-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKkzm3GQWvDXNQ0R5dHiVdwZ9jD6bZgXkB4ngEbOP4ncRPSQB6IqPBxtMyN5KYS2 7W0jqpo1e9uN8ykrx/0RVA== 0000887730-99-000002.txt : 19990217 0000887730-99-000002.hdr.sgml : 19990217 ACCESSION NUMBER: 0000887730-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMET CORP CENTRAL INDEX KEY: 0000887730 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 570923789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20289 FILM NUMBER: 99538943 BUSINESS ADDRESS: STREET 1: 2835 KEMET WAY CITY: SIMPSONVILLE STATE: SC ZIP: 29681 BUSINESS PHONE: 8039636300 MAIL ADDRESS: STREET 1: P O BOX 5928 STREET 2: 2835 KEMET WAY CITY: SIMPSONVILLE STATE: SC ZIP: 29681 10-Q 1 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 December 31, 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: February 10, 1999 Title of Each Class Number of Shares Outstanding - -------------------------------------------------------------------------------- Common Stock, $.01 Par Value 38,134,966 Non-Voting Common Stock, $.01 Par Value 1,096,610 2 Part I - FINANCIAL INFORMATION ITEM 1 - Financial Statements KEMET CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands Except Per Share Data)
December 31, March 31, 1998 1998 ----------- --------- (unaudited) ASSETS Current assets: Cash $ 2,723 $ 1,801 Notes and accounts receivable (less allowances of $5,829 and $6,612 at December 31, 1998 and March 31, 1998, respectively) 38,102 62,040 Inventories: Raw materials and supplies 54,753 37,275 Work in process 56,275 48,068 Finished goods 28,210 29,340 -------- -------- Total inventories 139,238 114,683 Prepaid expenses 2,519 2,915 Deferred income taxes 11,955 13,581 -------- -------- Total current assets 194,537 195,020 Property and equipment (less accumulated depreciation of $213,330 and $179,566 at December 31, 1998 and March 31, 1998, respectively) 409,120 393,551 Intangible assets (less accumulated amortization of $15,103 and $13,893 at December 31, 1998 and March 31, 1998, respectively) 45,606 46,816 Other assets 7,770 6,722 -------- -------- Total assets $657,033 $642,109 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ - - $ 20,000 Accounts payable, trade 70,662 88,711 Accrued expenses 33,971 36,669 Income taxes 3,945 868 -------- -------- Total current liabilities 108,578 146,248 Long-term debt, excluding current installments 152,000 104,000 Other non-current obligations 69,354 69,145 Deferred income taxes 16,207 16,456 -------- -------- Total liabilities 346,139 335,849 Stockholders' equity: Common stock, par value $.01, authorized 100,000,000 shares, issued and outstanding 38,127,683 and 38,064,069 shares at December 31, 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 December 31, 1998 and March 31, 1998 11 11 Additional paid-in capital 145,199 144,299 Retained earnings 165,351 161,577 Accumulated other comprehensive income (48) (8) -------- -------- Total stockholders' equity 310,894 306,260 -------- -------- Total liabilities and stockholders' equity $657,033 $642,109 ======== ========
See accompanying notes to consolidated financial statements. 3 ITEM 1 - Financial Statements KEMET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Thousands Except Per Share Data)
Three months ended Nine months ended December 31, December 31, - ------------------------ ----------------------- 1998 1997 1998 1997 -------- - -------- -------- -------- (unaudited) (unaudited) (unaudited) (unaudited) Net Sales $ 141,914 $ 170,359 $ 422,118 $ 497,041 Operating costs and expenses: Cost of goods sold, exclusive of depreciation 106,863 116,807 319,678 342,570 Selling, general and administrative expenses 12,361 12,185 36,451 36,577 Research, development and engineering 4,673 6,484 16,407 17,535 Depreciation and amortization 11,829 10,216 34,243 28,960 Restructuring charge - 10,500 - 10,500 -------- - -------- -------- -------- Total operating costs and expenses 135,726 156,193 406,779 436,142 Operating income 6,188 14,167 15,339 60,899 Other expense: Interest expense, net 2,394 1,964 6,589 5,260 Other 1,072 1,492 3,200 3,926 -------- - -------- -------- -------- Total other expense 3,466 3,456 9,789 9,186 Earnings before income taxes 2,722 10,711 5,550 51,713 Income tax expense 871 3,154 1,776 15,904 -------- - -------- -------- -------- Net earnings $ 1,851 $ 7,557 $ 3,774 $ 35,809 ======== ======== ========= ========= Per Common Share Information: Net earnings per share: Basic $ 0.05 $ 0.19 $ 0.10 $ 0.92 Diluted $ 0.05 $ 0.19 $ 0.10 $ 0.91 Weighted average shares outstanding: Basic 39,220,367 39,092,517 39,203,081 38,996,448 Diluted 39,368,977 39,424,840 39,370,124 39,424,797
