Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 28, 2014
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 001-34838

Hutchinson Technology Incorporated

(Exact name of registrant as specified in its charter)

Minnesota		41-0901840
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

40 West Highland Park Drive N.E. Hutchinson, Minnesota		55350
(Address of principal executive offices)		(Zip Code)

(320) 587-3797

(Registrant’s telephone number, including area code)

(Former name, former address and former 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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer þ

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

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 30, 2015, the registrant had 33,459,247 shares of common stock issued and outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HUTCHINSON TECHNOLOGY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED

(In thousands, except shares and per share data)

	December 28, 2014			September 28, 2014
ASSETS
Current assets:
Cash and cash equivalents (Note 2)	$	33,556		$	37,939
Cash and cash equivalents restricted (Note 2)		44,629			2,059
Short-term investments restricted (Note 3)		965			965
Trade receivables, net		27,021			23,971
Other receivables		2,388			2,894
Inventories		50,028			48,978
Other current assets		1,520			2,264
Total current assets		160,107			119,070

Property, plant and equipment, net		151,370			153,169
Other assets		4,677			2,926
Total assets	$	316,154		$	275,165

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current debt, net of discount (Note 6)	$	41,971		$	48,731
Current portion of capital lease obligation		2,230			2,109
Accounts payable		20,503			19,055
Accrued expenses		9,824			6,406
Accrued compensation		8,538			9,312
Total current liabilities		83,066			85,613

Long-term debt, net of discount (Note 6)		123,403			87,168
Capital lease obligation		4,511			4,464
Other long-term liabilities		3,041			3,092
Commitments and contingencies (Notes 6, 7, and 13)
Shareholders’ equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 32,213,000 and 28,102,000 issued and outstanding		322			281
Additional paid-in capital (Note 6)		450,995			433,308
Accumulated other comprehensive loss		(1,068	)		(543	)
Accumulated loss		(348,116	)		(338,218	)
Total shareholders’ equity		102,133			94,828
Total liabilities and shareholders’ equity	$	316,154		$	275,165

See accompanying notes to condensed consolidated financial statements – unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(In thousands, except per share data)

	Thirteen Weeks Ended
	December 28, 2014			December 29, 2013

Net sales	$	72,423		$	70,312
Cost of sales		60,959			64,782
Gross profit		11,464			5,530

Research and development expenses		6,042			3,942
Selling, general and administrative expenses		5,984			5,863
Severance and site consolidation expenses (Note 10)		159			592
Asset impairment (Note 9)		–			4,470
Loss from operations		(721	)		(9,337	)

Other expense, net		(555	)		(3,073	)
Loss on extinguishment of long-term debt (Note 6)		(4,318	)		–
Interest income		4			25
Interest expense		(4,453	)		(3,777	)
Loss before income taxes		(10,043	)		(16,162	)
Benefit for income taxes (Note 12)		(145	)		(816	)
Net loss	$	(9,898	)	$	(15,346	)
Basic loss per share	$	(0.32	)	$	(0.55	)
Diluted loss per share	$	(0.32	)	$	(0.55	)

Weighted-average common shares outstanding		30,548			27,800
Weighted-average diluted shares outstanding		30,548			27,800

HUTCHINSON TECHNOLOGY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS – UNAUDITED

(In thousands)

	Thirteen Weeks Ended
	December 28, 2014			December 29, 2013
Net loss	$	(9,898	)	$	(15,346	)
Other comprehensive loss, net of tax:
Loss on foreign currency translation, net of income taxes of $0		(525	)		(566	)
Other comprehensive loss		(525	)		(566	)
Total comprehensive loss	$	(10,423	)	$	(15,912	)

See accompanying notes to condensed consolidated financial statements – unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(In thousands)

	Thirteen Weeks Ended
	December 28, 2014			December 29, 2013
OPERATING ACTIVITIES:
Net loss	$	(9,898	)	$	(15,346	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization		8,201			10,034
Stock-based compensation		291			337
Loss (gain) on disposal of assets		5			(19	)
Asset impairment charges (Note 9)		–			4,470
Non-cash interest expense		858			799
Loss on extinguishment of debt (Note 6)		4,318			–
Severance and site consolidation expenses (Note 10)		(27	)		–
Changes in operating assets and liabilities		(606	)		1,724
Cash provided by operating activities		3,142			1,999

INVESTING ACTIVITIES:
Capital expenditures		(6,285	)		(7,413	)
Proceeds from sale/leaseback of equipment		836			4,900
Change in restricted cash (Note 2)		(42,570	)		917
Purchases of marketable securities		(965	)		(1,200	)
Sales/maturities of marketable securities		965			1,200
Cash used for investing activities		(48,019	)		(1,596	)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock		24			18
Repayments of capital lease		(521	)		(267	)
Repayments of revolving credit line		(55,901	)		(62,958	)
Proceeds from revolving credit line		46,368			60,978
Proceeds from private placement of debt		37,500			–
Proceeds from term loan		15,000			–
Debt refinancing costs		(3,175	)		–
Cash provided by (used for) financing activities		39,295			(2,229	)

Effect of exchange rate changes on cash		1,199			1,380

Net decrease in cash and cash equivalents		(4,383	)		(446	)

Cash and cash equivalents at beginning of period		37,939			39,403

Cash and cash equivalents at end of period	$	33,556		$	38,957

Supplemental cash flow disclosure:
Cash interest paid (net of amount capitalized)	$	474		$	–
Income taxes paid	$	3		$	99
Assets acquired through capital lease	$	647		$	2,858
Non-cash exchange of debt for equity (Note 6)	$	15,000		$	–

See accompanying notes to condensed consolidated financial statements – unaudited.

HUTCHINSON TECHNOLOGY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Columnar dollar amounts in thousands, except per share amounts)

When we refer to “we,” “our,” “us,” the “company” or “HTI,” we mean Hutchinson Technology Incorporated and its subsidiaries. Unless otherwise indicated, references to “2015” mean our fiscal year ending September 27, 2015, references to “2014” mean our fiscal year ended September 28, 2014 and references to “2013” mean our fiscal year ended September 29, 2013.

(1) BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of our management, necessary for a fair presentation of such financial statements. The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Although we believe that the disclosures are adequate to make the information presented not misleading, we suggest that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in our 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) CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of all highly liquid investments with original maturities of three months or less.

As of December 28, 2014, and September 28, 2014, we had $44,629,000 and $2,059,000, respectively, of cash and cash equivalents that were restricted in use. As of December 28, 2014, we held in escrow $35,000,000 that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Senior Notes due 2026 (the “8.50% Convertible Notes”), plus accrued but unpaid interest thereon. We also held $7,500,000 in escrow which will be eligible for release when a put right expires on February 20, 2015. See Note 6 to the condensed consolidated financial statements for additional details. The remaining amounts for both periods covered outstanding letters of credit and cash received and temporarily held in our senior secured credit facility collections account.

(3) INVESTMENTS

A summary of our investments is as follows:

	December 28, 2014		September 28, 2014
Available-for-sale securities
U.S government debt securities	$	965	$	965

Our short-term investments are comprised of United States government debt securities. Unrealized gains and losses deemed to be temporary on available-for-sale securities are reported as other comprehensive gain or loss within shareholders’ equity.

As of December 28, 2014, our short-term investments were scheduled to mature within one year.

As of December 28, 2014, and September 28, 2014, we had $965,000 and $965,000, respectively, of short-term investments that were restricted in use. The amounts are required by the State of Minnesota to be held as security for our self-insured workers compensation programs.

(4) TRADE RECEIVABLES

We grant credit to our customers, but generally do not require collateral or any other security to support amounts due. Trade receivables of $27,021,000 at December 28, 2014, and $23,971,000 at September 28, 2014, are net of allowances for sales returns of $552,000 and $497,000, respectively.

During the thirteen weeks ended December 28, 2014, we entered into multiple independent bill of exchange discounting transactions under an uncommitted facility with Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch (“HSBC”), under which our Thai subsidiary, Hutchinson Technology Operations (Thailand) Co. Ltd., sold, without recourse, an aggregate of $25,782,000 of its accounts receivable to HSBC and was paid 95% of the face value of the accounts receivable, less interest expense of LIBOR plus 1.75%. Upon full payment of the accounts receivable by its customer to HSBC, our Thai subsidiary receives from HSBC the 5% remainder due on the receivable. As of December 28, 2014, there remained $760,000 to be paid to our Thai subsidiary from HSBC, all of which was included within the line item “Other receivables” on our condensed consolidated balance sheet.

