rights, remedies, duties or obligations granted or undertaken
by the Company to the Issuing Bank in any application for Letters of Credit, any
standing agreement relating to Letters of Credit or otherwise, all of which
shall be deemed to have been granted to the Agent and apply in all respects to
the Agent, and shall be in addition to any rights, remedies, duties or
obligations contained herein.
SECTION 6. COLLATERAL
6.1 As security for the prompt payment in full of all loans and advances
made and to be made to the Company from time to time by the Agent and the
Lenders pursuant hereto, as well as to secure the payment in full of the other
Obligations, the Company hereby pledges and grants to the Agent, for the benefit
of the Lenders, a continuing general lien upon and security interest in all of
the Company's present and hereafter acquired Accounts, Inventory and Other
Collateral.
18
<PAGE>
6.2 The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is owned by
the Company or in which the Company has any interest, whether held by the
Company or others for its own account; and
(b) All Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by either the Agent or the Company from the Company's
customers, as well as to all supplies, goods, incidentals, packaging materials,
labels and any other items which contribute to the sale, promotion or shipment
thereof.
6.3 The Company agrees to safeguard, protect and hold all Inventory for
the account of the Agent, on behalf of the Lenders, and make no disposition
thereof except in the regular course of the business of the Company. Inventory
may be sold and shipped by the Company to its customers in the ordinary course
of the Company's business, on open account and on terms currently being extended
by the Company to its customers, provided that all proceeds of all sales
(including cash, accounts receivable, checks, notes, instruments for the payment
of money and similar proceeds) are forthwith transferred, endorsed, and turned
over and delivered to the Agent by deposit in the Depository Accounts. The
Agent shall have the right to withdraw this permission at any time upon the
occurrence of an Event of Default and until such time as such Event of Default
is waived, in which event no further disposition shall be made of the Inventory
by the Company without the Agent's prior written approval. Cash sales or sales
of Inventory in which a lien upon, or security interest in, Inventory is
retained by the Company shall be made by the Company only with the approval of
the Agent, and the proceeds of such sales or sales of Inventory for cash shall
not be commingled with the Company's other property, but shall be segregated,
held by the Company in trust for the Agent, on behalf of the Lenders, as the
Lenders' exclusive property, and shall be delivered immediately by the Company
to the Agent in the identical form received by the Company by deposit to the
Depository Accounts. Upon the sale, exchange, or other disposition of
Inventory, as herein provided, the security interest in the Company's Inventory
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, accounts receivable, contract rights,
documents of title, shipping documents, chattel paper and all other cash and
non-cash proceeds of such sale, exchange or disposition. As to any such sale,
exchange or other disposition, the Agent shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, rescission and
reclamation.
6.4 The rights and security interests granted hereunder to the Agent, for
the benefit of the Lenders, are to continue in full force and effect,
notwithstanding the termination of this Financing Agreement or the fact that the
account maintained in the Company's name on the books of the Agent may from time
to time be temporarily in a credit position, until the final payment in full to
the Agent and the Lenders of all Obligations and the termination of this
Financing Agreement. Any delay, or omission by the Agent or the Lenders to
exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed
a waiver of any other right, unless such waiver be in writing and signed by the
19
<PAGE>
Agent and the Required Lenders, if necessary. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.
6.5 To the extent that the Obligations now or hereafter are secured by any
assets or property other than the Collateral or by the guarantee, endorsement,
assets or property of any other person, then the Agent shall have the right in
its sole discretion to determine which rights, security, liens, security
interests or remedies the Agent shall at any time pursue, foreclose upon,
relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or any of the Agent's or
the Lenders' rights hereunder.
6.6 Any reserves or balances to the credit of the Company and any other
property or assets of the Company in the possession of the Agent may be held by
the Agent, for the benefit of the Lenders, as security for any Obligations and
applied in whole or partial satisfaction of such Obligations when due. The
liens and security interests granted herein and any other lien or security
interest which the Agent may have in any other assets of the Company, shall
secure payment and performance of all now existing and future Obligations. The
Agent may in its discretion charge any or all of the Obligations to the
Company's Revolving Loan Account in accordance with the terms hereof.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 The Company hereby warrants and represents and/or covenants that: (a)
the fair value of the Company's assets exceeds the book value of the Company's
liabilities; (b) the Company is generally able to pay its debts as they become
due and payable; (c) the Company does not have unreasonably small capital to
carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances; (d) all financial statements of the Company furnished
to the Agent present fairly, in all material respects, the financial condition
of the Company as of the date of such financial statements; (e) the Company is
duly organized and validly existing under the laws of the State of Minnesota,
and is qualified to do business in each State where the failure to so qualify
would have a Material Adverse Effect; (f) SCHEDULE 7.1(f) hereto correctly and
completely sets forth the Company's chief executive office, all of the
Collateral locations and all tradenames of the Company; (g) the execution and
delivery of this Financing Agreement by the Company and the consummation of the
transactions contemplated hereby, do not violate any term, provision or covenant
contained in the Articles of Incorporation or Bylaws of the Company, or any
term, provision, covenant or representation contained in any loan agreement,
lease, indenture, mortgage, deed of trust, note, security agreement or pledge
agreement to which the Company is a signatory or by which the Company or any of
the Company's assets are bound; (h) except for the Permitted Encumbrances, the
security interests granted herein constitute and shall at all times constitute
first priority and exclusive liens on the Collateral; (i) except for the
Permitted Encumbrances, the Company is or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, transfer and create a security interest therein, free and
clear of any and all claims or liens in favor of others; (j) the Existing Funded
Debt constitutes all funded indebtedness of the Company existing as of the date
hereof; (k) the Company will at its expense forever warrant and, at the Agent's
20
<PAGE>
request, defend the Collateral from any and all claims and demands of any other
person other than the Permitted Encumbrances; (l) the Company will not grant,
create or permit to exist, any lien upon or security interest in the Collateral,
or any proceeds thereof, in favor of any other person other than the holders of
the Permitted Encumbrances; and (m) the Company will provide the Agent with
prior written notice of any change in the location of any Collateral.
7.2 The Company agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as the Agent shall reasonably require.
The Company agrees that the Agent and/or its designated agents, accompanied by
any Lender and/or such Lender's designated agents (at such Lender's expense),
may enter upon the Company's offices, or other premises at any time during
normal business hours, and from time to time, in order to (a) examine and
inspect the books and records of the Company, and make copies thereof and take
extracts therefrom, and (b) verify, inspect, appraise and perform physical
counts and other valuations of the Inventory and any and all records pertaining
thereto. All costs, fees and expenses incurred by the Agent in connection with
such examinations, inspections, appraisals, physical counts and other valuations
shall constitute Out-of-Pocket Expenses for purposes of this Financing
Agreement.
7.3 The Company agrees to execute and deliver to the Agent, from time to
time, solely for the Agent 's convenience in maintaining a record of the
Collateral, such written statements, schedules and other information and
documentation as the Agent may reasonably require, designating, identifying or
describing the Collateral. Without limiting the foregoing, the Company shall
deliver to the Agent, in such detail as the Agent shall reasonably require, (a)
at least once each week (but more frequently upon the Agent's reasonable
request), a borrowing base certificate (which shall include, without limitation,
a list setting forth the amount of all Eligible Accounts owed by foreign account
debtors approved of by the Agent and a list of Inventory by category), certified
by the treasurer or chief financial officer of the Company (or any other
authorized officer satisfactory to the Agent), and (b) on or before the
twenty-fifth (25th) day of each fiscal month, an aged trial balance of all
Accounts existing as of the last day of the preceding fiscal month and a summary
of Inventory as of the last day of the preceding fiscal month, certified by the
treasurer or the chief financial officer of the Company (or any other authorized
officer satisfactory to the Agent). The Company's failure, however, to promptly
give the Agent such statements or schedules shall not affect, diminish, modify
or otherwise limit the security interests of the Agent, for the benefit of the
Lenders, in the Collateral.