See accompanying notes to consolidated financial statements. 4 ITEM 1 - Financial Statements KEMET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Nine months ended December 31, -------------------------- 1998 1997 -------- -------- (unaudited) (unaudited) Sources (uses) of cash: Net cash from operating activities $ 21,591 $ 64,313 Investing activities: Additions to property and equipment (49,823) (88,755) Proceeds from disposals of property 294 1 Other (40) 7 -------- -------- Net cash used by investing activities (49,569) (88,747) Financing activities: Proceeds from employees savings plan 768 902 Proceeds from exercise of stock options including related tax benefit 132 3,221 Repayment of long-term debt - - (72) Net proceeds/(repayments) from revolving/swingline loan 28,000 23,450 -------- -------- Net cash provided by financing activities 28,900 27,501 -------- -------- Net increase in cash 922 3,067 Cash at beginning of period 1,801 2,188 -------- -------- Cash at end of period $ 2,723 $ 5,255 ======== ========
See accompanying notes to consolidated financial statements. 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 nine months ended December 31, 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)
For the nine months ended December 31, 1998 1997 ------------------------------------ - ------------------------------------ Per Per Income Shares Share Income Shares Share (numerator) (denominator) Amount (numerator) (denominator) Amount ---------- ------------- ------ - ----------- ------------- ------ Basic EPS $ 3,774 39,203,081 $ 0.10 $ 35,809 38,996,448 $ 0.92 Effect of diluted securities Stock Options - 167,043 - - - 428,349 (0.01) ---------- ---------- ------ - ----------- ------------- ------ Diluted EPS $ 3,774 39,370,124 $ 0.10 $ 35,809 39,424,797 $ .91
Options to purchase 280,150 shares of common stock at $32.125 per share were outstanding for the nine months ended December 31, 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. 6 Options to purchase 278,030 and 278,525 shares of common stock at $19.25 per share were outstanding for the nine months ended December 31, 1998 and 1997 respectively, 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 nine months ended December 31, 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:
Three months ended Nine months ended December 31, December 31, - ------------------- ----------------- 1997 1998 1997 1998 ------- - ------- ------- ------- Net earnings $ 1,851 $ 7,557 $ 3,774 $35,809 Foreign currency translation adjustment (1) 9 (40) (7) ------- - ------- ------- ------- Comprehensive income $ 1,850 $ 7,566 $ 3,734 $35,802 ======= ======= ======= =======
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 nine months ended December 31, 1998, were $141.9 million and $422.1 million, a decrease of $28.4 million or 17% and $74.9 million or 15%, 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 and Europe. Sales of surface-mount capacitors for the quarter and nine months ended December 31, 1998, were $117.3 million and $342.4 million, a decrease of 12% and 10%, respectively, from comparable prior year periods. Sales of leaded capacitors declined 33% to $24.6 million for the three months ended December 31, 1998, and decreased 31% to $79.7 million for the nine months ended December 31, 1998. Sales also decreased in both the domestic and export markets for the quarter and nine months ended December 31, 1998, compared to the comparable prior year periods. Domestic sales decreased 26% and 21% to $71.0 million and $221.8 million, respectively, and export sales decreased 5% and 7% to $70.9 million and $200.3 million, respectively. 7 Cost of sales, exclusive of depreciation for the quarter and nine months ended December 31, 1998, were $106.9 million and $319.7 million, respectively, as compared to $116.8 million and $342.6 million for the quarter and nine months ended December 31, 1997. As a percentage of net sales, cost of sales, exclusive of depreciation was 75% and 76% for the quarter and nine months ended December 31, 1998, as compared to 69% for both of 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 nine months ended December 31, 1998 were $12.4 million and $36.5 million, respectively, as compared to $12.2 million and $36.6 million for the comparable periods of the prior year. Selling, general and administrative expenses as a percent of sales increased from 7% for the prior year quarter to 9% this quarter primarily as a result of depressed selling prices and unit volume. Research, development and engineering expenses for the quarter and nine months ended December 31, 1998, were $4.7 million and $16.4 million, respectively, as compared to $6.5 million and $17.5 million for the prior comparable periods. Depreciation and amortization expense for the quarter and nine months ended December 31, 1998, were $11.8 million and $34.2 million, respectively, as compared to $10.2 million and $29.0 million for the prior comparable periods. This increase was primarily due to the increase in capital expenditures over the past fiscal year. Operating income for the quarter and nine months ended December 31, 1998, was $6.2 million and $15.3 million, respectively, compared to $14.2 million and $60.9 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 December 31, 1998, was $2.4 million compared to $2.0 