We generally warrant that the products sold by us will be free from defects in materials and workmanship for a period of one year or less following delivery to our customer. Upon determination that the products sold are defective, we typically accept the return of such products and refund the purchase price to our customer. We record a provision against revenue for estimated returns on sales of our products in the same period that the related revenues are recognized. We base the allowance on historical product returns, as well as existing product return authorizations. The following table reconciles the changes in our allowance for sales returns under warranties:

September 28, 2014		Increases in the Allowance Related to Warranties Issued		Reductions in the Allowance for Returns Under Warranties		December 28, 2014
$497		$1,336		($1,281)		$552

(5) INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or market by analyzing market conditions, current sales prices, inventory costs and inventory balances. Inventories consisted of the following at December 28, 2014, and September 28, 2014:

	December 28, 2014		September 28, 2014

Raw materials	$	21,710	$	21,376
Work in process		11,423		11,860
Finished goods		16,895		15,742
	$	50,028	$	48,978

(6) DEBT

Debt consisted of the following at December 28, 2014, and September 28, 2014:

	December 28, 2014			September 28, 2014

8.50% Convertible Notes	$	39,822		$	39,822
8.50% Convertible Notes debt discount		(101	)		(624	)
8.50% Secured Notes		63,931			78,931
8.50% Secured Notes debt discount		(2,627	)		(3,575	)
10.875% Notes		12,200			12,200
10.875% Notes debt discount		(351	)		(388	)
8.50% New Convertible Notes		37,500			–
PNC term loan		15,000			–
Credit facility		–			9,533
Total debt, net of discounts		165,374			135,899
Less: Current maturities, net of discounts		(41,971	)		(48,731	)
Total long-term debt, net of discounts	$	123,403		$	87,168

October 2014 Financing Transactions

On October 23, 2014, we issued $37,500,000 aggregate principal amount of 8.50% Convertible Senior Notes due 2019 (the “8.50% New Convertible Notes”). The 8.50% New Convertible Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on April 30 and October 31 of each year, beginning April 30, 2015. The 8.50% New Convertible Notes mature on October 31, 2019. Each $1,000 principal amount of the 8.50% New Convertible Notes is convertible into 266.6667 shares of our common stock (which is equal to an initial conversion price of approximately $3.75 per share), subject to adjustment under certain circumstances. The 8.50% New Convertible Notes rank pari passu in right of payment with all existing and future senior indebtedness of our company. Certain beneficial holders of the 8.50% New Convertible Notes have the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes will remain escrowed until the put right expires on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Notes, plus accrued but unpaid interest thereon. These amounts are included within the line item “Cash and cash equivalents restricted” on our condensed consolidated balance sheets. We capitalized debt financing costs of $1,652,000 which are being amortized over five years or until the maturity date. The amortization expense is included in interest expense. On January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash.

On October 23, 2014, we entered into an agreement providing for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Senior Secured Second Lien Notes due 2017 (the “8.50% Secured Notes”) held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, subsequent to the end of the first quarter of 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and there were no warrants outstanding. The fair value of the common stock and warrants was recorded in additional paid-in capital in the amount of $17,388,000. Applying debt extinguishment accounting, we recorded a loss on extinguishment of debt of $4,318,000 in our first quarter of 2015. The loss also included $1,232,000 of broker, legal and accounting fees related to the exchange transaction.

To accommodate the October 2014 debt transactions described above, on October 20, 2014, we entered into supplemental indentures relating to our 8.50% Secured Notes and to our 10.875% Senior Secured Second Lien Notes due 2017 (the “10.875% Notes”). Additionally, on October 20, 2014, we entered into an amendment to our senior secured credit agreement, dated as of September 16, 2011, as previously amended, with PNC Bank, National Association (“PNC Bank”). Under the amendment, PNC Bank consented to the transactions contemplated by the 8.50% New Convertible Notes and the exchange transaction, referred to above.

8.50% Convertible Notes

As described previously, on January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. The 8.50% Convertible Notes were issued in February 2011 as part of a tender/exchange pursuant to an indenture dated as of February 11, 2011 and in July 2011 by exchange.

8.50% Secured Notes

We currently have outstanding $63,931,000 aggregate principal amount of 8.50% Secured Notes. The 8.50% Secured Notes were originally issued in March 2012 in the aggregate principal amount of $78,931,000. Of that total amount, $38,931,000 aggregate principal amount of 8.50% Secured Notes was issued pursuant to an effective registration statement relating to an offer to purchase for cash or exchange for new securities any and all of our outstanding 3.25% Notes (the “3.25% Tender/Exchange Offer”). The remaining $40,000,000 aggregate principal amount of 8.50% Secured Notes was issued in a private placement that included the issuance of warrants to purchase 3,869,000 shares of our common stock. The warrants were exercisable on a cashless basis for $.01 per share for ten years after their issuance. The total purchase price for the 8.50% Secured Notes and warrants issued in the private placement was $39,400,000. The fair value of the warrants was recorded in additional paid-in capital in the amount of $8,489,000. As of May 2013, all 3,869,000 warrants had been exercised and there were no warrants outstanding.

The 8.50% Secured Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, 2012, and mature on January 15, 2017, unless redeemed or repurchased in accordance with their terms. The 8.50% Secured Notes are secured by liens on all assets securing our existing or future senior secured credit facilities (other than certain excluded assets), which liens rank junior in priority to any liens securing our senior secured credit facilities and other permitted priority liens.

We may redeem all or part of the 8.50% Secured Notes at any time by paying 100% of the principal amount redeemed, plus a make-whole premium (and accrued and unpaid interest on the principal amount redeemed to) as of the date of redemption (subject to the rights of holders of the 8.50% Secured Notes on the relevant record date to receive interest due on the relevant interest payment date as and to the extent provided in the indenture). The indenture governing the 8.50% Secured Notes contains certain covenants that, among other things, will limit our and our restricted subsidiaries’ ability to incur additional indebtedness, pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, enter into agreements that restrict distributions from restricted subsidiaries, sell or otherwise dispose of assets, including capital stock of restricted subsidiaries, enter into transactions with affiliates, create or incur liens and enter into operating leases.

As described previously, on October 23, 2014, we entered into an agreement for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Secured Notes held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, subsequent to the end of the first quarter of 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and there were no warrants outstanding.

10.875% Notes

On January 22, 2013, we issued $12,200,000 aggregate principal amount of the 10.875% Notes for a total purchase price of $11,590,000. The 10.875% Notes were issued in a private placement pursuant to an indenture dated as of January 22, 2013, and bear interest at a rate of 10.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, 2013. The 10.875% Notes are secured by liens on all assets securing our senior secured credit facilities (other than capital stock of subsidiaries of our company to the extent that inclusion of such capital stock would require the filing of separate financial statements for such subsidiaries with the SEC), which liens rank junior in priority to the liens securing our senior secured credit facilities and other permitted priority liens and on an equal and ratable basis with the liens securing our 8.50% Secured Notes. The 10.875% Notes are scheduled to mature on January 15, 2017, unless redeemed or repurchased in accordance with their terms. We may redeem all or a portion of the 10.875% Notes at any time by paying 100% of the principal amount redeemed, plus a make-whole premium as of, and accrued and unpaid interest to, the date of redemption.

To accommodate the January 2013 debt transactions, on January 22, 2013, we entered into (i) a first supplemental indenture to the indenture dated as of March 30, 2012, which governs the 8.50% Secured Notes, and (ii) a consent and third amendment to our revolving credit and security agreement.

Debt refinancing costs of $359,000 were capitalized and are being amortized over four years or until the maturity date. The amortization expense is included in interest expense.

Senior Secured Credit Facility

On September 22, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank. The amendment reduced the maximum principal amount of the revolving credit facility provided by the credit agreement from $35,000,000 to $20,000,000, extended the maturity date of the senior secured credit facility from October 1, 2014 to December 1, 2016, reduced the cash balance we are required to maintain in an account at PNC Bank from $15,000,000 to $2,500,000, and modified the fixed charge coverage covenant under the credit agreement by eliminating the requirement for the four fiscal quarters ending September 28, 2014 and changing the measurement periods thereafter for the fixed charge coverage covenant by excluding from such measurement periods all fiscal quarters ended on or prior to September 28, 2014.

The amendment also required us to maintain cash on our balance sheet, including restricted cash, during the period from December 1, 2014 through January 16, 2015 (which is the day after the 2015 put date for our 8.50% Convertible Notes) and during the period from December 1, 2015 through January 16, 2016 (which is the day after the 2016 put date for our 8.50% Convertible Notes) in an amount not less than the aggregate principal amount of our 8.50% Convertible Notes then outstanding, and established a reserve against our borrowing base during each such period in the same amount. The amendment permits us to redeem, repurchase or repay our 8.50% Convertible Notes in whole or in part at any time as long as, after giving effect to such redemption, repurchase or repayment, no default or event of default exists under the credit agreement and we have liquidity of not less than $20,000,000, and permits us to incur additional unsecured debt at any time prior to January 15, 2016 in an amount not to exceed the aggregate principal amount of our 8.50% Convertible Notes then outstanding as long as certain conditions are satisfied, including a requirement that, by the next put date for our 8.50% Convertible Notes, we reduce the aggregate principal balance of our 8.50% Convertible Notes by an amount equal to the principal amount of such additional unsecured debt then outstanding. Subsequent to the end of the first quarter, this portion of the amendment no longer applied as we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes on January 15, 2015.

Our credit agreement with PNC Bank and the indentures governing the 8.50% Secured Notes and the 10.875% Notes each contain certain covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur additional indebtedness; pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; enter into agreements that restrict distributions from restricted subsidiaries; sell or otherwise dispose of assets, including capital stock of restricted subsidiaries; enter into transactions with affiliates; create or incur liens; enter into operating leases; merge, consolidate or sell substantially all of our assets; make capital expenditures; change the nature of our business; and expend the assets or free cash flow of certain subsidiaries. The indentures also limit the amount of our consolidated total assets and free cash flow that can be attributable to subsidiaries that have not guaranteed the 8.50% Secured Notes or, in certain cases, have not pledged their stock to secure the 8.50% Secured Notes.

From time to time, we borrow funds under the senior secured credit facility. As of December 28, 2014, we had no outstanding balance. Our average outstanding balance in the thirteen weeks ended December 28, 2014 was $1,560,000. Amounts borrowed under the credit facility bear cash interest at a reduced rate equal to, at our election, either (i) PNC Bank’s alternate base rate plus 1.0% per annum, or (ii) LIBOR plus 3.5% per annum if no defaults or events of default exist under the credit agreement. The credit agreement contains certain financial covenants that require us to maintain a minimum fixed charge coverage ratio and minimum liquidity. If we are unable to generate sufficient operating results in future quarters, we may not be able to comply with financial covenants in the credit agreement in future quarters. If necessary, we intend to negotiate a waiver of any noncompliance or an amendment of the financial covenant specific to the applicable period.