7.4 The Company agrees to comply with the requirements of all state and
federal laws in order to grant to the Agent, for the benefit of the Lenders,
valid and perfected first security interests in the Collateral, subject only to
the Permitted Encumbrances. The Agent is hereby authorized by the Company to
file any financing statements covering the Collateral whether or not the
Company's signature appears thereon. The Company agrees to do whatever the
Agent reasonably may request from time to time, by way of: (a) filing notices of
liens, financing statements, amendments, renewals and continuations thereof; (b)
cooperating with the Agent's designated agents and employees; (c) keeping
Collateral records; (d) transferring proceeds of Collateral to the Agent's
possession in accordance with the terms hereof; and (e) performing such further
acts as the Agent reasonably may require in order to effect the purposes of this
Financing Agreement.
21
<PAGE>
7.5 (a) The Company agrees to maintain insurance on the Inventory under
such policies of insurance, with such insurance companies, in such reasonable
amounts and covering such insurable risks as are at all times reasonably
satisfactory to the Agent (the "Required Insurance"). All policies covering the
Inventory shall be made payable to the Agent, for the benefit of the Lenders, in
case of loss, under a standard non-contributory "mortgagee", "lender" or
"secured party" clause and are to contain such other provisions as the Agent may
require to fully protect the Agent's and the Lenders' interests in the Inventory
and to any payments to be made under such policies. All original policies or
true copies thereof are to be delivered to the Agent, premium prepaid, with the
loss payable endorsement in favor of the Agent, for the benefit of the Lenders,
and shall provide for not less than thirty (30) days prior written notice to the
Agent of the exercise of any right of cancellation. Upon the occurrence of an
Event of Default which is not waived, the Agent shall, subject to the rights of
any holders of Permitted Encumbrances holding claims senior to the Agent, have
the sole right to receive, receipt and give acquittance for any payments that
may be payable thereunder, and to execute any and all endorsements, receipts,
releases, assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.
(b) Unless Borrower provides the Agent with evidence of the Required
Insurance in the manner set forth in paragraph (a) above, the Agent may purchase
insurance at the Company's expense to protect the interests of the Agent and the
Lenders in the Collateral. The insurance purchased by the Agent may, but need
not, protect the Company's interests in the Collateral, and therefore such
insurance may not pay any claim which the Company makes or any claim which is
made against the Company in connection with the Collateral. The Company may
later request that the Agent cancel any insurance purchased by the Agent, but
only after providing the Agent with satisfactory evidence that the Company has
the Required Insurance. If the Agent, on behalf of the Lenders, purchases
insurance covering all or any portion of the Collateral, the Company shall be
responsible for the costs of such insurance, including interest (at the
applicable rate set forth hereunder) and other charges accruing on the purchase
price therefor, until the effective date of the cancellation or the expiration
of the insurance, and the Agent may charge all of such costs, interest and other
charges to the Revolving Loan Account. The costs of the premiums of any
insurance purchased by the Agent may exceed the costs of insurance which the
Company may be able to purchase on its own. In the event that the Agent
purchases insurance, the Agent will notify the Company of such purchase within
ten (10) days after the date of such purchase. If, within thirty (30) days of
the date of such notice, the Company provides the Agent with proof that the
Company had the Required Insurance as of the date on which the Agent purchased
insurance AND the Company has continued at all times thereafter to have the
Required Insurance, then the Agent agrees to cancel the insurance purchased by
the Agent and credit the Revolving Loan Account by the amount of all costs,
interest and other charges associated with such insurance previously charged to
the Revolving Loan Account.
22
<PAGE>
(c) In the event of any loss or damage by fire or other casualty, all
insurance proceeds received by the Agent shall be applied by the Agent to reduce
the Revolving Loans in accordance with the terms of this Financing Agreement.
7.6 The Company agrees to pay, prior to the imposition of any lien or
penalty, all taxes, assessments, claims and other charges (herein "taxes")
lawfully levied or assessed upon the Company or the Collateral, including,
without limitation, all sales taxes collected by the Company on behalf of the
Company's customers in connection with sales of Inventory. If such taxes remain
unpaid after such date (unless such taxes are being diligently contested in good
faith by the Company by appropriate proceedings), or if any lien shall be
claimed thereunder (a) for taxes due the United States of America or (b) which
in the Agent's opinion secures an obligation having priority over the rights
granted to the Agent and the Lenders herein, then the Agent may, on behalf of
the Company and/or the Lenders, pay such taxes, and the amount thereof shall be
an Obligation secured hereby and due to the Agent on demand.
7.7 (a) The Company agrees to comply with all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official, which
the failure to comply with would have a Material Adverse Effect, provided that
the Company may contest any acts, rules, regulations, orders and directions of
such bodies or officials in any reasonable manner which will not, in the Agent's
reasonable opinion, materially and adversely effect the Agent's or the Lenders'
rights or priorities in the Collateral.
(b) Without limiting the generality of paragraph (a) above, the Company
agrees to comply with all environmental statutes, acts, rules, regulations or
orders, as presently existing or as adopted or amended in the future, applicable
to the ownership and/or use of its real property and operation of its business,
if the failure to so comply would have a Material Adverse Effect. The Company
hereby indemnifies the Agent and the Lenders, and agrees to defend and hold the
Agent and the Lenders harmless, from and against any and all loss, damage,
claim, liability, injury or expense which the Agent or the Lenders may sustain
or incur in connection with any claim or expense asserted against the Agent or
the Lenders as a result of any environmental pollution, hazardous material or
environmental clean-up of the Company's owned or leased real property; or any
claim or expense which results from the Company's operations (including, but not
limited to, the Company's off-site disposal practices), and the Company further
agrees that this indemnification shall survive termination of this Financing
Agreement as well as the payment of all Obligations or amounts payable
hereunder. The Company shall not be deemed to have breached any provision of
this Section 7.7 if i) the failure to comply with the requirements of this
Section 7.7 resulted from good faith error or innocent omission, ii) the Company
promptly commences and diligently pursues a cure of such breach and iii) such
failure is cured within fifteen (15) Business Days following the Company's
receipt of notice of such failure.
(c) The Company represents and warrants to the Agent and the Lenders that
except as disclosed on Schedule 7.7(c) attached hereto, i) none of the
operations of the Company are the subject of any federal, state or local
investigation to determine whether any remedial action is needed
23
<PAGE>
to address the presence or disposal of any environmental pollution, hazardous
material or environmental clean-up of the Company's owned or leased real
property, II) the Company has no known contingent liability with respect to any
release of any environmental pollution or hazardous material, III) the Company
presently is in compliance with all environmental statutes, acts, rules,
regulations or orders applicable to the Company's owned or leased real property
or the operation of the Company's business, except where the failure to be in
such compliance would not have a Material Adverse Effect, IV) no enforcement
proceeding, complaint, summons, citation, notice, order, claim, litigation,
investigation, letter or other communication from a federal, state or local
authority has been filed against or delivered to the Company, regarding or
involving any release of any environmental pollution or hazardous material on
any real property now or previously owned or leased by the Company, and V) the
Company has obtained and maintains all permits, approvals, authorizations and
licenses, if any, required by applicable environmental statutes, acts, rules,
regulations and orders, except where the failure to have such permits,
approvals, authorizations or licenses would not have a Material Adverse Effect.