million for the three months ended December 31, 1997. Interest expense for the quarter includes $0.3 million of interest income from the IRS for tax refunds on prior years' amended returns. Without this interest income, interest expense for the quarter would have been $2.7 million, or $0.7 million higher than the prior year's third 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 $0.9 million for the quarter ended December 31, 1998, compared to $3.2 million for the quarter ended December 31, 1997. Income tax expense for the nine months ended December 31, 1998, was $1.8 million or 32.0% of earnings as compared to $15.9 million or 31% of earnings for the comparable period of the prior year. The increase in the effective rate for the nine months ended December 31, 1998, was primarily the result of decreased foreign sales corporation benefits expected in fiscal year 1999. 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 operations, borrowings under its revolving credit facility and amounts advanced under its foreign accounts receivable discounting arrangements. 8 Cash flows from operating activities for the nine months ended December 31, 1998 amounted to a surplus of $21.6 million compared with a surplus of $64.3 million for the nine months ended December 31, 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 receivable, inventories, accounts payable, accrued liabilities and income taxes payable. For the quarter ended December 31, 1998 the Company expended $0.5 million in cash charges against the restructuring liability for severance and outplacement costs. This final $0.5 million closes the $10.5 million restructuri ng liability established in the third quarter of fiscal year 1997 with all $10.5 million having been expended. Capital expenditures were $49.8 million for the nine months ended December 31, 1998 compared to $88.8 million for the nine months ended December 31, 1997. While the Company continues to invest in capital to support its long-term growth objectives, the current reduction in capital expenditures is due to over capacity in the industry. The Company estimates its capital expenditures for fiscal year 1999 to be approximately $60.0 million. During the nine months ended December 31, 1998 the Company increased its indebtedness (long-term debt and current portion of long-term debt) by $28.0 million which consisted primarily of the financing of capital expenditures. The Company had unused availability under its revolving credit facility as of December 31, 1998 of approximately $108.0 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. Impact of Year 2000 The Company has a Year 2000 Readiness Program that began in December 1996. The scope of the program includes all business-critical operations in all locations worldwide. Areas assessed include business applications, technical infrastructure, facilities, end-user computing, manufacturing, and suppliers. Overall, the Readiness Program is scheduled to be completed by June 1999. The Company's plan to resolve the Year 2000 issue includes the process of inventory, assessment, remediation, testing, and implementation. As of December 31, 1998, the Company had completed 100% of the inventory, 100% of assessment, and 93% of the remediation, testing, and implementation work. The completion of this final phase is expected on or before June 30, 1999. The Company's Readiness Program is a combination of both internal and external resources to reprogram, implement, test, or replace existing hardware and software. The total cost of the program is estimated at $6.4 million and will be funded through operating cash flows. As of December 31, 1998, the Company had expended $6.1 million related to the Year 2000 Readiness Program. 9 Suppliers that are not prepared for the Year 2000 issues could have an impact on the Company's ability to meet customer requirements. To reduce this risk, the Company has conducted a survey of key suppliers to determine potential exposure to Year 2000 issues. Suppliers not in compliance will be expected to be in compliance before the issue could affect delivery. Date sensitive equipment and software are required to be Year 2000 ready before being approved for purchase. The Company is currently developing a contingency plan with respect to the Year 2000 risks and expects to have this completed in the near future. 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. 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. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Fourth Amendment to Credit Agreement between KEMET Corporation, Wachovia Bank, N.A. as Agent, and the Banks named in the Credit Agreement dated as of December 31, 1998. (b) Reports on Form 8-K. None. 10 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: February 12, 1999 KEMET Corporation /S/ D.R. Cash -------------------------- D.R. Cash Senior Vice President of Administration, Treasurer and Assistant Secretary (Principal Accounting and Financial Officer) EX-27 2