PNC Term Loan

On December 23, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank, National Association, as agent and lender.

Pursuant to the amendment, a term loan was made to us in the amount of $15,000,000. The term loan may consist of domestic rate loans, with a per annum interest rate equal to PNC Bank’s alternate base rate (as defined in the credit agreement) plus 2.50%, or LIBOR rate loans, with a per annum interest rate equal to 3.50% plus the greater of the LIBOR rate (as defined in the credit agreement) or 1.00%, or a combination thereof. As a result, our interest rate for the first quarter of 2015 was 4.5%. The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. In the event that the senior secured credit facility is not extended beyond December 1, 2016, the balance due on the term loan will also become due on December 1, 2016. Once repaid, amounts borrowed under the term loan may not be reborrowed.

(7) COMMITMENTS AND CONTINGENCIES

Lease Commitments

We have commitments under various capital and operating lease agreements. Assets acquired under capital leases are depreciated over the useful life of the asset.

The future minimum lease payments for all capital and operating leases as of December 28, 2014, are as follows:

	Capital Leases			Operating Leases
2015	$	1,916		$	777
2016		2,284			657
2017		2,075			54
2018		923			–
Thereafter		116			–
Total future minimum lease payments		7,314			1,488
Less: Interest		(573	)		–
Total future minimum lease payments excluding interest	$	6,741		$	1,488

Legal Proceedings

We and certain users of our products have from time to time received, and may in the future receive, communications from third parties asserting patents against us or our customers which may relate to certain of our manufacturing equipment or products or to products that include our products as a component. In addition, certain of our customers have been sued on patents having claims closely related to products sold by us. If any third party makes a valid infringement claim and a license was not available on terms acceptable to us, our operating results could be adversely affected. We expect that, as the number of patents issued continues to increase, and as we grow, the volume of intellectual property claims could increase. We may need to engage in litigation to enforce patents issued or licensed to us, protect trade secrets or know-how owned by us or determine the enforceability, scope and validity of the intellectual property rights of others. We could incur substantial costs in such litigation or other similar legal actions, which could have a material adverse effect on our results of operations.

We are a party from time to time to ordinary routine litigation incidental to our business. The outcome of such claims, if, any, is not expected to materially affect our current or future financial position or results of operations.

(8) ACCUMULATED OTHER COMPREHENSIVE LOSS

Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. Our other comprehensive loss is comprised of unrealized gains and losses on foreign translation adjustments.

Accumulated other comprehensive loss, net of tax (see Note 12 for a discussion of income taxes), was as follows:

	Foreign Currency Translation Adjustments
Balance as of September 28, 2014	$	(543	)
Other comprehensive loss		(525	)
Balance as of December 28, 2014	$	(1,068	)

Balance as of September 29, 2013	$	(148	)
Other comprehensive loss		(566	)
Balance as of December 29, 2013	$	(714	)

(9) ASSET IMPAIRMENT

When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate positive cash flows. Changes in any of these factors or changes in our forecast model estimates could necessitate impairment recognition in future periods for other assets held for use.

In connection with the consolidation of our operations, two of our facilities were offered for sale or lease in 2013, including the Eau Claire, Wisconsin assembly building and the Development Center building on our Hutchinson, Minnesota campus. During the first quarter of 2014, we received third-party interest in purchasing the Eau Claire assembly building. Based on the discussions regarding the potential sale of this building, we modified our forecast model to increase the probability of a sale of our Eau Claire assembly building and decrease the probability of a lease. Using these new weightings for sale and lease, the carrying value of our assets exceeded the expected undiscounted cash flows indicating a trigger of potential impairment. As a result, we evaluated the recoverability of the Eau Claire assembly building based on these circumstances and recorded an impairment charge of $4,470,000 included in the line item “Asset impairment” in our condensed consolidated statement of operations. The building and related assets had remaining useful lives ranging from 15 to 30 years. We determined the long-lived assets did not meet the criteria to be classified as assets held for sale. During the second quarter of 2014, we sold the Eau Claire, Wisconsin assembly building, and related real and personal property for net proceeds of $4,364,000.

(10) SEVERANCE AND SITE CONSOLIDATION EXPENSES

A summary of our severance and site consolidation expenses as of December 28, 2014, is as follows:

	Severance			Site Consolidation Expenses			Total
Accrual balances, September 29, 2013	$	–		$	–		$	–
Restructuring charges		–			592			592
Cash payments		–			(592	)		(592	)
Accrual balances, December 29, 2013		–			–			–
Restructuring charges		366			284			650
Cash payments		–			(284	)		(284	)
Accrual balances, March 30, 2014		366			–			366
Restructuring charges		1,339			205			1,544
Cash payments		(756	)		(205	)		(961	)
Accrual balances, June 29, 2014		949			–			949
Restructuring charges		(328	)		268			(60	)
Cash payments		(594	)		(268	)		(862	)
Accrual balances, September 28, 2014		27			–			27
Restructuring charges		(19	)		178			159
Cash payments		(8	)		(178	)		(186	)
Accrual balances, December 28, 2014		–			–			–

In recent years, we had multiple severance and manufacturing consolidation and restructuring plans in place to support efforts to improve operating results and liquidity through improved utilization of our facilities in both the U.S. and Thailand.

During the second quarter of 2014, as part of shutting down our Eau Claire, Wisconsin assembly operations and our continued consolidation efforts, we identified approximately 70 positions to be eliminated. This resulted in an estimated $366,000 of severance expense in the second quarter of 2014.

During the third quarter of 2014, we identified approximately 100 additional positions to be eliminated at our Eau Claire, Wisconsin and Hutchinson, Minnesota sites to further reduce costs. This resulted in $1,339,000 of severance expense in the third quarter of 2014.

During the fourth quarter of 2014, we retained approximately 40 of the previously identified positions for manufacturing of our shape memory alloy optical image stabilization product. All severance and benefits amounts owed have been paid in full.

In connection with the consolidation of our operations, we incurred site consolidation expenses of $592,000 during the thirteen weeks ended December 29, 2013 and $178,000 during the thirteen weeks ended December 28, 2014. The site consolidation expenses consisted primarily of internal labor and contractors.

(11) OTHER EXPENSE

Transaction gains and losses that arise from the exchange rate changes on transactions denominated in a currency other than the local currency are included in “Other expense, net” in our condensed consolidated statements of operations. For the thirteen weeks ended December 28, 2014, and December 29, 2013, we recognized a foreign currency loss of $640,000 and $3,170,000, respectively. These were primarily related to U.S. dollar-denominated inter-company liabilities owed to us by our Thai subsidiary.

(12) INCOME TAXES

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be realized based on future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense or a benefit within the tax provision in our consolidated statements of operations.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. At September 28, 2014, we had a valuation allowance of $227,219,000. We assess whether valuation allowances should be established against our deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. Our current or previous losses are given more weight than our future outlook. Our three-year historical cumulative loss was a significant negative factor. This loss, combined with uncertain near-term market and economic conditions, reduced our ability to rely on our projections of future taxable income in determining whether a valuation allowance was appropriate. Accordingly, we concluded that a full valuation allowance was appropriate. We will continue to assess the likelihood that our deferred tax assets will be realizable, and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations.

The income tax benefit for the thirteen weeks ended December 28, 2014, was $145,000, compared to the income tax benefit of $816,000 for the thirteen weeks ended December 29, 2013. For the thirteen weeks ended December 28, 2014, the net benefit of $145,000 is made up of a credit for the expected refund of previously paid U.S. Federal Alternative Minimum Tax, offset primarily by various foreign withholding and income taxes we incur. For the thirteen weeks ended December 29, 2013, we recognized an $859,000 benefit due to reserves for certain tax refunds that were released due to the expiration of the applicable statute of limitations.

(13) STOCK-BASED COMPENSATION

Our 2011 Equity Incentive Plan has been approved by shareholders and authorizes the issuance of 1,200,000 shares of our common stock (plus any shares that remained available on that date for future grants under our 1996 Incentive Plan) for equity-based awards (no further awards will be made under our 1996 Incentive Plan). Under the equity incentive plans, stock options have been granted to employees, including our officers, and to our directors, at an exercise price not less than the fair market value of our common stock at the date the options are granted. The options granted generally expire ten years from the date of grant or at an earlier date as determined by the committee of our board of directors that administers the plans. Options granted under the plans prior to November 2005 generally were exercisable one year from the date of grant. Options granted under the plans from November 2005 to October 2011 are exercisable two to three years from the date of grant. Options granted under the plans since November 2011 are exercisable one to three years from the date of grant.

Under our equity incentive plan, we also have issued restricted stock units (“RSUs”) to employees, including our officers. RSUs generally vest over three years in annual installments commencing one year after the date of grant. We recognize compensation expense for the RSUs over the service period equal to the fair market value of the RSUs on the date of issuance. Upon vesting, RSUs convert to shares in accordance with the terms of the equity incentive plan under which they were issued.

We recorded stock-based compensation expense related to our stock options, RSUs and common stock, included in selling, general and administrative expenses, of $291,000 and $337,000 for the thirteen weeks ended December 28, 2014, and December 29, 2013, respectively. As of December 28, 2014, $3,190,000 of unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted-average period of approximately 25 months.

