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 period ended September 30, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
`
Commission File Number: 0-20289
KEMET CORPORATION
Exact name of registrant as specified in its charter
DELAWARE 57-0923789
(State or other (IRS Employer
jurisdiction of Identification
No.)
incorporation or organization)
2835 KEMET WAY, SIMPSONVILLE, SOUTH CAROLINA 29681
- - ------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
864-963-6300
-------------------------------
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report: N/A
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 [ ]
Common Stock Outstanding at: November 10, 1998
Title of Each Class Number of Shares
Outstanding
- - --------------------------------------------------------------------------------
Common Stock, $.01 Par Value 38,120,550
Non-Voting Common Stock, $.01 Par Value 1,096,610
<PAGE> 2
Part I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Per Share
Data)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------- --------
(unaudited)
ASSETS
<S>
<C> <C>
Current
assets:
Cash
$ 1,974 $ 1,801
Notes and accounts receivable (less allowances of $6,037 and $6,612
September 30, 1998 and March 31, 1998,
respectively) 52,212 62,040
Inventories:
Raw materials and
supplies
40,871 37,275
Work in
process
54,208 48,068 Finished
goods
22,842 29,340
-------- --------
Total
inventories
117,921 114,683
Prepaid
expenses
3,544 2,915
Deferred income
taxes
11,883 13,581
-------- --------
Total current
assets
187,534 195,020
Property and equipment (less accumulated depreciation of $202,225 and
$179,566 at September 30, 1998 and March 31, 1998,
respectively) 412,659 393,551
Intangible assets (less accumulated amortization of $14,699 and
$13,893 at September 30, 1998 and March 31, 1998,
respectively) 46,009 46,816
Other
assets
7,649 6,722
-------- --------
Total
assets
$653,851 $642,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
debt $
1,000 $20,000
Accounts payable,
trade
63,394 88,711
Accrued
expenses
32,522 36,669
Income taxes
3,396 868
-------- --------
Total current
liabilities
100,312 146,248
Long-term debt, excluding current
installments 159,300
104,000
Other non-current
obligations
69,102 69,145
Deferred income
taxes
16,273 16,456
-------- --------
Total
liabilities
$344,987 $335,849
Stockholders' equity:
Common stock, par value $.01, authorized 100,000,000 shares, issued
and outstanding 38,113,032 and 37,806,931 shares at September 30, 1998
and
March 31, 1998,
respectively
381 381
Non-voting common stock, par value $.01, authorized 12,000,000 shares,
issued and outstanding 1,096,610 at September 30, 1998 and March 31,
1998 11 11
Additional paid-in
capital
145,021 144,299
Retained
earnings
163,500 161,577
Accumulated other comprehensive
income (49)
(8)
-------- --------
Total stockholders'
equity 308,864
306,260
-------- --------
Total liabilities and stockholders'
equity $653,851 $642,109
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share
Data)
<TABLE>
<CAPTION>
Three months
ended Six months ended
September
30, September 30,
- - ------------------------ -----------------------
1998
1997 1998 1997
--------
- - -------- -------- --------
(unaudited)
(unaudited) (unaudited) (unaudited)
<S> <C>
<C> <C> <C>
Net Sales $137,733
$165,477 $280,204 $326,681
Operating costs and expenses:
Cost of goods sold, exclusive of depreciation 105,549
115,177 212,815 225,764
Selling, general and administrative expenses 11,911
12,256 24,090 24,392
Research, development and engineering 5,582
5,423 11,735 11,051
Depreciation and amortization 11,535
9,400 22,413 18,744
--------
- - -------- -------- --------
Total operating costs and expenses 134,577
142,256 271,053 279,951
Operating income 3,156
23,221 9,151 46,730
Other expense:
Interest expense 1,701
1,785 4,195 3,296
Other 829
1,018 2,128 2,432
--------
- - -------- -------- --------
Total other expense 2,530
2,803 6,323 5,728
Earnings before income taxes 626
20,418 2,828 41,002
Income tax expense 200
6,176 905 12,750
--------
- - -------- -------- --------
Net earnings $ 426 $
14,242 $ 1,923 $ 28,252
========
======== ======== ========
Per Common Share Information:
Net earnings per share:
Basic $ 0.01 $
0.36 $ 0.05 $ 0.72
Diluted $ 0.01 $
0.36 $ 0.05 $ 0.72
Weighted average shares outstanding:
Basic 39,203,606
39,022,225 39,194,679 38,952,326
Diluted 39,348,334
39,502,700 39,371,041 39,484,438
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
ITEM 1 - Financial Statements
KEMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months ended
September 30,
--------------------------
1998 1997
-------- --------
(unaudited) (unaudited)
<S>
<C> <C>
Sources (uses) of cash:
Net cash from operating
activities $ 4,829
$38,307
Investing activities:
Additions to property and
equipment (41,634)
(59,101) Proceeds from disposals of
property
(4) -
Other
(41) (2)
-------- --------
Net cash used by investing
activities (41,679)
(59,103)