5 1000 9-MOS MAR-31-1999 DEC-31-1998 2723 0 43931 5829 139238 194537 622450 213330 657033 108578 0 0 0 381 310513 657033 422118 422118 319678 406779 9789 0 6589 5550 1776 3774 0 0 0 3774 .10 .10
EX-10 3 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of the 31 st day of December, 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 listed on the signature pages hereto. 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 and as further amended by a Third Amendment to Credit Agreement dated as of September 9, 1998 (as amended, the "Credit Agreement"). The Borrower, the Agent and the Banks wish to further 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. Amendments. The Credit Agreement is hereby amended as follows: SECTION 2.1. Amendment to Definitions. The definitions in Section 1.01 are hereby amended by deleting the definition of "Commitment" in its entirety and inserting in place thereof the following: "Commitment" means, with respect to each Bank, (i) the amount set forth opposite the name of such Bank on the signature pages of that certain Fourth Amendment to Credit Agreement dated as of December 31, 1998 among the Borrower, the Agent and the Banks listed on the signature pages thereof, or (ii) as to any Bank which enters into an Assignment and Acceptance (whether as transferor Bank or as Assignee thereunder), the amount of such Bank's Commitment after giving effect to such Assignment and Acceptance, in each case as such amount may be reduced from time to time pursuant to Sections 2.08 and 2.09. SECTION 2.2. Amendment to Section 2.06. Section 2.06(a) is hereby amended and restated in its entirety to read as follows: (a) "Applicable Margin" shall be determined quarterly based upon (i) the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges (calculated as of the last day of each Fiscal Quarter beginning with the Fiscal Quarter ending December 31, 1998 and in the manner set forth in Section 5.05) and (ii) the ratio of Consolidated Funded Debt to Consolidated Total Capital (calculated as of the last day of each Fiscal Quarter beginning with the Fiscal Quarter ending December 31, 1998 and in the manner set forth in Section 5.03), as follows: If the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges is greater than or equal to 3.00 to 1.00, then the Applicable Margin shall be determined as follows: Ratio of Consolidated Funded Base Rate Euro-Dollar Debt to Consolidated Total Capital Loans Loans Greater than or equal to .40 0% .55% Greater than or equal to .25 but less than .40 0% .45% Less than .25 0% .325% If the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges is less than 3.00 to 1.00, then the Applicable Margin shall be determined as follows: Ratio of Consolidated Funded Base Rate Euro-Dollar Debt to Consolidated Total Capital Loans Loans Greater than or equal to .40 0% 1.00% Greater than or equal to .25 but less than .40 0% .70% Less than .25 0% .475% The Applicable Margin shall be determined effective as of the date (herein, the "Rate Determination Date") which is 45 days after the last day of the Fiscal Quarter as of the end of which the foregoing ratio is being determined, based on the quarterly financial statements for such Fiscal Quarter, and the Applicable Margin so determined shall remain effective from such Rate Determination Date until the date which is 45 days after the last day of the Fiscal Quarter in which such Rate Determination Date falls (which latter date shall be a new Rate Determination Date); provided that (i) for the period from and including the Closing Date to but excluding the Rate Determination Date next following the Fiscal Quarter ending December 31, 1996, the Applicable Margin shall be (A) 0% for Base Rate Loans, and (B) .20% for Euro-Dollar Loans, (ii) in the case of each Applicable Margin determined on the Rate Determination Date which is 45 days after the fourth and final Fiscal Quarter of a Fiscal Year, such Applicable Margin shall be redetermined based upon the annual audited financial statements for the Fiscal Year ended on the last day of such final Fiscal Quarter and if such Applicable Margin (as so redetermined) shall be different from the Applicable Margin determined on the related Rate Determination Date, such Applicable Margin (as so redetermined) shall be effective retroactive to the related Rate Determination Date, and (iii) if on any Rate Determination Date the Borrower shall have failed to deliver to the Banks the financial statements required to be delivered pursuant to Section 5.01(b) with respect to the Fiscal Quarter most recently ended prior to such Rate Determination Date, then for the period beginning on such Rate Determination Date and ending on the earlier of (A) the date on which the Borrower shall deliver to the Banks the financial statements required to be delivered pursuant to Section 5.01(b) with respect to such Fiscal Quarter or any subsequent Fiscal Quarter, or (B) the date on which the Borrower shall deliver to the Banks annual