We use the Black-Scholes option pricing model to determine the weighted-average fair value of options. The weighted-average fair value of options granted during the thirteen weeks ended December 28, 2014, and December 29, 2013, was $2.65 and $2.28, respectively. The fair value of options at the date of grant and the weighted-average assumptions utilized to determine such values are indicated in the following table:

	Thirteen Weeks Ended
	December 28, 2014			December 29, 2013
Risk-free interest rate		2.9	%		2.3	%
Expected volatility		80.0	%		80.0	%
Expected life (in years)		8.0			8.0
Dividend yield		–			–

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. We considered historical data in projecting expected stock price volatility. We estimated the expected life of stock options and stock option forfeitures based on historical experience.

Option transactions during the thirteen weeks ended December 28, 2014, are summarized as follows:

	Number of Shares			Weighted-Average Exercise Price ($)		Weighted-Average Remaining Contractual Life (yrs.)
Outstanding at September 28, 2014		3,134,042			9.80		5.3
Granted		310,000			3.43
Exercised		(2,500	)		3.03
Expired/Canceled		(126,975	)		31.14
Outstanding at December 28, 2014		3,314,567			8.39		5.7
Options exercisable at December 28, 2014		2,635,585			9.78		4.8

The aggregate intrinsic value at December 28, 2014, of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) outstanding was $1,862,000. The aggregate intrinsic value of our stock options exercisable at December 28, 2014, was $1,446,000.

The following table summarizes the status of options that remain subject to vesting:

	Number of Shares			Weighted- Average Grant Date Fair Value ($)		Weighted- Average Remaining Contractual Life (yrs.)
Non-vested at September 28, 2014		625,565			1.86		8.6
Granted		310,000			2.65
Vested		(256,583	)		1.64
Canceled		–			–
Non-vested at December 28, 2014		678,982			2.30		9.2

The following table summarizes information concerning currently outstanding and exercisable stock options:

			Options Outstanding						Options Exercisable
Range of Exercise Prices ($)			Number Outstanding		Weighted-Average Remaining Contractual Life (yrs.)		Weighted-Average Price ($)		Number Exercisable		Weighted-Average Exercise Price ($)
1.45	-	3.00		912,387		8.1		2.12		573,405		1.88
3.01	-	5.00		1,152,522		6.6		3.16		812,522		3.04
5.01	-	10.00		521,133		4.9		7.33		521,133		7.33
10.01	-	37.95		728,525		2.0		25.27		728,525		25.27
	Total			3,314,567		5.7		8.39		2,635,585		9.78

RSU transactions during the thirteen weeks ended December 28, 2014, are summarized as follows:

	Number of RSUs			Weighted- Average Grant Date Fair Value ($)
Non-vested at September 28, 2014		782,091			2.17
Granted		360,850			3.43
Vested		(362,220	)		1.97
Canceled		(1,650	)		1.90
Non-vested at December 28, 2014		779,071			2.85

(14) LOSS PER SHARE

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the year. Diluted loss per share identifies the dilutive effect of potential common shares using net loss available to common shareholders and is computed using the treasury stock method for outstanding stock options and the if-converted method for the 8.50% Convertible Notes and the 8.50% New Convertible Notes.

A reconciliation of these amounts is as follows:

	Thirteen Weeks Ended
	December 28, 2014			December 29, 2013
Net loss	$	(9,898	)	$	(15,346	)

Weighted-average common shares outstanding		30,548			27,800
Dilutive potential common shares		–			–
Weighted-average common and diluted shares outstanding		30,548			27,800

Basic loss per share	$	(0.32	)	$	(0.55	)

Diluted loss per share	$	(0.32	)	$	(0.55	)

Diluted loss per share for the thirteen weeks ended December 28, 2014, excludes potential common shares of 1,217,000 using the treasury stock method, and 11,993,000 using the if-converted method for the 8.50% Convertible Notes and the 8.50% New Convertible Notes, as they were anti-dilutive. Diluted loss per share for the thirteen weeks ended December 29, 2013, excludes potential common shares and warrants of 446,000 using the treasury stock method. Diluted loss per share for the thirteen weeks ended December 29, 2013, excludes potential common shares of 4,630,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive.

As discussed in Note 6, on October 23, 2014, we issued 2,500,000 shares of common stock and warrants to purchase 2,500,000 shares of our common stock as part of an exchange transaction. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, subsequent to the end of the first quarter of 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and no warrants remaining outstanding.

As discussed in Note 6, in March 2012, we issued warrants to purchase 3,869,000 shares of our common stock in a private placement. As of May 2013, all 3,869,000 warrants had been exercised and there were no warrants outstanding.

(15) FAIR VALUE MEASUREMENTS

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:

Level 1 –	Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 –	Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
Level 3 –	Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets or liabilities.

The following tables present our assets that are measured at fair value on a recurring basis at December 28, 2014, and September 28, 2014:

	Fair Value Measurements at December 28, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	965	$	–	$	–	$	965

	Fair Value Measurements at September 28, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	965	$	–	$	–	$	965

Available-for-Sale Securities

Our available-for-sale securities are comprised of United States government debt securities. The fair value is based on quoted market prices in active markets.

Debt

The fair values of our 8.50% Convertible Notes and our 8.50% Secured Notes were determined based on the closing market price of the respective Notes as of the end of the fiscal quarter. The fair value of the 8.50% Convertible Notes and the 8.50% Secured Notes were classified in Level 1 of the fair value hierarchy.

Our 10.875% Notes and our 8.50% New Convertible Notes have not experienced trading activity; therefore the fair value estimate was based on the closing market prices of comparable debt as of the end of the fiscal quarter. The fair value of the 10.875% Notes and the 8.50% New Convertible Notes were classified in Level 2 of the fair value hierarchy.

The fair value of the PNC Bank credit facility and term loan’s carrying values are a reasonable estimate of fair value because of their short-term nature. The fair value measurement for the credit facility and term loan was classified in Level 2 of the fair value hierarchy.

The estimated fair values of our debt were as follows on each of the indicated dates:

	December 28, 2014				September 28, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
8.50% Convertible Notes	$	39,822	$	39,712	$	39,822	$	39,125
8.50% Secured Notes		63,931		64,570		78,931		79,720
10.875% Notes		12,200		12,959		12,200		13,025
8.50% New Convertible Notes		37,500		37,917		–		–
PNC term loan		15,000		15,000		–		–
Credit facility		–		–		9,533		9,533

Other

Our financial instruments other than those presented in the disclosures above, include accounts receivable, accounts payable, and other payables. The carrying value of accounts receivable, accounts payable, and other payables approximate fair value because of the short-term nature of these instruments. The fair values of these items were classified in Level 1 of the fair value hierarchy.

Nonrecurring Fair Value Measurements

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These include certain long-lived assets that are written down to fair value when they are determined to be impaired. In the first quarter of 2014, we recognized an impairment of $4,470,000 related to our Eau Claire assembly building using a valuation methodology based on Level 3 inputs. See Note 9 to the consolidated financial statements for additional details regarding this impairment.

(16) SUBSEQUENT EVENTS

On January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash. See Note 6 to the condensed consolidated financial statements for additional details.

Subsequent to the first quarter of 2015, we received a $15,000,000 advance payment from a customer for suspension assemblies expected to ship to that customer in the second quarter of 2015.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When we refer to “we,” “our,” “us,” the “company” or “HTI,” we mean Hutchinson Technology Incorporated and its subsidiaries. Unless otherwise indicated, references to “2015” mean our fiscal year ending September 27, 2015, references to “2014” mean our fiscal year ended September 28, 2014, and references to “2013” mean our fiscal year ended September 29, 2013.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended September 28, 2014.

GENERAL

Our Company

We are a global supplier of critical precision component technologies. As a key supplier of suspension assemblies for disk drives, we help customers improve overall disk drive performance and meet the demands of an ever-expanding digital universe. Through our new business development initiatives, we focus on leveraging our unique precision manufacturing capabilities in new markets to improve product performance, reduce size, lower cost and reduce time to market.

General Business

The majority of our revenue is derived from the sale of suspension assemblies to a small number of manufacturers. Suspension assemblies are precise electro-mechanical components that hold a disk drive’s read/write head at microscopic distances above the drive’s disks.

Sales to our three largest customers constituted 97% of net sales for the thirteen weeks ended December 28, 2014, as shown in the following table.

Customer	Percentage of Sales
Western Digital Corporation		54	%
Seagate Technology, LLC		21	%
SAE Magnetics, Ltd/TDK Corporation		22	%

Significant portions of our revenue may be indirectly attributable to large manufacturers of disk drives, such as Western Digital Corporation, Seagate Technology, LLC and Toshiba Corporation, which may purchase read/write head assemblies that utilize our suspension assemblies from SAE Magnetics, Ltd/TDK Corporation. We expect to continue to depend on a limited number of customers for our sales, given the small number of disk drive manufacturers and head-gimbal assemblers. Our results of operations could be adversely affected by reduced demand from any one disk drive industry customer.

The following table sets forth our recent quarterly suspension assembly shipment quantities in millions for the periods indicated:

Suspension Assembly Shipments by Quarter
	2014								2015
	First		Second		Third		Fourth		First
Suspension assembly shipment quantities		116		102		98		116		122

Our suspension assembly shipments totaled 122 million in the first quarter of 2015, up 5% compared with 116 million in the fourth quarter of 2014. The increase was primarily due to increased participation on customers’ disk drive programs and growth in the suspension assembly market.

Average selling price remained at $0.58 for the first quarter of 2015, flat with the fourth quarter of 2014, and down from $0.59 in the first quarter of 2014.