7.8 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, unless
the Agent shall have otherwise consented in writing, the Company will furnish to
the Agent and each Lender: (a) within one hundred five (105) days after the end
of each fiscal year of the Company, a Consolidated Balance Sheet and a
Consolidating Balance Sheet as at the close of such year, and consolidated and
consolidating statements of profit and loss, cash flow and shareholders'
investment of the Company for such year, audited by independent public
accountants selected by the Company and reasonably satisfactory to the Agent,
together with the unqualified opinion of the accountants with respect to such
financial statements; (b) within thirty (30) days after the end of each fiscal
month, a Consolidated Balance Sheet as at the end of such fiscal month, and a
consolidated statement of profit and loss, cash flow and shareholders'
investment of the Company for such fiscal month and for the period commencing on
the first day of the current fiscal year through the end of such fiscal month,
certified by an authorized financial or accounting officer of the Company; (c)
no later than sixty (60) days after the beginning of each fiscal year, monthly
projections of the Consolidated Balance Sheet, Consolidating Balance Sheet, the
consolidated and consolidating statements of profits and loss, cash flow and
reconciliation of surplus of the Company and projected Availability for such
fiscal year; and (d) from time to time, such further information regarding the
business affairs and financial condition of the Company as the Agent may
reasonably request. Each financial statement which the Company is required to
submit hereunder must be accompanied by an officer's certificate, signed by the
Treasurer or Chief Financial Officer of the Company, pursuant to which either
such officer must certify that: (a) the financial statement(s) fairly and
accurately represent(s) the Company's financial condition at the end of the
particular accounting period, as well as the Company's operating results during
such accounting period, subject to year-end audit adjustments; (b) during the
particular accounting period i) there has been no default or condition which,
with the passage of time or notice, or both, would constitute a Default or Event
of Default under this Financing Agreement, or, if any such officer has knowledge
that any such Default or Event of Default has occurred during such period, the
existence of and a detailed description of same shall be set forth in such
officer's certificate, and ii) the Company has not received any notice of
cancellation with respect to its
24
<PAGE>
property insurance policies; and (c) the exhibits attached to such financial
statement(s) constitute detailed calculations showing compliance with all
financial covenants contained in this Financing Agreement.
7.9 At all times, the Company shall maintain a Tangible Net Worth of
not less than the sum of (a) $200,000,000, plus (b) an aggregate amount equal
to fifty percent (50%) of the consolidated net income of the Company, as
reflected on the annual consolidated financial statements of the Company
required to be delivered hereunder for each fiscal year of the Company (but
in each case, only if a positive number) commencing with the fiscal year
ending in September, 1999. For purposes of this Section 7.9, the minimum
Tangible Net Worth required hereunder shall be adjusted, if necessary, on the
first day of each fiscal year of the Company, notwithstanding the date of
delivery of the Company's annual consolidated financial statements to CITBC.
7.10 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, without
the prior written consent of the Required Lenders, except as otherwise herein
provided, the Company will not:
(a) Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment (whether as a result of a
purchase money or title retention transaction, or other security interest, or
otherwise) to exist on any of the Collateral, except for Permitted Encumbrances;
(b) Borrow any money on the security of the Collateral from sources other
than the Agent and the Lenders;
(c) Sell, lease, assign, transfer or otherwise dispose of i) Collateral,
except as otherwise specifically permitted by this Financing Agreement, ii) any
part of the Company's assets (tangible and intangible) which do not constitute
Collateral if such transaction, when combined with all other such transactions
during the same fiscal year, would constitute the disposition of more than
twenty-five percent (25%) of the Company's Tangible Net Worth as of the end of
the fiscal year immediately preceding the fiscal year in which such transaction
takes place, or iii) any part of the Company's intangible assets which do not
constitute Collateral if such disposition, when combined with all other such
dispositions of intangible assets during the same fiscal year, would constitute
the disposition of more than five percent (5%) of the Company's Tangible Net
Worth as of the end of the fiscal year immediately preceding the fiscal year in
which such disposition takes place;
(d) i) Merge or consolidate with any other entity unless x) the Company is
the surviving corporation, y) the Tangible Net Worth of the Company immediately
thereafter is not less than the Tangible Net Worth of the Company immediately
prior to the consummation of such merger or consolidation and z) the Company
provides CITBC with written notice of such merger or consolidation at least
fifteen (15) days prior to the consummation thereof, II) change its corporate
name or principal place of business without at least thirty (30) days prior
written notice to the Agent,
25
<PAGE>
iii) change the form of its organization from for-profit corporation or iv)
enter into or engage in any operation or activity materially different from that
presently being conducted by the Company;
(e) Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business;
(f) Declare or pay any dividend or distribution of any kind on, or
purchase, acquire, redeem or retire, any of the capital stock in the Company,
except for I) dividends or distributions paid entirely in additional capital
stock issued by the Company and II) cash distributions or dividends which do not
exceed $2,000,000 in the aggregate in any fiscal year; or
(g) Make any advance or loan to, or any investment in, any firm, entity,
person or corporation, other than i) progress payments made to the Company's
suppliers in accordance with the Company's past practices, ii) investments
consisting of insurance policies, prepaid rent and security deposits, iii) x)
investments in and loans to wholly-owned subsidiaries of the Company and y)
loans and advances made to directors, officers and employees of the Company for
any purpose related to the Company's business or the purchase of stock in the
Company, provided that the amount of cash investments made by the Company in
such subsidiaries, together with the aggregate principal amount of all loans and
advances made by the Company to such subsidiaries, officers, directors and
employees outstanding at any time, shall not exceed $10,000,000, iv) advances,
loans or investments not permitted under clauses i), ii) and iii) of this
paragraph (g) in the aggregate amount of up to $5,000,000 outstanding at any
time, provided that Availability equals or exceeds $15,000,000 immediately after
any such advance, loan or investment is made, and v) Permitted Investments.
7.11 Without the prior written consent of the Required Lenders, the Company
will not (a) redeem, purchase, retire, prepay or otherwise acquire for value,
any of the Existing Funded Debt, (b) make any payment of principal of, or
interest on, the Existing Funded Debt, other than regularly scheduled payments
of principal and interest due under the documents and instruments governing or
evidencing the Existing Funded Debt, as in effect on the date of this Financing
Agreement, or (c) amend or supplement any of the terms, conditions or other
provisions of the documents or instruments governing or evidencing the Existing
Funded Debt, if the effect of such amendment or supplement would be to either i)
shorten or accelerate the date on which any scheduled installment of principal
or interest on any such Indebtedness becomes due, ii) accelerate the final
maturity date of any such Indebtedness to a date which is prior to December 31,
2001 or iii) increase the interest rate accruing on any such Indebtedness.
Notwithstanding the foregoing, the Company may repay any of the Existing Funded
Debt with either (a) the proceeds of the sale of any equity in the Company or
(b) the proceeds of any new Indebtedness of the Company, so long as i) the final
maturity date of such new Indebtedness is not earlier than the Existing Funded
Debt repaid with the proceeds thereof, ii) neither the interest rate nor the
average weighted life to maturity of the new Indebtedness (excluding fees
related to the issuance of such new Indebtedness) is more than the interest rate
or the average weighted life to maturity of the Existing Funded Debt repaid with
the
26
<PAGE>
proceeds thereof and iii) the other terms and conditions of such new
Indebtedness are substantially similar to the terms and conditions governing the
Existing Funded Debt repaid with the proceeds thereof (nothing set forth herein
shall prohibit the Company from securing such new Indebtedness with assets of
the Company which do not constitute Collateral).
7.12 The Company agrees to advise the Agent in writing of (a) all
expenditures (actual or anticipated) in excess of $500,000.00 for i)
environmental clean-up, ii) environmental compliance or iii) environmental
testing, and (b) the commencement or receipt of any enforcement proceeding,
complaint, summons, citation, notice, order, claim, litigation, investigation,
letter or other communication from a federal, state or local authority,
regarding or involving any release of any environmental pollution or hazardous
material on any real property now or previously owned or leased by the Company,
and to provide the Agent with copies of all such notices if so required.