Financing activities:
Proceeds from employees savings
plan 590
676
Proceeds from exercise of stock options including related tax
benefit 133 3,049
Repayment of long-term
debt
- - - (72)
Net proceeds/(repayments) from revolving/swingline
loan (63,700) 18,100
Proceeds from Senior
Notes
100,000 -
-------- --------
Net cash provided by financing
activities 37,023 21,753
-------- --------
Net increase in
cash
173 957
Cash at beginning of
period
1,801 2,188
-------- --------
Cash at end of
period
$1,974 $3,145
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
Note 1. Basis of Financial Statement Preparation
The consolidated financial statements contained herein are unaudited and have
been prepared from the books and records of KEMET Corporation and Subsidiaries
(KEMET or the Company). In the opinion of management, the consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the interim periods. The consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Although the Company believes that
the disclosures are adequate to make the information presented not misleading,
it is suggested that these consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto included
in the Company's fiscal year ending March 31, 1998 Form 10-K. Net sales and
operating results for the six months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
Note 2. Reconciliation of basic earnings per common share to diluted earnings
per common share.
In accordance with FASB Statement No. 128, the Company has included the
following table presenting a reconciliation of basic EPS to diluted EPS fully
displaying the effect of dilutive securities.
Computation Of Basic And Diluted Earnings Per Share
(Dollars in Thousands Except Per Share
Data)
<TABLE>
<CAPTION> For the three months ended
September 30,
1998 1997
----------------------------------------
- - -----------------------------------
Per Per
Income Shares Share
Income Shares Share
(numerator) (denominator) Amount
(numerator) (denominator) Amount
---------- ------------ -------
- - ---------- ------------ -------
<S> <C> <C> <C>
<C> <C> <C>
Basic EPS $ 426 39,203,606 $ 0.01 $
14,242 39,022,225 $0.36
Effect of diluted
securities
Stock Options - 144,728 -
- - - 480,475 -
---------- ------------ -------
- - ---------- ------------ -------
Diluted EPS $ 426 39,348,334 $ 0.01 $
14,242 39,502,700 $0.36
</TABLE>
Options to purchase 280,150 shares of common stock at $32.125 per share were
outstanding for the three months ended September 30, 1998 and 1997, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of common shares. The options
expire on October 23, 2005.
<PAGE> 6
Options to purchase 278,525 shares of common stock at $19.25 per share were
outstanding for the three months ended September 30, 1998 and 1997, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of common shares. The options
expire on October 24, 2006.
Options to purchase 308,445 shares of common stock at $25.75 per share were
outstanding for the three months ended September 30, 1998, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The options
expire on October 22, 2007.
Note 3. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income", as of the beginning of fiscal year 1999.
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
Three months ended Six months
ended September 30,
September 30,
- - ------------------- -----------------
1998 1997 1998 1997
------- ------- ------ -------
<S> <C> <C> <C> <C>
Net earnings $ 426 $14,242 $1,923
$28,252
Foreign currency
translation adjustment 10 (9) (41) (2)
------- ------- ------ -------
Comprehensive income $ 436 $14,233 $1,882
$28,250 ======= =======
====== =======
</TABLE>
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. In consolidation all significant
intercompany amounts and transactions have been eliminated.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Net sales for the quarter and six months ended September 30, 1998, were $137.7
million and $280.2 million, a decrease of $27.7 million or 17% and $46.5
million or 14%, respectively, from the comparable periods of the prior year.
The decrease in net sales was primarily attributable to a decline in selling
prices due to the imbalance of supply and demand in the industry and slower
sales growth in Asia. Sales of surface-mount capacitors for the quarter and
six months ended September 30,1998, were $111.6 million and $225.1 million, a
decrease of 13% and 9%, respectively, from comparable prior year periods.
Sales of leaded capacitors declined 30% to $26.1 million for the three months
ended September 30, 1998, and decreased 30% to $55.1 million for the six
months ended September 30, 1998. Sales also decreased in both the domestic
and export markets for the quarter and six months ended September 30, 1998,
compared to the comparable prior year periods. Domestic sales decreased 22%
and 19% to $73.8 million and $150.8 million, respectively, and export sales
decreased 9% and 7% to $63.9 million and $129.4 million.