Gross profit in the first quarter of 2015 was $11,464,000, or 16% of net sales, compared with $8,951,000 in the fourth quarter of 2014, or 13% of net sales. The increase in gross profit resulted from higher volume, improved operating performance and the benefits of cost reductions achieved through our restructuring and site consolidation actions. Our Thailand assembly operation increased output by 18% and accounted for 77% of our assembly production during the first quarter of 2015, compared to 78% in the fourth quarter of 2014 and 52% in the first quarter of 2014.

As part of new business development effort, the first smartphone incorporating our shape memory alloy (SMA) optical image stabilization (OIS) actuator was introduced in January 2015 for the Taiwan and China markets. The OIS actuator is based on SMA technology that improves picture and video quality, particularly in low-light conditions, and offers performance and size advantages over current OIS solutions. We are bringing this product to market with our partner, Cambridge Mechatronics Ltd., a high technology design and engineering company based in Cambridge, England. We are also working with other interested smartphone and camera module makers who are evaluating our OIS actuator for potential inclusion in their future products. Late in 2014, our first SMA OIS production line was installed. In 2015, we are focusing on winning positions on new smartphone programs, improving our production efficiency and increasing our production capacity. While we are in the early stages with this product and volumes initially are low, we are encouraged by the interest our SMA OIS actuator is attracting and excited about the significant opportunity that the smartphone camera market provides.

During the first quarter of 2015, all of the costs of our SMA OIS initiative were classified as research and development expenses. Research and development expenses for the quarter increased to $6,042,000, compared to $4,828,000 in the fourth quarter of 2014, and $3,942,000 in the first quarter of 2014. The increase was primarily due to process development costs for our SMA OIS actuator.

Outlook

We expect suspension assembly shipments in the second quarter of 2015 to be down about 10%, compared to the 122 million suspension assembly shipments in the first quarter of 2015, in what is typically a seasonally slower period for suspension assembly shipments. Our average selling price is expected to be relatively flat on a sequential basis. The lower volume is expected to reduce our gross profit.

RESULTS OF OPERATIONS

Thirteen Weeks Ended December 28, 2014 vs. Thirteen Weeks Ended December 29, 2013

Net sales for the thirteen weeks ended December 28, 2014, were $72,423,000, compared to $70,312,000 for the thirteen weeks ended December 29, 2013, an increase of $2,111,000. The increase was due to a 5% increase in suspension assembly unit shipments partially offset by a slight decrease in average selling price.

Gross profit for the thirteen weeks ended December 28, 2014, was $11,464,000, compared to gross profit of $5,530,000 for the thirteen weeks ended December 29, 2013, an increase of $5,934,000. Gross profit was 16% of net sales for the thirteen weeks ended December 28, 2014, compared to 8% of net sales for the thirteen weeks ended December 29, 2013. The increase in gross profit was primarily due to increased net sales, benefits of the cost reductions achieved through our restructuring and site consolidation actions, and improved operating performance.

Research and development expenses for the thirteen weeks ended December 28, 2014, were $6,042,000, compared to $3,942,000 for the thirteen weeks ended December 29, 2013, an increase of $2,100,000. The increase was primarily due to higher process development costs for our SMA OIS actuators for smartphone cameras.

During the thirteen weeks ended December 28, 2014, as part of our continued focus on overall cost reductions, we recognized $159,000 of severance and site consolidation expenses, compared to $592,000 for the thirteen weeks ended December 29, 2013. The site consolidation expenses were primarily supplies and internal labor related to the consolidation. All severance and benefits amounts owed have been paid in full.

Near the end of the first quarter of 2014, we received third-party interest in a purchase of our Eau Claire assembly building. Based on the facts and circumstances known at that time, we evaluated the recoverability of the Eau Claire building and recorded an asset impairment charge of $4,470,000.

Other expense, net, for the thirteen weeks ended December 28, 2014, included a foreign currency loss of $640,000, compared to a foreign currency loss of $3,170,000 for the thirteen weeks ended December 29, 2013. The losses were primarily related to U.S. dollar-denominated inter-company liabilities owed to us by our Thai subsidiary.

Interest expense for the thirteen weeks ended December 28, 2014, was $4,453,000, compared to $3,777,000 for the thirteen weeks ended December 29, 2013, an increase of $676,000. The increase in interest expense was primarily due to the $37,500,000 aggregate principal amount of 8.50% New Convertible Notes issued in that quarter.

Liquidity and Capital Resources

We continue to incur net losses which have dampened our ability to generate cash from operations. We currently believe that our cash and cash equivalents, restricted cash, short-term investments, cash flow from operations, credit facility and term loan, bill of exchange transactions, and additional financing, if needed and as available given contractual restrictions, current credit market conditions and our operating performance, will be sufficient to meet our forecasted operating expenses, debt service and capital expenditures through 2015. As of December 28, 2014, we had outstanding $39,822,000 aggregate principal amount of our 8.50% Convertible Notes, $63,931,000 aggregate principal amount of our 8.50% Secured Notes, $12,200,000 aggregate principal amount of our 10.875% Notes, and $37,500,000 of our 8.50% New Convertible Notes. Our 8.50% Secured Notes and our 10.875% Notes mature on January 15, 2017 and our 8.50% New Convertible Notes mature on October 31, 2019.

During the first quarter of 2015, we obtained a $15,000,000 term loan from PNC Bank, National Association (“PNC Bank”). The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. See below for additional details.

In October 2014, we completed a debt offering that provided for the sale of $37,500,000 aggregate principal amount of 8.50% New Convertible Notes. We also completed an exchange of $15,000,000 of 8.50% Secured Notes for 2,500,000 shares of common stock and warrants to purchase an additional 2,500,000 shares of which 1,250,000 were exercised in November 2014 and the remaining 1,250,000 in January 2015. Certain beneficial holders of the 8.50% New Convertible Notes have the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes will remain escrowed until this put right expires on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Notes, plus accrued but unpaid interest thereon. On January 15, 2015, we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash. Details of this debt offering and exchange are discussed in more detail below.

Subsequent to the first quarter of 2015, we also received a $15,000,000 advance payment from a customer for suspension assemblies expected to ship to that customer in the second quarter of 2015.

We may from time to time seek to prepay or retire our outstanding debt through cash purchases in open market or privately negotiated transactions or otherwise. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Our ability to obtain additional financing will depend upon a number of factors, including our future and historical performance and financial results, contractual restrictions and general economic and capital market conditions. We cannot be certain that we will be able to raise additional financing on terms acceptable to us, including covenants that we will be able to comply with in the short term, or at all, if needed. We sold a portion of one of our facilities in the second quarter of 2014 and have a facility in Hutchinson, Minnesota currently offered for sale or lease, which may provide an additional source of cash.

Our principal sources of liquidity are cash and cash equivalents, short-term investments, cash flow from operations, our senior secured credit facility and term loan, leasing and additional financing capacity, if available given current credit market conditions and our operating performance. Our cash and cash equivalents decreased from $37,939,000 at September 28, 2014, to $33,556,000 at December 28, 2014. Our short-term investments remained at $965,000 and are restricted in use. In total, our cash and cash equivalents and short-term investments increased by $38,117,000. As of December 28, 2014, and September 28, 2014, we also had $44,629,000 and $2,059,000, respectively, of cash and cash equivalents that were restricted in use. As of December 28, 2014, we held in escrow $35,000,000 that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Notes, plus accrued but unpaid interest thereon, and $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes, which will be held until the put right related to these notes expires on February 20, 2015. The remaining amounts restricted in use for both periods covered outstanding letters of credit and cash received and temporarily held in our senior secured credit facility collections account. On January 15, 2015, we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash.

Cash Provided by Operating Activities

Cash provided by operating activities for the thirteen weeks ended December 28, 2014, was $3,142,000, compared to $1,999,000 for the thirteen weeks ended December 29, 2013. The increase in operating cash flows was primarily due to a decreased net loss.

Cash Used for Investing Activities

For the thirteen weeks ended December 28, 2014, cash used for investing activities was $48,019,000, compared to $1,596,000 for the thirteen weeks ended December 29, 2013. The cash used for the thirteen weeks ended December 28, 2014, was primarily due to $42,500,000 of restricted cash related to our escrow requirements, $2,129,000 of restricted cash which covered outstanding letters of credit and cash received and temporarily held in our senior secured credit facility collections account, and $6,285,000 of capital expenditures for manufacturing equipment for new process technology and capability improvements and product tooling partially offset by $836,000 of equipment sale/leaseback transactions in Thailand.

Our suspension assembly business is capital intensive. The disk drive industry experiences rapid technology changes that require us to make substantial ongoing capital expenditures in product and process improvements to maintain our competitiveness. Significant industry technology transitions often result in increasing our capital expenditures. The disk drive industry also experiences periods of increased demand and rapid growth followed by periods of oversupply and subsequent contraction, which also results in fluctuations in our capital expenditures. We anticipate capital expenditures will total approximately $20,000,000 in 2015, primarily for product tooling and manufacturing equipment for new process technology and capability improvements, such as DSA suspension assemblies and SMA OIS actuators and. Financing of these capital expenditures will be principally from operations, our current cash, cash equivalents, our senior secured credit facility, leasing, or additional financing, if available given current credit market conditions and our financial performance.