financial statements required to be delivered pursuant to Section 5.01(a) with respect to the Fiscal Year which includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable Margin shall be determined as if the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges was less than 3.00 to 1.00 and the ratio of Consolidated Funded Debt to Consolidated Total Capital was greater than or equal to .40 at all times during such period. Any change in the Applicable Margin on any Rate Determination Date shall result in a corresponding change, effective on and as of such Rate Determination Date, in the interest rate applicable to each Syndicated Loan outstanding on such Rate Determination Date. SECTION 2.3. Amendment to Section 2.07. Section 2.07(a) is hereby amended and restated in its entirety to read as follows: (a) The Borrower shall pay to the Agent for the ratable account of each Bank a facility fee equal to the product of: (i) the aggregate of the daily average amounts of such Bank's Commitment (irrespective of usage), times (ii) a per annum percentage equal to the Applicable Facility Fee Rate. Such facility fee shall accrue from and including the Closing Date to but excluding the Termination Date. Facility fees shall be payable quarterly in arrears on the Facility Fee Payment Date next following each Facility Fee Determination Date and on the Termination Date; provided that should the Commitments be terminated at any time prior to the Termination Date for any reason, the entire accrued and unpaid facility fee shall be paid on the date of such termination. The "Applicable Facility Fee Rate" shall be determined quarterly based upon (i) the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges (calculated as of the last day of each Fiscal Quarter beginning with the Fiscal Quarter ending December 31, 1998 and in the manner set forth in Section 5.05) and (ii) the ratio of Consolidated Funded Debt to Consolidated Total Capital (calculated as of the last day of each Fiscal Quarter beginning with the Fiscal Quarter ending December 31, 1998 and in the manner set forth in Section 5.03), as follows: If the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges is greater than or equal to 3.00 to 1.00, then the Applicable Facility Fee Rate shall be determined as follows: Ratio of Consolidated Funded Applicable Facility Debt to Consolidated Total Capital Fee Rate Greater than or equal to .40 .20% Greater than or equal to .25 but less than .40 .15% Less than .25 .125% If the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges is less than 3.00 to 1.00, then the Applicable Facility Fee Rate shall be determined as follows: Ratio of Consolidated Funded Applicable Facility Debt to Consolidated Total Capital Fee Rate Greater than or equal to .40 .25% Greater than or equal to .25 but less than .40 .175% Less than .25 .15% The Applicable Facility Fee Rate shall be determined effective as of the date (herein, the "Facility Fee Determination Date") which is 45 days after the last day of the Fiscal Quarter as of the end of which the foregoing ratio is being determined, based on the quarterly financial statements for such Fiscal Quarter, and the Applicable Facility Fee Rate so determined shall remain effective from such Facility Fee Determination Date until the date which is 45 days after the last day of the Fiscal Quarter in which such Facility Fee Determination Date falls (which latter date shall be a new Facility Fee Determination Date); provided that (i) for the period from and including the Closing Date to but excluding the Facility Fee Determination Date next following the Fiscal Quarter ending December 31, 1996, the Applicable Facility Fee Rate shall be .10%; (ii) in the case of each Applicable Facility Fee Rate determined on the Facility Fee Determination Date which is 45 days after the fourth and final Fiscal Quarter of a Fiscal Year, such Applicable Facility Fee Rate shall be redetermined based upon the annual audited financial statements for the Fiscal Year ended on the last day of such final Fiscal Quarter and if such Applicable Facility Fee Rate (as so redetermined) shall be different from the Applicable Facility Fee Rate determined on the related Facility Fee Determination Date, such Applicable Facility Fee Rate (as so redetermined) shall be effective retroactive to the related Facility Fee Determination Date, and (iii) if on any Facility Fee Determination Date the Borrower shall have failed to deliver to the Banks the financial statements required to be delivered pursuant to Section 5.01(b) with respect to the Fiscal Quarter most recently ended prior to such Facility Fee Determination Date, then for the period beginning on such Facility Fee Determination Date and ending on the earlier of (A) the date on which the Borrower shall deliver to the Banks the financial statements required to be delivered pursuant to Section 5.01(b) with respect to such Fiscal Quarter or any subsequent Fiscal Quarter, and (B) the date on which the