<PAGE> 7
Cost of sales, exclusive of depreciation for the quarter and six months ended
September 30, 1998, were $105.5 million and $212.8 million, respectively, as
compared to $115.2 million and $225.8 million for the quarter and six months
ended September 30, 1997. As a percentage of net sales, cost of sales,
exclusive of depreciation was 77% and 76% for the quarter and six months ended
September 30, 1998, as compared to 70% and 69% for the comparable periods of
the prior year. The increase in cost of sales as a percentage of sales is
primarily
the result of depressed selling prices, lower unit volume and the increased
cost of palladium.
Selling, general and administrative expenses for the quarter and six months
ended September 30, 1998 were $11.9 million and $24.1 million, respectively,
as compared to $12.3 million and $24.4 million for the comparable periods of
the prior year. Selling, general and administrative expenses as a percent of
sales increased from 7% last year to 9% this year primarily as a result of
depressed selling prices and unit volume. During the quarter, the Company
announced a reduction in salaried employees that is expected to have a
favorable impact on selling, general, and administrative expenses beginning in
the third quarter of this fiscal year.
Research, development and engineering expenses for the quarter and six months
ended September 30, 1998, were $5.6 million and $11.7 million, respectively,
as compared to $5.4 million and $11.1 million for the prior comparable
periods. This reflects the Company continued investment in the development of
new products and technologies.
Depreciation and amortization expense for the quarter and six months ended
September 30, 1998, were $11.5 million and $22.4 million, respectively, as
compared to $9.4 million and $18.7 million for the prior comparable periods.
This increase was primarily due to the increase in capital expenditures over
the past fiscal years.
Operating income for the quarter and six months ended September 30, 1998, was
$3.2 million and $9.2 million, respectively, compared to $23.2 million and
$46.7 million for the comparable periods in the prior year. The decrease in
operating income resulted primarily from a combination of the reduced sales
levels and the higher cost of sales as discussed above.
Interest expense, net for the three months ended September 30, 1998, was $1.7
million compared to $1.8 million for the three months ended September 30,
1997. The decrease in interest expense is attributable to $1.1 million of
interest income received from the IRS during the quarter for tax refunds on
prior years' amended returns. Without this interest income, interest expense
for the quarter would have been $2.8 million, or $1.0 million higher than the
prior year's second quarter. This increase is attributable to higher debt
levels, resulting from increased capital expenditures and lower sales, and a
higher interest rate resulting from the issuance of the 6.66% Senior Notes.
Income tax expense totaled $0.2 million for the quarter ended September 30,
1998, compared to $6.2 million for the quarter ended September 30, 1997.
Income tax expense for the six months ended September 30, 1998, was $0.9
million or 32.0% of earnings as compared to $12.8 million or 31% of earnings
for the comparable period of the prior year. The increase in the effective
rate for the six months ended September 30, 1998, was primarily the result of
decreased foreign sales corporation benefits expected in fiscal year 1998.
Liquidity and Capital Resources
The Company's liquidity needs arise primarily from working capital
requirements, capital expenditures and interest payments on its indebtedness.
The Company intends to satisfy its liquidity requirements primarily with funds
provided by
<PAGE> 8
operations, borrowings under its revolving credit facility and amounts
advanced
under its foreign accounts receivable discounting arrangements.
Cash flows from operating activities for the six months ended September 30,
1998 amounted to a surplus of $4.8 million compared with a surplus of $38.3
million
for the six months ended September 30, 1997. The decrease in cash flow was
primarily a result of the decline in net income and the timing of cash flows
from current assets and liabilities such as accounts receivables, inventories,
accounts payables, accrued liabilities and income taxes payable.
For the quarter ended September 30, 1998 the Company expended $1.0 million in
cash charges against the restructuring liability for severance and
outplacement costs. The Company expects the remaining $.5 million in charges
will be incurred and completed by the third quarter of fiscal year 1999.
Capital expenditures were $41.6 million for the six months ended September 30,
1998 compared to $59.1 million for the six months ended September 30, 1997.
While the Company continues to invest in capital to support the long-term
growth objectives, the current reduction in capital expenditures is due to the
over capacity in the industry. The Company estimates its capital expenditures
for fiscal year 1999 to be approximately $60.0 million.