Cash Provided by (Used for) Financing Activities

Cash provided by financing activities for the thirteen weeks ended December 28, 2014, was $39,295,000, compared to cash used for financing activities of $2,229,000 for the thirteen weeks ended December 29, 2013. The cash provided by financing activities for the thirteen weeks ended December 28, 2014, was primarily due to $37,500,000 in proceeds from the private placement of our 8.50% New Convertible Notes and $15,000,000 in proceeds from the PNC term loan, partially offset by $9,533,000 in repayments of our senior secured credit facility, $3,175,000 of debt refinancing costs, and $521,000 of capital lease payments. The cash used in the thirteen weeks ended, December 29, 2013, was primarily due to a $1,980,000 repayment of our senior secured credit facility and $267,000 of capital lease payments.

Bill of Exchange

During the thirteen weeks ended December 28, 2014, we entered into multiple independent bill of exchange discounting transactions under an uncommitted facility with HSBC, under which our Thai subsidiary sold, without recourse, an aggregate of $25,782,000 of its accounts receivable to HSBC and was paid 95% of the face value of the receivable, less interest expense of LIBOR plus 1.75%. Upon full payment of the receivable by its customer to HSBC, our Thai subsidiary receives from HSBC the 5% remainder due on the receivable. As of December 28, 2014, there remained $760,000 to be paid to our Thai subsidiary from HSBC, all of which was included within the line item “Other receivables” on our condensed consolidated balance sheets.

Debt

October 2014 Financing Transactions - On October 23, 2014, we issued $37,500,000 aggregate principal amount of 8.50% New Convertible Notes. The 8.50% New Convertible Notes bear interest at a rate of 8.50% per annum, payable semi-annually in arrears on April 30 and October 31 of each year, beginning April 30, 2015. The 8.50% New Convertible Notes mature on October 31, 2019. Each $1,000 principal amount of the 8.50% New Convertible Notes is convertible into 266.6667 shares of our common stock (which is equal to an initial conversion price of approximately $3.75 per share), subject to adjustment under certain circumstances. The 8.50% New Convertible Notes rank pari passu in right of payment with all existing and future senior indebtedness of our company. Certain beneficial holders of the 8.50% New Convertible Notes have the right to require us to repurchase for cash up to $7,500,000 aggregate principal amount of the 8.50% New Convertible Notes, plus accrued and unpaid interest, if any, during the 120-day period commencing on October 23, 2014. Accordingly, $7,500,000 of the proceeds to us from the sale of the 8.50% New Convertible Notes will remain escrowed until the put right expires on February 20, 2015. Additionally, we were required to escrow at least $35,000,000 of cash that was restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of our 8.50% Convertible Notes, plus accrued but unpaid interest thereon. We capitalized debt financing costs of $1,652,000 which are being amortized over five years or until the maturity date. The amortization expense is included in interest expense. On January 15, 2015, we completed a redemption of the existing $39,822,000 aggregate principal amount of 8.50% Convertible Notes. To fund this, we used the escrowed $35,000,000 and our existing cash.

On October 23, 2014, we entered into an agreement providing for the private exchange of $15,000,000 aggregate principal amount of our 8.50% Secured Notes held by a certain holder for 2,500,000 shares of our common stock and warrants to purchase an additional 2,500,000 shares of our common stock on a cashless basis at an exercise price of $0.01 per share. On November 25, 2014, 1,250,000 warrants were exercised which resulted in the issuance of 1,246,493 shares of common stock. On January 15, 2015, subsequent to the end of the first quarter of 2015, the remaining 1,250,000 warrants were exercised which resulted in the issuance of 1,246,428 shares of common stock and there were no warrants outstanding. The fair value of the common stock and warrants was recorded in additional paid-in capital in the amount of $17,388,000. Applying debt extinguishment accounting, we recorded a loss on extinguishment of debt of $4,318,000 in our first quarter of 2015. The loss also included $1,232,000 of broker, legal and accounting fees related to the exchange transaction.

To accommodate the October 2014 debt transactions described above, on October 20, 2014, we entered into supplemental indentures relating to our 8.50% Secured Notes and to our 10.875% Notes. Additionally, on October 20, 2014, we entered into an amendment to our senior secured credit agreement, dated as of September 16, 2011, as previously amended, with PNC Bank. Under the amendment, PNC Bank consented to the transactions contemplated by the New Notes and the exchange transaction, referred to above.

Senior Secured Credit Facility - On September 22, 2014, we entered into an amendment to our existing senior secured credit facility dated as of September 16, 2011, as previously amended, with PNC Bank. The amendment reduced the maximum principal amount of the revolving credit facility provided by the credit agreement from $35,000,000 to $20,000,000, extended the maturity date of the senior secured credit facility from October 1, 2014 to December 1, 2016, reduced the cash balance we are required to maintain in an account at PNC Bank from $15,000,000 to $2,500,000, and modified the fixed charge coverage covenant under the credit agreement by eliminating the requirement for the four fiscal quarters ending September 28, 2014 and changing the measurement periods thereafter for the fixed charge coverage covenant by excluding from such measurement periods all fiscal quarters ended on or prior to September 28, 2014.

The amendment also required us to maintain cash on our balance sheet, including restricted cash, during the period from December 1, 2014 through January 16, 2015 (which is the day after the 2015 put date for our 8.50% Convertible Notes) and during the period from December 1, 2015 through January 16, 2016 (which is the day after the 2016 put date for our 8.50% Convertible Notes) in an amount not less than the aggregate principal amount of our 8.50% Convertible Notes then outstanding, and to establish a reserve against our borrowing base during each such period in the same amount. The amendment permits us to redeem, repurchase or repay our 8.50% Convertible Notes in whole or in part at any time as long as, after giving effect to such redemption, repurchase or repayment, no default or event of default exists under the credit agreement and we have liquidity of not less than $20,000,000, and permits us to incur additional unsecured debt at any time prior to January 15, 2016 in an amount not to exceed the aggregate principal amount of our 8.50% Convertible Notes then outstanding as long as certain conditions are satisfied, including a requirement that, by the next put date for our 8.50% Convertible Notes, we reduce the aggregate principal balance of our 8.50% Convertible Notes by an amount equal to the principal amount of such additional unsecured debt then outstanding. Subsequent to the end of the first quarter, this portion of the amendment no longer applied as we completed a redemption of the existing $39,822,000 of 8.50% Convertible Notes on January 15, 2015.

PNC Term Loan - On December 23, 2014, we entered into an amendment to our existing Revolving Credit and Security Agreement dated as of September 16, 2011, as previously amended, with PNC Bank, National Association, as agent and lender. Pursuant to the amendment, a term loan was made to us in the amount of $15,000,000. The term loan may consist of domestic rate loans, with a per annum interest rate equal to PNC Bank’s alternate base rate (as defined in the credit agreement) plus 2.50%, or LIBOR rate loans, with a per annum interest rate equal to 3.50% plus the greater of the LIBOR rate (as defined in the credit agreement) or 1.00%, or a combination thereof. As a result, our interest rate for the first quarter of 2015 was 4.5%. The principal balance of the term loan is payable in quarterly installments of $750,000 on the first day of each calendar quarter, commencing on April 1, 2015 and continuing through January 1, 2020. In the event that the Revolving Credit and Security Agreement is not extended beyond December 1, 2016, the balance due on the term loan will also become due on December 1, 2016. Once repaid, amounts borrowed under the term loan may not be reborrowed.

Capital Leases – As of December 28, 2014, we have remaining capital lease payment obligations of $6,741,000. We expect to enter into more leasing transactions throughout 2015.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

RECENT ACCOUNTING PRONOUNCEMENTS

There have not been any recently adopted accounting standards.

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding the following: demand for and shipments of our products, our market position, program ramps, product mix and adoption, production capabilities and volumes, our operations in Thailand and the United States, market adoption and our production of SMA OIS actuators, capital spending, operating expenses, average selling prices, product costs, operating performance, technology, development, data density trends and storage capacity requirements, customer yields, inventory levels, company-wide financial performance, our business model, cost reductions and economic and market conditions. Words such as “believe,” “anticipate,” “expect,” “intend,” “estimate,” “approximate,” “plan,” “goal” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these statements are reasonable, forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended September 28, 2014. This list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Except as otherwise required by law, we undertake no obligation to update any forward-looking statement for any reason. You should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as noted in this Item 3, there have been no material changes in our exposure to market risk or to our quantitative and qualitative disclosures about market risk as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

As of December 28, 2014, we had $153,453,000 carrying value of fixed rate debt which had a fair market value of approximately $155,158,000. We used trading activity to determine the fair market value of the 8.50% Convertible Notes and the 8.50% Secured Notes. The 10.875% Notes and the 8.50% New Convertible Notes have not had trading activity, therefore the fair market value estimate for these notes was based on the closing market price of comparable debt as of the end of the fiscal quarter. The fair value of our senior secured credit facility and term loan’s carrying value is a reasonable estimate of fair value.

Our investing activities are guided by an investment policy, which is reviewed at least annually by our board of directors, and whose objectives are preservation and safety of capital, maintenance of necessary liquidity and maximizing of the rate of return within the stated guidelines. Our policy provides guidelines as to the maturity, concentration limits and credit quality of our investments, as well as guidelines for communication, authorized securities and other policies and procedures in connection with our investing activities.

We are exposed to various market risks and potential loss arising from changes in interest rates and foreign currency exchange rates in connection with our cash, cash equivalents and marketable securities held in investment accounts.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended September 28, 2014.

ITEM 6. EXHIBITS

(a) Exhibits:

Unless otherwise indicated, all documents incorporated herein by reference to a document filed with the SEC pursuant to the Exchange Act, are located under SEC file number 001-34838.