7.13 Without the prior written consent of the Required Lenders, the
Company agrees that it will not enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or exchange of property with any
subsidiary of the Company, or any person or entity affiliated with either the
Company or any subsidiary of the Company, unless such transaction otherwise
complies with the provisions of this Financing Agreement and is on arms-length
terms.
7.14 The Company shall take all action reasonably necessary to assure that
its computer-based systems are able to effectively process date-sensitive data
functions. The Company represents and warrants to CITBC that the "Year 2000"
problem (that is, the inability of certain computer applications to recognize
and properly perform date-sensitive functions involving dates subsequent to
December 31, 1999), as it relates to the Company's material applications, will
not have a Material Adverse Effect. The Company reasonably anticipates that all
computer applications which are material to the operation of its business will,
on a timely basis, properly perform date-sensitive functions on and after
January 1, 2000. Upon CITBC's request from time to time, the Company shall
provide CITBC with assurances, in form and substance reasonably satisfactory to
CITBC, that the Company believes that its material applications are, or will be,
Year 2000 compliant on a timely basis.
7.15 The Company will promptly advise the Agent in writing of the
Company's receipt of any notice from International Business Machines Corporation
("IBM") in which IBM declares its intent to terminate the Technology Transfer
and Development Agreement dated as of September 1, 1994 between the Company and
IBM. In addition, the Company will give the Agent at least 30 days prior
written notice in the event that HTI Export Ltd. begins to operate on behalf of
the Company as anything other than a commission agent.
SECTION 8. INTEREST, FEES AND EXPENSES
8.1 Interest on outstanding balances of the Revolving Loans and other
Obligations which are not Libor Loans shall be payable monthly as of the end of
each month and shall accrue at a rate per annum equal to the Chase Manhattan
Rate on the average of the net balances owing by the
27
<PAGE>
Company to the Agent and the Lenders in the Company's Revolving Loan Account at
the close of each day during such month. On Libor Loans, interest shall be
payable monthly as of the end of each month and shall accrue at a rate per annum
equal to two and one-quarter percent (2.25%) plus the applicable Libor on the
average balance of each such Libor Loan outstanding during such month. In the
event of any change in the Chase Manhattan Rate, the interest rate provided for
in the first sentence of this Section 8.1 shall change, as of the first of the
month following any change, so as to remain at the Chase Manhattan Rate. All
interest rates shall be calculated based on a 360-day year. The Agent, on behalf
of the Lenders, shall be entitled to charge the Company's Revolving Loan Account
for all interest provided for herein when due until all Obligations have been
paid in full.
8.2 [INTENTIONALLY DELETED]
8.3 The Company may elect to use Libor as to any outstanding Revolving
Loans provided that there then exists no Default or Event of Default and the
Company has so advised the Agent of its election to use Libor and the Libor
Period selected no later than three (3) Business Days preceding the first day of
a Libor Period. The election and Libor shall be effective, provided there then
exists no Default or Event of Default, on the fourth Business Day following said
notice. The Libor elections must be for $1,000,000 or whole multiples thereof
and there shall be no more than six (6) Libor Loans outstanding at one time. If
no such election is timely made or can be made, or if the Libor rate can not be
determined, then the Agent shall use the Chase Manhattan Rate to compute
interest. Upon demand by the Lenders, the Company shall pay to the Agent, for
the benefit of the Lenders, such amount or amounts as shall compensate the
Lenders for any loss, costs or expenses incurred by the Lenders (as reasonably
determined by the Lenders) as a result of (a) any payment or prepayment on a
date other than the last day of a Libor Period for such Libor Loan, or (b) any
failure of the Company to borrow a Libor Loan on the date for such borrowing
specified in the relevant notice; such compensation to include, without
limitation, an amount equal to any loss or expense suffered by each Lender
during the period from the date of receipt of such payment or prepayment or the
date of such failure to borrow to the last day of such Libor Period if the rate
of interest obtained by such Lender upon the reemployment of an amount of funds
equal to the amount of such payment, prepayment or failure to borrow is less
than the rate of interest applicable to such Libor Loan for such Libor Period.
The determination by the Lenders of the amount of any such loss or expense, when
set forth in a written notice to the Company from the Agent, containing the
Lenders' calculations thereof in reasonable detail, shall be conclusive on the
Company, in the absence of manifest error. Calculation of all amounts payable to
the Lenders under this paragraph with regard to Libor Loans shall be made as
though each Lender had actually funded the Libor Loans through the purchase of
deposits in the relevant market and currency, as the case may be, bearing
interest at the rate applicable to such Libor Loans in an amount equal to the
amount of the Libor Loans and having a maturity comparable to the relevant
interest period, provided that the Lenders may fund each of the Libor Loans in
any manner the Lenders see fit and the foregoing assumption shall be used only
for calculation of amounts payable under this Section 8.3. In addition,
notwithstanding anything to the contrary contained herein, the Agent shall apply
all proceeds of Collateral, including the Accounts, and all other amounts
received by it from or on behalf of the Company initially to the loans accruing
interest at the Chase Manhattan Rate and then to Libor
28
<PAGE>
Loans, provided that upon the occurrence and during the continuance of an Event
of Default, or in the event the aggregate amount of outstanding Libor Loans
exceeds Availability or the applicable maximum levels set forth therefor, the
Agent may apply all such amounts received by it to the payment of Obligations in
such manner and in such order as the Agent may elect in its reasonable business
judgment. In the event that any such amounts are applied to Revolving Loans
which are Libor Loans, such application shall be treated as a prepayment of such
loans and the Lenders shall be entitled to indemnification hereunder.
8.4 In consideration of the Letter of Credit Guaranty, the Company shall
pay to the Agent, for the benefit of the Lenders, a Letter of Credit Guaranty
Fee equal to one and one-quarter percent (1.25%) per annum on the face amount of
each Letter of Credit. For each documentary Letter of Credit, the entire Letter
of Credit Guaranty Fee shall be payable in advance, and for each standby Letter
of Credit, the Letter of Credit Guaranty fee shall be payable monthly on the
first day of each month.
8.5 Any charges, fees, commissions, costs and expenses charged to the
Agent for the Company's account by any Issuing Bank in connection with or
arising out of Letters of Credit issued pursuant to this Financing Agreement or
out of transactions relating thereto will be charged to the Company's Revolving
Loan Account in full when charged to or paid by the Agent, and when made by any
such Issuing Bank shall be conclusive on the Agent and the Lenders.
8.6 On demand, the Company shall reimburse or pay to the Agent, for its
own account, all Out-of-Pocket Expenses and Documentation Fees.
8.7 Commencing on February 1, 1999, and on the first day of each month
thereafter, the Company shall pay to the Agent, for the benefit of the Lenders,
the Line of Credit Fee.
8.8 On the date of the execution of this Agreement by the Agent and CITBC,
the Company shall pay to the Agent, for the benefit of the Lenders, a $250,000
loan facility fee, which shall be fully earned by the Lenders and non-refundable
when paid. On the closing date, the Agent agrees to credit against this loan
facility fee, all deposits made by the Company with the Agent prior to the date
of this Agreement in connection with any proposal or commitment letter between
the Company and the Agent (net, however of the costs, fees and expenses incurred
by the Lender and payable by the Company thereunder).
8.9 On the date hereof and on each annual anniversary hereof (other than
an Anniversary Date on which this Financing Agreement is terminated), the
Company shall pay to Agent, for its own account, the Collateral Management Fee,
which shall be fully earned and not refundable when due.
8.10 After the occurrence and during the continuance of an Event of
Default, the Company shall pay to the Agent, for its own account, $650 per
person, per day, plus all reasonable expenses of the Agent's personnel used for
reviewing the books and records of the Company and for verifying,
29
<PAGE>
testing, protecting, safeguarding, preserving or disposing of all or any part of
the Collateral, which shall be in addition to the Collateral Management Fee.