During the six months ended September 30, 1998 the Company increased its
indebtedness (long-term debt and current portion of long-term debt) by $36.3
million which consisted primarily of the financing of capital expenditures.
The Company had unused availability under its revolving credit facility as of
September 30, 1998 of approximately $115.7 million.
In May 1998, the Company sold $100.0 million of its Senior Notes pursuant to
the terms of the Note Purchase Agreement dated as of May 1, 1998, between the
Company and the eleven purchasers of the Senior Notes named therein. These
Senior Notes have a final maturity date of May 4, 2010, with required
principal repayments beginning on May 4, 2006. The Senior Notes bear interest
at a fixed rate of 6.66%, with interest payable semiannually beginning
November 4, 1998. The terms of the Note Purchase Agreement include various
restrictive covenants typical of transactions of this type, and require the
company to meet certain financial tests including a minimum net worth test and
a maximum ratio of debt to total capitalization. The net proceeds from the
Notes were used to repay existing indebtedness and for general corporate
purposes.
Management has initiated an aggressive enterprise wide program to prepare the
Company's computer systems and applications for the year 2000. The program is
a combination of remediation efforts both internally and with the Company's
suppliers and the implementation of client server applications. The
acquisition costs of the new software and equipment has and continues to be
capitalized and all other expenses have been charged against operating
income. Amounts incurred for the six months ended September 30, 1998 were not
material and the Company does not expect the amounts required to be expensed
for the remaining activities to have a material effect on its financial
position or results of operations. The Company expects its year 2000 date
conversion projects to be completed on a
timely basis. However, there can be no assurance that other companies'
systems will be converted on a timely basis or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems.
KEMET believes its strong financial position will permit the financing of its
business needs and opportunities in an orderly manner. It is anticipated that
ongoing operations will be financed primarily by internally generated funds.
In addition, the Company has the flexibility to meet short-term working
capital and other temporary requirements through utilization of its borrowings
under its bank credit facilities.
<PAGE> 9
From time to time, information provided by the Company, including but not
limited to statements in this report, or other statements made by or on behalf
of the Company, may contain "forward-looking" information within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from
those discussed in the forward-looking statements. The cautionary statements
set forth in the Company's 1998 Annual Report under the heading Safe Harbor
Statement identify important factors that could cause actual results to differ
materially from those in any forward-looking statements made by or on behalf
of the Company.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as reported above and in the Company's fiscal year ending March 31,
1998 Form 10-K under the caption "Item 3. Legal Proceedings", the Company is
not currently a party to any material pending legal proceedings, other than
routine litigation incidental to the business of the Company.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on July 22, 1998.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's nominees for directors as listed in the definitive
proxy statement of the Company dated as of June 22, 1998, and such nominees
were elected.
(c) Briefly described below is each matter voted upon at the Annual Meeting
of Stockholders.
(i) Election of Directors of the Company.
All of proxy nominees for directors as listed in the proxy statement were
elected for a three year term with the following vote:
Broker
Nominee In Favor Against Abstained Non-Votes
-------- ----------- ---------- --------- -----------
Stewart A. Kohl 27,416,700 0 1,327,120 0
David E. Maguire 27,416,830 0 1,326,990 0
(ii) The ratification of the appointment of KPMG Peat Marwick LLP,
independent certified public accountants, to examine the financial statements
of the Company for the fiscal year ending March 31, 1999:
Broker
In Favor Against Abstained Non-Votes
---------- -------- --------- ----------
28,642,217 63,854 36,019 1,730
<PAGE> 10
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Third Amendment to Credit Agreement between KEMET Corporation, Wachovia
Bank, N.A. as Agent, and the Banks named in the Credit Agreement dated as of
September 30, 1998.
(b) Reports on Form 8-K.
None.
<PAGE> 11
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 16, 1998
KEMET Corporation
/S/ D.R. Cash
--------------------------
D.R. Cash
Senior Vice President of Administration,
Treasurer and Assistant Secretary
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1974
<SECURITIES> 0
<RECEIVABLES> 58249
<ALLOWANCES> 6037
<INVENTORY> 117921
<CURRENT-ASSETS> 187534
<PP&E> 614884
<DEPRECIATION> 202225
<TOTAL-ASSETS> 653851
<CURRENT-LIABILITIES> 100312
<BONDS> 0
0
0
<COMMON> 381
<OTHER-SE> 308483
<TOTAL-LIABILITY-AND-EQUITY> 653851
<SALES> 137733
<TOTAL-REVENUES> 137733
<CGS> 105549
<TOTAL-COSTS> 134577
<OTHER-EXPENSES> 829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1701
<INCOME-PRETAX> 626
<INCOME-TAX> 200
<INCOME-CONTINUING> 426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 426
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of the
30th day of September, 1998, among KEMET CORPORATION, a Delaware corporation
(the "Borrower"), WACHOVIA BANK, N.A. as Agent (successor by merger to
Wachovia Bank of Georgia, N.A. and hereinafter referred to as the "Agent")
under the Credit Agreement (as herein defined) and the BANKS named in the
Credit Agreement (as herein defined) and the BANKS named in the Credit
Agreement.