3.1		Amended and Restated Articles of Incorporation of HTI (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended 12/29/2002; File No. 0-14709).
3.2		Restated By-Laws of HTI, as amended December 16, 2013 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed 12/18/2013).
4.1		Rights Agreement dated as of July 29, 2010, with Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A filed 7/30/2010); First Amendment to Rights Agreement dated as of May 6, 2011, with Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 2 to Registration Statement on Form 8-A/A filed 5/6/2011); Second Amendment to Rights Agreement, dated February 24, 2012, with Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 3 to Registration Statement on Form 8-A/A filed 2/24/2012); Third Amendment to Rights Agreement, dated March 27, 2102, with Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 4 to Registration Statement on Form 8-A/A filed 3/27/2012); and Fourth Amendment to Rights Agreement, dated as of October 20, 2014, with Wells Fargo Bank, N.A., as Rights Agent (incorporated by reference to Exhibit 5 to Registration Statement on Form 8-A/A filed 10/20/2014).
4.1		Senior Indenture, dated as of October 20, 2014, with U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed 10/23/2014); First Supplemental Indenture, dated as of October 20, 2014 (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed 10/23/2014).
4.2		Form of 8.50% Convertible Senior Notes due 2019 (included as part of Exhibit 4.1).
4.3		8.50% Senior Secured Second Lien Note Indenture, dated March 30, 2012, with Wells Fargo Bank, National Association, as Trustee (including form of 8.50% Senior Secured Second Lien Note due 2017) (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed 4/2/2012); First Supplemental Indenture, dated January 22, 2013 (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed 1/28/2013); Second Supplemental Indenture, dated October 20, 2014 (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed 10/23/2014).
4.4		10.875% Senior Secured Second Lien Note Indenture, dated January 22, 2013, with Wells Fargo Bank, National Association, as trustee (including form of 10.875% Senior Secured Second Lien Note due 2017) (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed 1/28/2013); First Supplemental Indenture, dated October 20, 2014 (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed 10/23/2014).
4.5		Common Stock Warrant issued October 23, 2014 (incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K filed 10/23/2014).
10.1*		Fiscal Year 2015 Executive Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed 10/14/2014).
10.2		Securities Purchase Agreement, dated as of October 20, 2014 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed 10/23/2014).
10.3		Amendment No. 6 to Revolving Credit and Security Agreement, dated as of October 20, 2014, with PNC Bank, National Association, as agent and lender (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed 10/23/2014).
10.4		Exchange Agreement with Liberty Harbor Master Fund I, L.P. dated October 20, 2014.
10.5		Amendment No. 7 to Revolving Credit and Security Agreement, dated as of December 23, 2014, with PNC Bank, National Association, as agent and lender (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed 12/24/2014).
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32		Section 1350 Certifications.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

_____________

* Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Quarterly Report on Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			HUTCHINSON TECHNOLOGY INCORPORATED


Date:	February 4, 2015	By	/s/ Richard J. Penn
			Richard J. Penn
			President and Chief Executive Officer



Date:	February 4, 2015	By	/s/ David P. Radloff
			David P. Radloff
			Vice President and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Description	Method of Filing
3.1	Amended and Restated Articles of Incorporation of HTI	Incorporated by Reference
3.2	Restated By-Laws of HTI, as amended December 16, 2013	Incorporated by Reference
4.1	Rights Agreement dated as of July 29, 2010, with Wells Fargo Bank, N.A., as Rights Agent; First Amendment to Rights Agreement dated as of May 6, 2011; Second Amendment to Rights Agreement, dated February 24, 2012; Third Amendment to Rights Agreement, dated March 27, 2102; and Fourth Amendment to Rights Agreement, dated as of October 20, 2014.	Incorporated by Reference
4.1	Senior Indenture, dated as of October 20, 2014, with U.S. Bank National Association, as trustee; First Supplemental Indenture, dated as of October 20, 2014.	Incorporated by Reference
4.2	Form of 8.50% Convertible Senior Notes due 2019	Incorporated by Reference
4.3	8.50% Senior Secured Second Lien Note Indenture, dated March 30, 2012, with Wells Fargo Bank, National Association, as Trustee (including form of 8.50% Senior Secured Second Lien Note due 2017); First Supplemental Indenture, dated January 22, 2013; Second Supplemental Indenture, dated October 20, 2014.	Incorporated by Reference
4.4	10.875% Senior Secured Second Lien Note Indenture, dated January 22, 2013, with Wells Fargo Bank, National Association, as trustee (including form of 10.875% Senior Secured Second Lien Note due 2017); First Supplemental Indenture, dated October 20, 2014.	Incorporated by Reference
4.5	Common Stock Warrant issued October 23, 2014.	Incorporated by Reference
10.1	Fiscal Year 2015 Executive Annual Cash Incentive Plan.	Incorporated by Reference
10.2	Securities Purchase Agreement, dated as of October 20, 2014.	Incorporated by Reference
10.3	Amendment No. 6 to Revolving Credit and Security Agreement, dated as of October 20, 2014, with PNC Bank, National Association, as agent and lender.	Incorporated by Reference
10.4	Exchange Agreement with Liberty Harbor Master Fund I, L.P. dated October 20, 2014.	Filed Electronically
10.5	Amendment No. 7 to Revolving Credit and Security Agreement, dated as of December 23, 2014, with PNC Bank, National Association, as agent and lender.	Incorporated by Reference
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed Electronically
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed Electronically
32	Section 1350 Certifications.	Filed Electronically
101.INS	XBRL Instance Document	Filed Electronically
101.SCH	XBRL Taxonomy Extension Schema	Filed Electronically
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed Electronically
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed Electronically
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed Electronically
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed Electronically

Exhibit 10.4

October 20, 2014

Hutchinson Technology Incorporated

40 West Highland Park Drive N.E.

Hutchinson, Minnesota 55350

Attn: David Radloff, Vice President and Chief Financial Officer

Re: Exchange of Notes for Common Stock

Dear Ladies and Gentlemen:

This letter agreement (this “Agreement”) sets forth the agreement between Hutchinson Technology Incorporated, a Minnesota corporation (“Hutchinson Technology”), and Liberty Harbor Master Fund I, L.P. (“Liberty Harbor”) to exchange $15,000,000 aggregate principal amount of 8.50% Senior Secured Second Lien Notes due 2017 (CUSIP 448407AJ5) (the “Exchanged Notes”) of Hutchinson Technology for an aggregate amount of 5,000,000 shares (including shares issuable upon exercise of the Warrants (as defined below)) (the “New Shares”) of Hutchinson Technology’s common stock, par value $0.01 per share (the “Common Stock”), pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), on the terms specified below.

Accordingly, Hutchinson Technology and Liberty Harbor hereby agree as follows:

1. Exchange of the Notes.

(a) Subject to the satisfaction (or waiver) of the conditions set forth in Sections 5 and Section 6, on the Closing Date (as defined below), Hutchinson Technology and Liberty Harbor shall exchange (the “Exchange”) (i) $7,500,000 aggregate principal amount of the Exchanged Notes for 2,500,000 New Shares and (ii) $7,500,000 aggregate principal amount of the Exchanged Notes for warrants, in substantially the form of Exhibit A attached hereto (the “Warrants”), exercisable for an aggregate of 2,500,000 New Shares (the “Warrant New Shares”).

(b) At the Closing (as defined below), (i) Hutchinson Technology shall (A) deliver, or direct Wells Fargo Bank, N.A., the transfer agent for the Common Stock to deliver, to Liberty Harbor 2,500,000 New Shares in accordance with the instructions set forth in Schedule I attached hereto, (B) deliver to Liberty Harbor the Warrants exercisable for the Warrant New Shares in accordance with the instructions set forth in Schedule I attached hereto, and (C) deliver to Liberty Harbor cash representing all accrued but unpaid interest in respect of all ($15,000,000) the Exchanged Notes as of the Closing Date by wire transfer of immediately available funds in accordance with the instructions set forth in Schedule I attached hereto (ii) Liberty Harbor shall surrender the note certificate which includes the Exchanged Notes to Hutchinson Technology for cancellation in accordance with the instructions set forth in Schedule I attached hereto and (iii) Hutchinson Technology shall deliver to Liberty Harbor a replacement note, in accordance with the instructions set forth in Schedule I attached hereto, in the name of Liberty Harbor that is identical to the note certificate surrendered which included the Exchanged Notes, but in an aggregate principal amount equal to the difference between (1) the aggregate principal amount immediate prior to the Exchange which included the Exchanged Notes and (2) $15,000,000.

(c) The closing of the Exchange (the “Closing”) shall take place concurrently with the closing of the New Notes (as defined below), currently contemplated to occur on the third Business Day following the date hereof, or such other date as the parties to this Agreement may agree in writing (the “Closing Date”).

(d) Upon the Closing, the Exchanged Notes shall be deemed surrendered by Liberty Harbor, and Hutchinson Technology shall, subject to Section 1(b)(ii), cause such notes to be cancelled and, the aggregate principal amount of Hutchinson Technology’s 8.50% Senior Secured Second Lien Notes due 2017 outstanding shall be reduced by the amount of such cancelled notes ($15,000,000).

(e) The exchange of any Exchanged Notes for the New Shares and the Warrants will be made pursuant to an exemption from the registration requirements of the Securities Act contained in Section 3(a)(9) of the Securities Act, and Hutchinson Technology has not filed and will not file a registration statement under the Securities Act or any other federal or state securities laws with respect to the New Shares, the Warrants or the Exchange. Hutchinson Technology acknowledges and agrees that the New Shares will not contain any restrictive legend, will not be subject to any stop order instructions, will be freely transferable without restriction, and will be freely tradable without limitation on the Nasdaq Global Select Market (the “Principal Market”).