8.11 The Company hereby authorizes the Agent, on behalf of the Lenders, to
charge the Company's Revolving Loan Account with the amount of all payments due
hereunder as such payments become due. The Company confirms that any charges
which the Agent may so make to the Company's Revolving Loan Account as herein
provided will be made as an accommodation to the Company and solely at the
Agent's discretion.
SECTION 9. POWERS
9.1 The Company hereby constitutes the Agent, on behalf of the Lenders, or
any person or agent which the Agent may designate, as its attorney-in-fact, at
the Company's cost and expense, to exercise all of the following powers, which
being coupled with an interest, shall be irrevocable until all of the
Obligations have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of the Agent or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company and
to notify postal authorities to change the address for delivery thereof to such
address as the Agent may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of the Agent or the Company or that of the Agent's designee, information
concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of the Agent's
and the Lenders' interests therein and to notify customers indebted on Accounts
to make payment directly to the Agent, on behalf of the Lenders, for the
Company's account; and
(e) To take or bring, in the name of the Agent, the Lenders and/or the
Company, all steps, actions, suits or proceedings deemed by the Agent necessary
or desirable to enforce or effect collection of the Accounts.
9.2 Notwithstanding anything set forth herein to the contrary, the powers
set forth in paragraphs (b), (d) and (e) of Section 9.1 may only be exercised
after the occurrence of an Event of Default and until such time as such Event of
Default is waived.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
30
<PAGE>
10.1 Notwithstanding anything set forth herein to the contrary, the
Lenders (acting through the Agent) may terminate this Financing Agreement
immediately upon the occurrence of any of the following (herein "Events of
Default"):
(a) cessation of the business of the Company or the calling of a meeting
of the creditors of the Company for purposes of compromising the debts and
obligations of the Company, or the failure of the Company generally to meet
debts as they mature;
(b) the representations and warranties made by the Company in this
Financing Agreement or in any other written agreement between the Company, on
one hand, and the Agent and/or the Lenders, on the other hand, shall be untrue
or misleading in any material respect when made (it being the intent and
understanding of the parties hereto that the representations and warranties made
by the Company in Section 3 hereof shall be deemed to be remade by the Company
each time that the Company requests a Revolving Loan or a Letter of Credit
hereunder);
(c) the commencement by or against the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceedings
under any federal or state law, provided that in the event of any involuntary
proceeding commenced against the Company such proceeding is not dismissed or
discharged within sixty (60) days after commencement thereof;
(d) breach by the Company of any covenant contained in this Financing
Agreement (other than those referred to in paragraph (e) below) or in any other
written agreement between the Company, on one hand, and the Agent and/or the
Lenders, on the other hand, provided that such breach by the Company of any of
the covenants referred in this paragraph (d) shall not be deemed to be an Event
of Default unless and until such breach shall remain unremedied to the Agent's
satisfaction for a period of ten (10) Business Days from the date of such
breach;
(e) breach by the Company of any warranty, representation or covenant
contained in Section 3.3, Section 6.3 and Sections 7.1, 7.2, 7.3, 7.5, 7.6 and
7.9 through 7.11, inclusive;
(f) failure of the Company to pay i) the principal amount of the
Obligations on the due date thereof, or ii) any interest or other Obligation
within five (5) days of the due date thereof (provided that nothing herein shall
prohibit the Agent from charging the Revolving Loan Account for such interest
and other Obligations on the due date thereof);
(g) the Company shall i) engage in any "prohibited transaction" as defined
in ERISA, ii) incur any "accumulated funding deficiency" as defined in ERISA,
iii) incur any Reportable Event as defined in ERISA, iv) terminate any Plan, as
defined in ERISA or v) engage in any proceeding in which the Pension Benefit
Guaranty Corporation shall seek appointment, or is appointed, as trustee or
administrator of any Plan, as defined in ERISA; and with respect to this
paragraph (g) such event or condition x) remains uncured for a period of thirty
(30) days from date of occurrence and y) could, in the reasonable opinion of the
Agent, subject the Company to any material tax, penalty or other liability;
31
<PAGE>
(h) the occurrence of any default or event of default (after giving effect
to any applicable grace or cure periods) under i) any instrument or agreement
governing or evidencing Indebtedness of the Company having an original principal
amount in excess of $10,000,000 or ii) the Master Lease Agreement dated as of
December 19, 1996 between the Company and General Electric Capital Corporation,
as such agreement may be amended or restated from time to time; or
(i) the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company.
10.2 Upon the occurrence of an Event of Default, the Agent may, at its
option, and the Agent shall, upon the request of the Required Lenders,
declare that all loans, advances and extensions of credit provided for in
Sections 3 and 5 of this Financing Agreement thereafter shall be made in the
Lender's sole discretion, and the obligation of the Lenders to make Revolving
Loans and/or open Letters of Credit shall cease unless such Event of Default
is waived. In addition, upon the occurrence of an Event of Default, the Agent
may, at its option, and the Agent shall, upon the request of the Required
Lenders: (a) declare all Obligations immediately due and payable; (b) charge
the Company the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in
Section 8 of this Financing Agreement, provided that with respect to this
clause (b), the Agent gives the Company written notice of the Event of
Default (provided that no notice is required if the Event of Default is the
Event listed in paragraph (c) of Section 10.1) and the Company fails to cure
the Event of Default to the Agent's satisfaction within ten (10) days after
the Company is deemed to have received such notice hereunder (or within 10
days of the occurrence of the Event of Default, in the case of an Event of
Default listed in paragraph (c) of Section 10.1); and (c) immediately
terminate this Financing Agreement upon notice to the Company, provided that
no notice of termination is required in the case of an Event of Default
listed in paragraph (c) of Section 10.1. The exercise of any option is not
exclusive of any other option which may be exercised at any time by the Agent
or the Lenders.
10.3 Immediately after the occurrence and during the continuance of any
Event of Default, the Agent may, at its option, and the Agent shall, upon the
request of the Required Lenders: (a) remove from any premises where same may be
located any and all documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or the Agent
may use, at the Company's expense, such of the Company's personnel, supplies or
space at the Company's places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company, the Agent
and/or the Lenders, and generally shall have all other rights respecting said
Accounts, including, without limitation, the right to i) accelerate or extend
the time of payment, ii) settle, compromise, release in whole or in part any
amounts owing on any Accounts and iii) issue credits in the name of the Company,
the Agent and/or the Lenders; (c) sell, assign and deliver the Collateral and
any returned, reclaimed or repossessed merchandise, with or without
advertisement, at public or private sale, for cash, on credit or otherwise, at
the Agent's sole option and discretion, and the Agent, on behalf of the Lenders,
may bid or become a purchaser at any such sale, free from any right
32
<PAGE>
of redemption, which right is hereby expressly waived by the Company; (d)
foreclose its security interests in the Collateral by any available judicial
procedure, or take possession of any or all of the Inventory and/or Other
Collateral without judicial process, and enter any premises where any Inventory
and/or Other Collateral may be located for the purpose of taking possession of
or removing the same, and (e) exercise any other rights and remedies provided in
law, in equity, by contract or otherwise. After the occurrence and during the
continuance of an Event of Default, the Agent shall have the right, without
notice or advertisement, to sell, lease, or otherwise dispose of all or any part
of the Collateral whether in its then condition or after further preparation or
processing, in the name of the Company, the Agent and/or the Lenders, or in the
name of such other party as the Agent may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit, with
or without warranties or representations, and upon such other terms and
conditions as the Agent and the Lenders in their sole discretion may deem
advisable. Any Lender or the Agent, on behalf of the Lenders, shall have the
right to purchase at any such sale. If any Inventory shall require rebuilding,
repairing, maintenance or preparation, the Agent, on behalf of the Lenders,
shall have the right, at its option, to do such of the aforesaid as is
necessary, for the purpose of putting the Inventory in such saleable form as the
Agent shall deem appropriate. The Company agrees, at the request of the Agent,
to assemble the Inventory and to make it available to the Agent at premises of
the Company or elsewhere, and to make available to the Agent the premises and
facilities of the Company for the purpose of the Agent's taking possession of,
removing or putting the Inventory in saleable form. However, if notice of
intended disposition of any Collateral is required by law, it is agreed that ten
(10) days notice shall constitute reasonable notification and full compliance
with the law. The net cash proceeds resulting from the exercise of any of the
foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by the Agent to the payment of the
Obligations, whether due or to become due, in such order as the Agent and the
Lenders may elect, and the Company shall remain liable to the Agent and the
Lenders for any deficiencies. The Agent, on behalf of the Lenders, in turn
agrees to remit to the Company or its successors or assigns, any surplus
resulting therefrom. The enumeration of the foregoing rights is not intended to
be exhaustive and the exercise of any right shall not preclude the exercise of
any other rights by the Agent or the Lenders, all of which shall be cumulative.