Background:
The Borrower, the Agent and the Banks have entered into a certain Credit
Agreement dated as of October 18, 1996, as amended by a First Amendment to
Credit Agreement dated as of August 30, 1997, as further amended by a Second
Amendment to Credit Agreement dated as of March 31, 1998 (as amended,
the"Credit Agreement").
The Borrower, the Agent and the Banks wish to amend the Credit Agreement in
certain respects, as hereinafter provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are not
otherwise defined herein shall have the respective meanings assigned to them
in the Credit Agreement.
SECTION 2. Amendment. The Credit Agreement is hereby amended as follows:
Section 2.1. Additional Definition. An additional definition is hereby added
to Section 1.01 of the Credit Agreement to be inserted in proper alphabetical
order and to read as follows:
"Year 2000 Compliant and Ready" as used herein means that (A) the Borrower's
and its Subsidiaries' hardware and software systems with respect to the
operation of its business and its general business plan will, except as is not
expected to have a Material Adverse Effect: (i) handle date information
involving any and all dates before, during and/or after January 1, 2000,
including accepting input, providing output and performing date calculations
in whole or in part; (ii) operate accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000 and
without any change in performance; (iii) store and provide date input
information without creating any ambiguity as to the century; and (B) the
Borrower has developed alternative plans to ensure business continuity in the
event of the failure of any or all of items (i) through (iii) above.
Section 2.2 Addition of Representation. A new section is hereby added as
Section 4.19 of the Credit Agreement to read as follows:
Section 4.19. Year 2000. the Borrower and its Subsidiaries are in the process
of taking steps to address the impact of the occurrence of the year 2000 on
their internal computer systems and the occurrence of the year 2000 and its
impact on said internal computer systems is not expected to have a Material
Adverse Effect.
Section 2.3 Amendment to Section 5.01
<PAGE> 2
Section 5.01 of the Credit Agreement is hereby amended by deleting the "and"
at the end of Section 5.01 (i), replacing the "." at the end of Section 5.01
(j) with a ";" , and by adding two additional subsections thereto which shall
read as follows:
(k) simultaneously with the delivery of each set of annual and quarterly
financial statements referred to above, a statement of the chief financial
officer, chief accounting officer or chief technology officer to the effect
that nothing has come to their attention to cause them to believe that the
Borrower's and its Subsidiaries' hardware and software systems will not be
Year 2000 Compliant and Ready; and
(l)within 5 domestic business Days after the Borrower becomes aware of
circumstances which would cause the Borrower to believe that it and its
Subsidiaries will not be Year 2000 Compliant and Ready, a statement of the
chief financial officer, chief accounting officer or chief technology officer
setting forth the details thereof and the action which the Borrower is taking
or proposed to take with respect thereto.
Section 2.4 Amendment to Section 5.05. Section 5.05 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
Section 5.05. Ratio of Earnings Before Interest, Leases and Taxes to
Consolidated Fixed Charges. At the end of each Fiscal Quarter, the ratio of
Earnings Before Interest, Leases and Taxes for the Fiscal Quarter then ending
and the three Fiscal Quarters immediately preceding the Fiscal Quarter then
ending to consolidated Fixed Charges for the Fiscal Quarter then ending and
the three Fiscal Quarters immediately preceding the Fiscal Quarter then ending
shall be greater than (a) 3.00 to 1.00 from and including the Fiscal Quarter
ending December 31, 1996 to but excluding the fiscal Quarter ending September
30, 1998, (b) 2.50 to 1.0 from and including the fiscal Quarter ending
September 30, 1998 to but excluding the Fiscal Quarter ending December 31,
1998, (c) 2.20 to 1.00 from and including the Fiscal Quarter ending December
31, 1998 to but excluding the fiscal Quarter ending March 31, 1999, (d) 2.00
to 1.00 from and including the Fiscal Quarter ending March 31, 1999 to but
excluding the fiscal Quarter ending June 30, 1999, (e) 2.50 to 1.00 from and
including the Fiscal Quarter ending June 30, 1999 to but excluding the Fiscal
Quarter ending September 30, 1999, and (f) 3.00 to 1.00 for all Fiscal
Quarters ending on or after September 30, 1999.