Borrower shall deliver to the Banks annual financial statements required to be delivered pursuant to Section 5.01(a) with respect to the Fiscal Year which includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable Facility Fee Rate shall be determined as if the ratio of Earnings Before Interest, Leases and Taxes to Consolidated Fixed Charges was less than 3.00 to 1.00 and the ratio of Consolidated Funded Debt to Consolidated Total Capital was greater than or equal to .40 at all times during such period. SECTION 2.4. Amendment to Section 5.03. Section 5.03 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: SECTION 5.03. Ratio of Consolidated Funded Debt to Consolidated Total Capital. The ratio of Consolidated Funded Debt to Consolidated Total Capital shall not at any time exceed .45 to 1.00. SECTION 2.5. Amendment to Section 5.04. Section 5.04 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: SECTION 5.04. Minimum Consolidated Net Worth. Consolidated Net Worth will at no time be less than the greater of (x) $245,000,000, or (y) 85% of Consolidated Net Worth as of September 30, 1998, minus the aggregate amount of Capital Stock repurchased by the Borrower or any Consolidated Subsidiary after the Closing Date, plus the sum of (i) 50% of the cumulative Reported Net Income of the Borrower and its Consolidated Subsidiaries during any period after September 30, 1998 (taken as one accounting period), calculated quarterly but excluding from such calculations of Reported Net Income for purposes of this clause (i) any quarter in which the Reported Net Income of the Borrower and its Consolidated Subsidiaries is negative, and (ii) 50% of the cumulative Net Proceeds of Capital Stock received during any period after September 30, 1998, calculated quarterly. SECTION 2.6. 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 1.00 from and including the Fiscal Quarter ending September 30, 1998 to but excluding the Fiscal Quarter ending December 31, 1998, (c) 2.00 to 1.00 from and including the Fiscal Quarter ending December 31, 1998 to but excluding the Fiscal Quarter ending March 31, 1999, (d) 1.25 to 1.00 from and including the Fiscal Quarter ending March 31, 1999 to but excluding the Fiscal Quarter ending September 30, 1999, (e) 1.50 to 1.00 from and including the Fiscal Quarter ending September 30, 1999 to but excluding the Fiscal Quarter ending June 30, 2000, and (f) 1.75 to 1.00 for all Fiscal Quarters ending on or after June 30, 2000. SECTION 2.7. Amendment to Section 9.05. Section 9.05(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (a) Any provision of this Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) change the Commitment of any Bank or subject any Bank to any additional obligation (other than as contemplated by Section 2.05(b)), (ii) change the principal of or reduce the rate of interest on any Loan or reduce any fees hereunder, (iii) change the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) change the amount of principal, or reduce the rate or amount of interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the percentage of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any guaranty given to support payment of the Loans. SECTION 2.8. Change in Commitments. The Banks listed on the signature pages to the Credit Agreement are hereby amended to exclude PNC Bank, N.A., reducing its Commitment from $15,000,000 to $0. The parties hereto agree that the outstanding Syndicated Loans made by PNC Bank, N.A. shall be paid in full on the date hereof, together with all accrued interest and fees payable to PNC Bank, N.A., and PNC Bank, N.A. shall be released from all the rights, duties and obligations of a Bank under the Credit Agreement from and after such payment, provided that PNC Bank, N.A. shall be entitled to compensation pursuant to Section 8.05 of the Credit Agreement in connection with the prepayment of the Euro-Dollar Loans made by it, with such compensation to be paid by the Borrower within five days of request by PNC Bank, N.A. SECTION 3. Conditions to Effectiveness. The effectiveness of this Amendment and the obligations of the Banks hereunder are subject to the following conditions, unless the Banks waive such conditions: (a) receipt by the Agent from each of the parties hereto of either (i) a duly executed counterpart of this Amendment signed by such party or (ii) a facsimile transmission stating that such party has duly executed a counterpart of this Amendment and sent such counterpart to the Agent; (b) receipt by the Agent of the amendment fee provided for in Section 8 of this Amendment; (c) receipt by the Agent of new Money Market Notes (the "New Notes") for the account of each Bank listed on the signature pages hereto (other than PNC Bank, N.A.) in the form of Exhibit A to this Amendment; (d) no material adverse change shall have occurred in the financial markets since November 18, 1998; and (e) the fact that the representations and warranties of the Borrower contained in Section 5 of this Amendment shall be true in all material respects on and as of the date hereof. SECTION 4. 