SECTION 11. TERMINATION
11.1 Except as otherwise provided herein, the Company or any Lender
(acting through the Agent) may terminate this Financing Agreement and the Line
of Credit only as of the initial or any subsequent Anniversary Date and then
only by giving the other party at least sixty (60) days prior written notice of
termination. Notwithstanding the foregoing, (a) the Lenders (acting through the
Agent) may terminate the Financing Agreement immediately upon the occurrence of
an Event of Default, provided that in the case of an Event of Default listed in
paragraph (c) of Section 10.1 hereof, the Agent and the Lenders may regard the
Financing Agreement as terminated and notice to that effect is not required, and
(b) the Company may terminate this Financing Agreement and the Line of Credit
prior to any applicable Anniversary Date upon sixty (60) days' prior written
notice to the Agent, provided that the Company pays to the Agent, for the
benefit of the Lenders, immediately on demand, any applicable Early Termination
Fee. For purposes of this Financing
33
<PAGE>
Agreement, the repayment of the Revolving Loans in full, by itself, shall not
constitute a termination of this Financing Agreement or the Line of Credit.
This Financing Agreement, unless terminated as herein provided, shall
automatically continue from Anniversary Date to Anniversary Date. All
Obligations shall become due and payable as of any termination hereunder or
under Section 10 hereof and, pending a final accounting, the Agent may withhold
any balances in the Company's Revolving Loan Account (unless supplied with an
indemnity satisfactory to the Agent) to cover all of the Obligations, whether
absolute or contingent. All of the Agent's and the Lenders' rights, liens and
security interests shall continue after any termination until all Obligations
have been paid and satisfied in full.
SECTION 12. MISCELLANEOUS
12.1 The Company hereby waives diligence, demand, presentment and protest
and any notices thereof as well as notice of nonpayment. Any waiver of an Event
of Default by the Agent must be in writing and signed by an officer of the
Agent, and no delay or omission of the Agent, the Lenders or the Company to
exercise any right or remedy hereunder, whether before or after the happening of
any Event of Default, shall impair any such right, or shall operate as a waiver
of such right or as a waiver of any such Event of Default. No single or partial
exercise by the Agent or the Lenders of any right or remedy precludes any other
or further exercise thereof, or precludes any other right or remedy.
12.2 This Financing Agreement and the documents executed and delivered in
connection therewith: (a) constitute the entire agreement among the Company, the
Agent and the Lenders; (b) supersede any prior agreements; (c) subject to the
provisions of Section 14.10 hereof, may be amended only by a writing signed by
the Company, the Agent and the Required Lenders, if necessary; and (d) shall
bind and benefit the Company, the Agent, the Lenders and their respective
successors and assigns.
12.3 In no event shall the Company, upon demand by the Agent for payment
of any indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made
in connection herewith, the Agent and the Lenders shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto, any
amount in excess of the maximum amount of interest permissible under applicable
law. If the Agent or any Lender ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as such.
If as a result, principal is paid in full, any remaining excess shall be
refunded to the Company. This Section 12.3 shall control every other provision
hereof and of any other agreement made in connection herewith.
12.4 If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically
34
<PAGE>
as a part of the applicable agreement a legal and enforceable provision as
similar in terms to the severed provision as may be possible.
12.5 THE COMPANY, THE AGENT AND THE LENDERS EACH HEREBY WAIVE ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING
AGREEMENT. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED.
12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when received by the recipient if
hand delivered, sent by commercial overnight courier or sent by facsimile, or
three (3) Business Days after deposit in the United State mail, with proper
first class postage prepaid and addressed to the party to be notified as
follows:
(a) if to the Agent, at:
The CIT Group/Business Credit, Inc.
10 South LaSalle Street, 22nd Floor
Chicago, Illinois 60603
Attn: Regional Manager
Telecopier No.: (312) 443-0139;
(b) if to the Company at:
Hutchinson Technology Incorporated
40 West Highland Park
Hutchinson, Minnesota 55350
Attention: Ruth N. Bauer, Treasurer
Telecopier No.: (320) 587-1810
(c) if to any Lender, at its address set forth below its signature to this
Financing Agreement or its address specified in the Assignment and Transfer
Agreement executed by such Lender; or
(d) to such other address as any party may designate for itself by like
notice.
12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS.
SECTION 13. AGREEMENTS REGARDING THE LENDERS
13.1 (a) The Agent, on behalf of the Lenders, shall disburse all loans and
advances to the
35
<PAGE>
Company and shall handle all collections of Collateral and repayment of all
Obligations. It is understood that for purposes of advances to the Company and
for purposes of this Section 13 the Agent is using the funds of the Agent.
b) Unless the Agent shall have been notified in writing by any Lender prior
to any advance to the Company that such Lender will not make the amount which
would constitute its PRO RATA share of the borrowing on such date available to
the Agent, the Agent may assume that such Lender shall make such amount
available to the Agent on a Settlement Date, and in reliance upon such
assumption, the Agent may make available to the Company a corresponding amount.
A certificate of the Agent submitted to any Lender with respect to any amount
owing under this subsection shall be conclusive, absent manifest error. If such
Lender's PRO RATA share of such borrowing is not in fact made available to the
Agent by such Lender on the Settlement Date, the Agent shall be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Revolving Loans hereunder, on demand, from the Company, without prejudice to any
rights which the Agent may have against such Lender hereunder. Nothing
contained in this subsection shall relieve any Lender which has failed to make
available its PRO RATA share of any borrowing hereunder from its obligation to
do so in accordance with the terms hereof. In addition, nothing contained
herein shall be deemed to obligate the Agent to make available to the Company
the full amount of a requested advance when the Agent has any notice (written or
otherwise) that any of the Lenders will not advance its PRO RATA share thereof.
13.2 On each Settlement Date, the Agent and the Lenders shall each remit
to the other, in immediately available funds, all amounts necessary so as to
ensure that, as of the Settlement Date, the Lenders shall have their PRO RATA
share of all outstanding Obligations.
13.3 The Agent shall forward to each Lender, at the end of each month, a
copy of the account statement rendered by the Agent to the Company.
13.4 After the Agent's receipt of any interest and fees earned under this
Financing Agreement, the Agent promptly will remit to the Lenders (a) their PRO
RATA share of all fees to which the Lenders are entitled hereunder and (b)
interest computed at the rate and as provided for in Section 8 of this Financing
Agreement on all outstanding amounts advanced by the Lenders on each Settlement
Date, prior to adjustment, that are subsequent to the last remittance by the
Agent to the Lenders of the Company's interest.