SECTION 3. No Other Amendment. Except for the amendment set forth above, the
text of the Credit Agreement shall remain unchanged and in full force and
effect. This Amendment is not intended to effect, nor shall it be construed
as, a novation. The Credit Agreement and this Amendment shall be construed
together as a single instrument and any reference to the "Agreement" or any
other defined term for the Credit Agreement in the Credit Agreement, the Notes
or any certificate, instrument or other document delivered pursuant thereto
shall mean the Credit Agreement as amended hereby and as it may be amended,
supplemented or otherwise modified hereafter.
SECTION 4. Representation and Warranties. The Borrower hereby represents and
warrants in favor of the Agent and the Banks as follows:
(a) No Default or Event of Default under the Credit Agreement has occurred
and is continuing on the date hereof;
(b) The Borrower has the corporate power and authority to enter into this
Amendment and to do all acts and things as required or contemplated hereunder
to be done, observed and performed by it;
(c) This Amendment has been duly authorized, validly executed and delivered
by
<PAGE> 3
one or more authorized officers of the Borrower and each of this Amendment and
the Credit Agreement, as amended hereby constitutes the legal, valid and
binding obligation of the Borrower enforceable against it in accordance with
its terms; provided, that the enforceability of each of this Amendment and the
Credit
Agreement as amended hereby is subject to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of
creditors'
rights generally; and
(d) The execution and delivery of this Amendment and the Borrower's
performance hereunder and under the Credit Agreement as amended hereby do not
and will not require the consent or approval of any regulatory authority or
governmental authority or agency having jurisdiction over the Borrower other
than those which have already been obtained or given, nor be in contravention
of or in conflict with the Articles of Incorporation or Bylaws of the
Borrower, or the provision of any statute, or any judgment, order or
indenture, instrument, agreement or undertaking, to which to Borrower is a
party or by which its assets or properties are or may become bound.
SECTION 5. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one and the same agreement.
SECTION 6. Governing Law. This Amendment shall be deemed to be made pursuant
to the laws of the State of Georgia with respect to agreements made and to be
performed wholly in the State of Georgia and shall be construed, interpreted,
performed and enforced in accordance therewith.
SECTION 7. Effective Date. This Amendment shall become effective as of the
date first set forth above, upon receipt by the Agent from each of the parties
hereto of either a duly executed signature page from a counterpart of the
Amendment or a facsimile transmission of a duly executed signature page from a
counterpart of this Amendment, signed by such party.
SECTION 8. Amendment Fee. On the date first set forth above, the Borrower
shall pay to the Agent for the ratable account of each Bank and amendment fee
equal to the product of such Bank's Commitment (irrespective of usage) as of
such date multiplied by .05%.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to by duly
executed under seal by their respective authorized officers as of the day and
year first above written.
BORROWER:
KEMET CORPORATION
By: /S/ D.R. Cash [SEAL]
Title: Senior Vice President -
Administration & Treasurer
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WACHOVIA BANK, N.A. (successor by merger
to Wachovia Bank of Georgia, N.A. and Wachovia
Bank of South Carolina, N.A. and formerly known
as Wachovia Bank of North Carolina, N.A.),
as Agent and as a Bank
By: /S/ Suzanne Morrison [SEAL]
Title: Assistant Vice President
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<PAGE> 5
ABN AMRO BANK N.V. ATLANTA AGENCY, as
Co-Agent and Bank
By: /S/ Linda K. Davis [SEAL]
Title: Vice President
By: /S/ Steven L. Hipsman
Title: Vice President
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<PAGE> 6
SUNTRUST BANK, ATLANTA
By: /S/ J.P. Owen [Seal]
Title: Banking Officer
By: /S/ Brian K. Peters [Seal]
Title: Vice President
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<PAGE> 7
FIRST UNION NATIONAL BANK (formally known
as
First Union National Bank of South
Carolina)
By: /S/ Frank R. Wrenn III [SEAL]
Title: Senior Vice President
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<PAGE> 8
PNC BANK, NATIONAL ASSOCIATION
By: /S/ Rose M. Crump [SEAL]
Title: Vice President
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<PAGE> 9
BANK OF AMERICAN NT & SA
By: /S/ Laurens F. Schaad, Jr. [SEAL]
Title: Vice President
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