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 5. Representations and Warranties. The Borrower hereby represents and warrants in favor of the Agent and the Banks as follows: (a) After giving effect to this Amendment, 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 are required or contemplated hereunder to be done, observed and performed by it; (c) This Amendment and the New Notes have been duly authorized, validly executed and delivered by one or more authorized officers of the Borrower and each of this Amendment, the New Notes 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, the New Notes 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; (d) The execution and delivery of this Amendment, the New Notes 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 the Borrower is a party or by which its assets or properties are or may become bound; and (e) Since March 31, 1998, there has been no event, act condition or occurrence having a Material Adverse Effect. SECTION 6. 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 7. 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 8. Amendment Fee. On the date that this Amendment becomes effective, the Borrower shall pay to the Agent for the ratable account of each Bank an amendment fee equal to the product of such Bank's Commitment (irrespective of usage) as of such date multiplied by .10%. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be 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 and Treasurer [Remainder of this page intentionally left blank] Commitment: WACHOVIA BANK, N.A. (successor by merger $65,000,000 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/ Marshall Meier [SEAL] Title: Vice President [Remainder of this page intentionally left blank] Commitment: ABN AMRO BANK N.V. ATLANTA AGENCY, $30,000,000 as Co-Agent and Bank By: /S/ Larry K. Kelley [SEAL] Title: Group Vice President By: /S/ Robert A. Budnek [SEAL] Title: Vice President [Remainder of this page intentionally left blank] Commitment: SUNTRUST BANK, ATLANTA $15,000,000 By: /S/ Margaret A. Jaketic [SEAL] Title: Vice President By: /S/ Mark Preston [SEAL] Title: Banking Officer [Remainder of this page intentionally left blank] Commitment: FIRST UNION NATIONAL BANK (formally $25,000,000 known as First Union National Bank of South Carolina) By: /S/ Douglas T. Davis [SEAL] Title: Vice President [Remainder of this page intentionally left blank] Commitment: PNC BANK, NATIONAL ASSOCIATION $0.00 By: /S/ Rose M. Crump [SEAL] Title: Vice President [Remainder of this page intentionally left blank] Commitment: BANK OF AMERICA NT & SA $15,000,000 By: /S/ Kevin Mc Mahon [SEAL] Title: Managing Director [Remainder of this page intentionally left blank] EXHIBIT A MONEY MARKET NOTE $150,000,000 Atlanta, Georgia December 31, 1998 For value received, KEMET CORPORATION, a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Lending Office, the principal sum of One Hundred Fifty Million and No/100 Dollars ($150,000,000), or such lesser amount as shall equal the unpaid principal amount of each Money Market Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Money Market Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Wachovia Bank of Georgia, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Money Market Loans made by the Bank, the respective maturities thereof, the interest rates from time to time applicable thereto and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make, or any error of the Bank in making, any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Money Market Notes referred to in the Credit Agreement dated as of October 18, 1996 among the Borrower, the banks listed on the signature pages thereof and their successors and assigns and Wachovia Bank of Georgia, N.A., as Agent, and ABN AMRO Bank N.V. Atlanta Agency, as Co-Agent (as the same may be amended or modified from time to time, the "Credit Agreement"). This Note replaces the Money Market Note of the Borrower dated October 18, 1996 executed and delivered in connection with the original execution of the Credit Agreement and is one of the "Money Market Notes" referred to in the Credit Agreement. Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment and the repayment hereof and the acceleration of the maturity hereof. The Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. The Borrower agrees, in the event that this note or any portion hereof is collected by law or through an attorney at law, to pay all reasonable costs of collection, including, without limitation, reasonable attorneys' fees. IN WITNESS WHEREOF, the Borrower has caused this Money Market Note to be duly executed under seal, by its duly authorized officer as of the day and year first above written. KEMET CORPORATION By: /S/ D. R. Cash [SEAL] Title: Senior Vice President - - Administration and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----