13.5 (a) The Lenders may, with the prior written consent of the Agent,
which consent will not unreasonably be withheld or delayed, sell to one or more
commercial banks, commercial finance lenders or other financial institutions,
participations in the loans and extensions of credit made and to be made to the
Company hereunder. Such participant shall have no rights as a Lender hereunder,
and notwithstanding the sale of any participation by a Lender, i) such Lender
shall remain solely responsible to the other parties hereto for the performance
of its obligations hereunder, and ii) the Company, the Agent and the Lenders may
continue to deal solely with such Lender with respect to all matters relating to
this Financing Agreement and the transactions contemplated hereby. In
36
<PAGE>
addition, all amounts payable under this Financing Agreement to any Lender which
sells a participation in accordance with this paragraph shall continue to be
paid directly to such Lender and shall be determined as if such Lender had not
sold any such participation.
(b) The Lenders may also, with the prior written consent of the Agent,
which consent will not be unreasonably withheld or delayed, assign to one or
more commercial banks, commercial finance lenders or other financial
institutions, all or a portion of their rights and obligations under this
Financing Agreement (including, without limitation, its obligations under the
Line of Credit and its rights and obligations with respect to Letters of
Credit). Any such assignment shall i) apply to the same PRO RATA share of such
Lender's commitments and interests in the Revolving Loans and Letters of Credit
and ii) if such assignment is a partial assignment, be in a minimum principal
amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof.
Upon execution of an Assignment and Transfer Agreement, i) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment, have
the rights and obligations of the assigning Lender as the case may be hereunder
and ii) the assigning Lender shall, to the extent that rights and obligations
hereunder have been assigned by such Lender pursuant to such assignment,
relinquish such Lender's rights and be released from its obligations under this
Financing Agreement. The Company shall, if necessary, execute any documents
reasonably required to effectuate and acknowledge the assignments.
(c) Subject to the provisions of Section 13.9, the Company authorizes each
Lender to disclose to any participant or purchasing lender any and all financial
information in such Lender's possession concerning the Company and their
affiliates which has been delivered to such Lender by or on behalf of the
Company pursuant to this Financing Agreement or which has been delivered to such
Lender by or on behalf of the Company in connection with such Lender's credit
evaluation of the Company and its affiliates prior to entering into this
Financing Agreement.
13.6 The Company hereby agrees that each Lender is solely responsible for
funding its PRO RATA share of the Line of Credit and that neither the Agent nor
any Lender shall be responsible for, nor assume any obligations for the failure
of any Lender to make available its PRO RATA share of the Line of Credit.
Further, should any Lender refuse to make available its PRO RATA share of the
Line of Credit, then any other Lender may, but without obligation to do so,
increase, unilaterally, its PRO RATA share of the Line of Credit, in which event
the Company shall be obligated to that other Lender.
13.7 In the event that the Agent, the Lenders or any one of them is sued
or threatened with suit by the Company, or by any receiver, trustee, creditor or
any committee of creditors on account of any preference, voidable transfer or
lender liability issue, alleged to have occurred or been received as a result
of, or during the transactions contemplated under this Financing Agreement, then
in such event any money paid in satisfaction or compromise of such suit, action,
claim or demand and any expenses, costs and attorneys' fees paid or incurred in
connection therewith, whether by the Agent, the Lenders or any one of them,
shall be shared proportionately by the Lenders. In addition, any costs,
expenses, fees or disbursements incurred by outside agencies or attorneys
retained by the Agent to effect collection or enforcement of any rights in the
Collateral, including enforcing,
37
<PAGE>
preserving or maintaining rights under this Financing Agreement shall be shared
PRO RATA among the Lenders to the extent not reimbursed by the Company or from
the proceeds of Collateral. The provisions of this paragraph shall not apply to
any suits, actions, proceedings or claims that (a) predate the date of this
Financing Agreement or (b) are based on transactions, actions or omissions that
predate the date of this Financing Agreement.
13.8 The Company authorizes each Lender, and each Lender shall have the
right, without notice, after the acceleration of the Obligations, to set-off and
apply against any and all property held by, or in the possession of such Lender,
any of the Obligations owed to such Lender.
13.9 For the purposes of this Section 13.9, "CONFIDENTIAL INFORMATION"
means all financial projections and all other information delivered to the Agent
or any Lender by or on behalf of the Company or any subsidiary in connection
with the transactions contemplated by or otherwise pursuant to this Financing
Agreement that is proprietary in nature and that is clearly marked or labeled or
otherwise adequately identified as being confidential information of the Company
or such subsidiary, provided that such term does not include information that
(a) was publicly known or otherwise known to the Agent or the Lenders prior to
the time of such disclosure, (b) subsequently becomes publicly known through no
act or omission by the Agent or the Lenders or any person acting on their
behalf, (c) otherwise becomes known to the Agent or the Lenders other than
through disclosure by the Company or any subsidiary of the Company or (d)
constitutes financial statements delivered under Section 7.8 that are otherwise
publicly available. Agent and the Lenders will maintain the confidentiality of
such Confidential Information in accordance with commercially reasonable
procedures adopted by the Agent and the Lenders in good faith to protect
confidential information of third parties delivered to them, provided that the
Agent and the Lenders may deliver or disclose Confidential Information to (a)
their respective directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the Line of Credit), (b) their respective financial advisors
and other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 13.9, (c)
any other Lender, (d) any bank or other commercial lender to which the Agent or
a Lender sells or offers to sell a portion of their rights and obligations under
this Financing Agreement or any participation therein (if such person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 13.9), or (e) any other person (including bank
auditors and other regulatory officials) to which such delivery or disclosure
may be necessary or appropriate i) to comply with compliance with any applicable
law, rule, regulation or order, ii) in response to any subpoena or other legal
process, III) in connection with any litigation to which the Agent or a Lender
is a party or IV) if an Event of Default has occurred and is continuing, to the
extent the Agent may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under this Financing Agreement. Each Lender becoming a Lender
subsequent to the initial execution and delivery of this Financing Agreement, by
its execution and delivery of an Assignment and Transfer Agreement, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
Section 13.9.
38
<PAGE>
SECTION 14. AGENCY
14.1 Each Lender hereby irrevocably designates and appoints CITBC to act
as the Agent for the Lenders under this Financing Agreement and any ancillary
loan documents, and irrevocably authorizes CITBC, as Agent for such Lender, to
take such action on its behalf under the provisions of this Financing Agreement
and all ancillary documents, and to exercise such powers and perform such duties
as are expressly delegated to the Agent by the terms of this Financing
Agreement and all ancillary documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Financing Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Financing Agreement and the ancillary documents or otherwise exist against the
Agent.
14.2 The Agent may execute any of its duties under this Financing
Agreement and all ancillary documents by or through agents or attorneys-in-fact
and shall be entitled to the advice of counsel concerning all matters pertaining
to such duties.
14.3 Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys-in-fact shall be (a) liable to any Lender for any action
lawfully taken or omitted to be taken by the Agent or such person under or in
connection with the Financing Agreement and all ancillary documents (except for
its or such person's own gross negligence or willful misconduct), or (b)
responsible in any manner to any of the Lenders for i) any recitals, statements,
representations or warranties made by the Company or any officer thereof
contained in this Financing Agreement or in any ancillary document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Financing Agreement,
ii) the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Financing Agreement or any ancillary document or iii) any
failure of the Company to perform its obligations hereunder or under any
ancillary document. The Agent shall not be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Financing Agreement or any
ancillary document, or to inspect the properties, books or records of the
Company.
14.4 The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by the Agent to be
genuine and correct and to have been signed, sent or made by the proper person
or persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Financing Agreement and all ancillary
documents unless the Agent (a) shall first receive such advice or concurrence of
the Lenders or the Required Lenders, as the case may be, as the Agent deems
appropriate, or (b) shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by the
39
<PAGE>
Agent by reason of taking or continuing to take any such action. The Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Financing Agreement and all ancillary documents in accordance with a
request of all Lenders or the Required Lenders, as the case may be, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders.
14.5 The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Lender or the Company describing such Default or Event of
Default. In the event that the Agent receives such a notice, the Agent shall
promptly give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Lenders or Required Lenders, as the case may be; provided that unless and
until the Agent shall have received such direction, the Agent may (but shall not
be obligated to) in the interim take such action, or refrain from taking such
action, with respect to such Default or Event of Default as the Agent shall deem
advisable and in the best interests of the Lenders.
14.6 Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to such Lender, and agrees that no act by the
Agent hereinafter taken, including any review of the affairs of the Company,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that such Lender has, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as such Lender has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Company and made its
own decision to enter into this Financing Agreement. Each Lender also
represents to the Agent that such Lender will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as such Lender shall deem appropriate at the time, continue to make
its own credit analysis, appraisals and decisions in taking or not taking action
under the Financing Agreement and to make such investigation as such Lender
deems necessary to inform itself as to the business, operations, property,
financial and other condition or creditworthiness of the Company. The Agent,
however, agrees to provide the Lenders with copies of all financial statements,
projections and business plans which come into the possession of the Agent.
14.7 The Lenders agree to indemnify the Agent (to the extent not
reimbursed by the Company and without limiting the obligation of the Company to
do so), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of (a) this Financing
Agreement or any ancillary document, or any documents contemplated by or
referred to herein, (b) the transactions contemplated hereby or (c) any action
taken or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or
40
<PAGE>
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements of the Lenders set forth in this paragraph shall
survive the payment of the Obligations.
14.8 The Agent may make loans to, and generally engage in any kind of
business with the Company as though the Agent were not the Agent hereunder.
With respect to loans made or renewed by the Agent, or loan obligations
hereunder as Lender, the Agent shall have the same rights and powers, duties and
liabilities under this Financing Agreement as any Lender and may exercise the
same as though it was not the Agent, and the terms "Lender" and "Lenders" shall
include the Agent in its individual capacities.
14.9 The Agent may resign as the Agent upon 30 days' notice to the Lenders
and such resignation shall be effective upon the appointment of a successor
Agent. If the Agent shall resign as Agent, then the Lenders promptly shall
appoint a successor to the Agent, whereupon such successor shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor effective upon its appointment. Upon such appointment, the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Financing Agreement. After any Agent's resignation hereunder,
the provisions of this Section 14 shall inure to its benefit as to any actions
taken or omitted to be taken by it while acting as the Agent.
14.10 Notwithstanding anything contained in this Financing Agreement to
the contrary, the Agent will not, without the prior written consent of all
Lenders: (a) amend the Financing Agreement to i) increase the Line of Credit,
ii) reduce the interest rates; iii) reduce or waive x) any fees in which the
Lenders share hereunder or y) the repayment of any Obligations due the Lenders,
iv) extend the maturity of the Obligations or v) alter or amend x) this Section
14.10 or y) the definitions of Availability, Availability Reserve, Borrowing
Base, Eligible Inventory, Inventory Advance Percentage or Required Lenders; (b)
release Collateral in bulk without a corresponding reduction in the Obligations;
or (c) intentionally make any Revolving Loan or assist in opening any Letter of
Credit hereunder, if after giving effect thereto the aggregate amount of
Revolving Loans and Letters of Credit made or issued hereunder would exceed one
hundred and ten percent (110%) of the maximum amount available under Sections 3
and 5 hereof. In all other respects the Agent is authorized to take or to
refrain from taking any action which the Agent, in its reasonable discretion,
deems to be advisable and in the best interest of the Lenders (including,
without limitation, the making of an overadvance or the termination of the
Financing Agreement upon the occurrence of an Event of Default), unless this
Financing Agreement specifically requires the Company or the Agent to obtain the
consent of, or act at the direction of, the Required Lenders.
14.11 In the event any Lender's consent is required pursuant to the
provisions of this Financing Agreement and such Lender does not respond to any
request by the Agent for such consent within 10 days after such request is made
to such Lender, such failure to respond shall be deemed a consent. In addition,
in the event that any Lender declines to give its consent to any such request,
the Lenders hereby mutually agree that the Agent and/or any other Lender shall
have the right (but not the obligation) to purchase such Lender's PRO RATA share
of the Obligations for the full
41
<PAGE>
amount thereof as of the date of such purchase.
14.12 Each Lender agrees that notwithstanding the provisions of Section 11
of this Financing Agreement, any Lender may terminate this Financing Agreement
and the Line of Credit only as of the initial or any subsequent Anniversary
Date, and then only by giving the Agent ninety (90) days prior written notice
thereof. Within 30 days after receipt of such termination notice, the Agent
shall, at its option, either (a) give notice of termination to the Company
hereunder or (b) purchase the Lender's PRO RATA share of the Obligations
hereunder for the full amount thereof as of the date of such purchase.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be executed, agreed to accepted and delivered in Chicago, Illinois by their
proper and duly authorized officers as of the date set forth above.
THE CIT GROUP/BUSINESS CREDIT,
INC., as the Agent and a Lender
By /s/ Michael J. Egan
-------------------------------
Its: Sr. Vice President
<PAGE>
HUTCHINSON TECHNOLOGY
INCORPORATED
By: /s/ John A. Ingleman
--------------------------------
Its: CFO
-------------------------------
<PAGE>
HUTCHINSON TECHNOLOGY INCORPORATED
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------------------------
December 27, December 28,
1998 1997
------------------- -------------------
<S> <C> <C>
NET INCOME (LOSS) $11,533 ($11,474)
Plus: interest expense on convertible subordinated notes 2,411 -
Less: additional profit sharing expense and tax benefit
reduction 697 -
------------------- -------------------
NET INCOME (LOSS) PER SHARE -
BASIC: 13,247 (11,474)
------------------- -------------------
------------------- -------------------
Weighted average common
shares outstanding 19,783 19,629
------------------- -------------------
BASIC
NET INCOME (LOSS) PER SHARE $0.58 ($0.58)
------------------- -------------------
------------------- -------------------
NET INCOME (LOSS) PER SHARE -
DILUTED:
Weighted average common
shares outstanding 19,783 19,629
Dilutive effect of convertible subordinated notes 5,291 -
Dilutive effect of stock options
outstanding after application
of treasury stock method 558 -
------------------- -------------------
25,632 19,629
------------------- -------------------
------------------- -------------------
DILUTED
NET INCOME (LOSS) PER SHARE $0.52 ($0.58)
------------------- -------------------
------------------- -------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF
HUTCHINSON TECHNOLOGY INCORPORATED FOR THE THIRTEEN WEEKS ENDED DECEMBER 27,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> DEC-27-1998
<CASH> 71,075,000
<SECURITIES> 10,005,000
<RECEIVABLES> 59,988,000
<ALLOWANCES> 7,234,000
<INVENTORY> 29,485,000
<CURRENT-ASSETS> 193,318,000
<PP&E> 568,471,000
<DEPRECIATION> 224,663,000
<TOTAL-ASSETS> 556,686,000
<CURRENT-LIABILITIES> 89,361,000
<BONDS> 217,625,000
0
0
<COMMON> 198,000
<OTHER-SE> 248,297,000
<TOTAL-LIABILITY-AND-EQUITY> 556,686,000
<SALES> 155,275,000
<TOTAL-REVENUES> 155,275,000
<CGS> 121,690,000
<TOTAL-COSTS> 121,690,000
<OTHER-EXPENSES> 4,670,000<F1>
<LOSS-PROVISION> 2,818,000
<INTEREST-EXPENSE> 2,888,000
<INCOME-PRETAX> 14,598,000
<INCOME-TAX> 3,065,000
<INCOME-CONTINUING> 11,533,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,533,000
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.52
<FN>
<F1>Other Expenses reflect research and development expenses.
</FN>
</TABLE>