2. Representations and Warranties of Liberty Harbor.

Liberty Harbor hereby represents and warrants to Hutchinson Technology as follows:

(a) Liberty Harbor is a Cayman Islands exempted limited partnership duly organized, validly existing and in good standing under the laws of the Cayman Islands and has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by Liberty Harbor and constitutes the legal and binding agreement of Liberty Harbor, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors’ rights generally or general principles of equity. The execution, delivery and performance by Liberty Harbor of this Agreement and the consummation by Liberty Harbor of the transactions contemplated hereby will not (a) result in a violation of the organizational documents of Liberty Harbor, (b) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which Liberty Harbor is a party, or (c) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to Liberty Harbor, except in the case of clauses (b) and (c) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Liberty Harbor to perform its obligations hereunder. Except for the approvals required to be obtained by such Closing, no consent, approval, permit, order, notification or authorization of, or any exemption from registration, declaration or filing with, any person (governmental or private) is required in connection with the execution, delivery and performance by Liberty Harbor of this Agreement or the consummation by Liberty Harbor of the transactions contemplated hereby.

(b) Liberty Harbor owns the Exchanged Notes, free and clear of any liens, claims or encumbrances (other than those (i) arising by operation of applicable law, including any state law restrictions or federal and state securities laws, (ii) arising by operation of any organizational documents of Hutchinson Technology, the Exchanged Notes or any documents governing the Exchanged Notes, (iii) created or imposed by or on behalf of Hutchinson Technology, or (iv) those put in place in the ordinary course of business by Liberty Harbor’s prime broker or other pledging or security arrangement, which will be released contemporaneously with the Exchange) and has held the Exchanged Notes for at least one year prior to the date of this Agreement.

-2-

(c) Liberty Harbor has such knowledge, sophistication and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Common Stock. Liberty Harbor acknowledges that it understands the risks inherent in an investment in the Common Stock and that it has the financial ability to bear the economic risk of, and to afford the entire loss of, its investment in the New Shares.

(d) Liberty Harbor acknowledges that (i) it has reviewed and understands Hutchinson Technology’s filings with the Securities and Exchange Commission (the “SEC”), (ii) it understands that the rights and privileges of the holders of Common Stock are substantially different from, and less favorable than, the rights of the holders of Hutchinson Technology’s 8.50% Senior Secured Second Lien Notes due 2017, and (iii) it is relying only upon the information contained in Hutchinson Technology’s filings with the SEC and Hutchinson Technology’s representations and warranties contained in this Agreement and not upon any other information.

(e) Liberty Harbor acknowledges that no person or entity, other than Hutchinson Technology, has made any recommendation or solicitation to Liberty Harbor regarding the exchange of the Exchanged Notes for the New Shares and the Warrants.

3. Representations and Warranties of Hutchinson Technology.

Hutchinson Technology hereby represents and warrants to Liberty Harbor as follows:

(a) Hutchinson Technology is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has all requisite corporate power and authority to enter into this Agreement and the Warrants, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated by this Agreement and the Warrants. This Agreement and the Warrants have been duly authorized, executed and delivered by Hutchinson Technology and constitutes the legal and binding agreement of Hutchinson Technology, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors’ rights generally or general principles of equity. The execution, delivery and performance by Hutchinson Technology of this Agreement and the Warrants and the consummation by Hutchinson Technology of the transactions contemplated hereby and thereby will not (a) result in a violation of the organizational documents of Hutchinson Technology, (b) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which Hutchinson Technology is a party, or (c) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to Hutchinson Technology, except in the case of clauses (b) and (c) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the ability of Hutchinson Technology to perform its obligations hereunder or under the Warrants. Except for the approvals required to be obtained by such Closing, no consent, approval, permit, order, notification or authorization of, or any exemption from registration, declaration or filing with, any person (governmental or private) is required in connection with the execution, delivery and performance by Hutchinson Technology of this Agreement or the Warrants or the consummation by Hutchinson Technology of the transactions contemplated hereby and by the Warrants.

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(b) The issuance of the Warrants and the New Shares (including the Warrant New Shares upon exercise of the Warrants in accordance with the terms thereof (assuming exercise on a cashless basis)) is exempt from registration under the Securities Act by virtue of the exemption contained in Section 3(a)(9) thereof. Hutchinson Technology will comply with all applicable securities laws in connection with the transaction contemplated by this Agreement, including Section 3(a)(9) of the Securities Act. Without limiting the generality of the foregoing, no commission or other remuneration has been or is being paid or given directly or indirectly by Hutchinson Technology for soliciting the exchange contemplated by this Agreement.

(c) The New Shares, when issued in accordance with the terms of this Agreement and upon exercise of the Warrants in accordance with the terms thereof (assuming exercise on a cashless basis), will not be restricted securities within the meaning of the Securities Act, will be validly issued, will not contain any restrictive legend, will not be subject to any stop order instructions and will be freely transferable without restriction.

(d) The New Shares and the Warrants have been duly authorized and, when issued in accordance with the terms of this Agreement and upon exercise of the Warrants, in accordance with the terms thereof, the New Shares will be validly issued, fully paid and non-assessable and not subject to any preemptive rights or similar rights of shareholders of Hutchinson Technology. The Warrant New Shares have been reserved for issuance upon exercise of the Warrants in accordance with the terms thereof, and upon such exercise in accordance with the terms thereof, will be validly issued, fully paid and non-assessable and not subject to any preemptive rights or similar rights of shareholders of Hutchinson Technology.

(e) The New Shares, when issued in accordance with the terms of this Agreement and upon exercise of the Warrants in accordance with the terms thereof, will be eligible for trading without restriction on the Principal Market).

(f) Hutchinson Technology’s capital stock consists of 100,000,000 shares of Common Stock, of which 28,101,607 shares are validly issued and outstanding as of October 17, 2014, and which are fully paid and non-assessable.

(g) As of their respective filing dates, Hutchinson Technology’s filings and submissions with the SEC, including all information filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (such filings and submissions, “SEC Documents”), complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(h) Other than the transactions contemplated by this Agreement, the contemporaneous issuance by Hutchinson Technology of 8.50% Convertible Senior Notes due 2019 as described in the prospectus supplement dated as of the date of this Agreement (the “New Notes”) and such other matters disclosed in the 8-K Filing (as defined below), no event or circumstance has occurred or information exists with respect to Hutchinson Technology or any of its direct or indirect subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, but for the passage of time, under applicable law, rule or regulation, requires public disclosure by Hutchinson Technology but which has not been so publicly disclosed.

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(i) No Material Adverse Effect currently exists or is reasonably expected to occur prior to the Closing Date. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on or material adverse change in (i) the condition (financial or otherwise), business, properties, prospects, or results of operations of Hutchinson Technology or any of its subsidiaries, individually or taken as a whole, other than those occurring as a result of general economic or financial conditions or any other developments that are not unique to and do not have a material disproportionate impact on Hutchinson Technology or any of its subsidiaries, taken as a whole, but also affect other individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity who participate in or are engaged in the line of business in which Hutchinson Technology any of its subsidiaries participate or are engaged, (ii) the ability of Hutchinson Technology to meet its obligations under this Agreement or the Warrants, (iii) the ability of Hutchinson Technology to pay the Put Right Purchase Price (as defined in the Indenture, dated as of February 11, 2011, regarding Hutchinson Technology’s 8.50% Convertible Senior Notes due 2026 (the “2026 Convertible Note Indenture”)) on the Put Right Purchase Date (as defined in the 2026 Convertible Note Indenture) or to retain sufficient cash in order to continue to operate its business following the payment of the Put Right Purchase Price, or (iv) the ability of Hutchinson Technology to consummate the transactions contemplated by this Agreement or the Warrants.

(j) Other than as disclosed in the 8-K Filing, Hutchinson Technology confirms that neither it, its subsidiaries, nor any other person acting on its behalf has provided Liberty Harbor or its agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information with respect to Hutchinson Technology or any or its subsidiaries.

4. Other Agreements.

(a) In case at any time after the date of this Agreement any further action not otherwise addressed in this Agreement is necessary or desirable to carry out the purpose of this Agreement and the Warrants or the transactions contemplated by this Agreement and the Warrants, each of Hutchinson Technology and Liberty Harbor will take such further action (including the execution and delivery of instruments and documents) as the other may reasonably request.

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(b) On or before 8:30 a.m., New York City time, on the first Business Day following the date hereof, Hutchinson Technology shall file a Current Report on Form 8-K in the form required by the Exchange Act containing (i) a summary of the material terms of this Agreement and the Warrants, (ii) a current view of its projected shipments, revenue and gross revenue, and gross profit percentage range for the fiscal year ended September 28, 2014, (iii) the sources of potential additional liquidity currently being pursued by Hutchinson Technology, and (iv) Hutchinson Technology’s commitment to redeem the outstanding 8.50% Convertible Senior Notes due 2026 (such Current Report on Form 8-K, including all attachments, the “8-K Filing”). Hutchinson Technology acknowledges and agrees that, upon the filing of the 8-K Filing with the SEC, any material nonpublic information provided by Hutchinson Technology, any of its subsidiaries or its or their respective officers, directors, affiliates, employees and agents to Liberty Harbor prior to such time shall no longer constitute material nonpublic information, whether due to information publicly disclosed in the applicable 8-K Filing or otherwise. In addition, effective upon the filing of the 8-K Filing with the SEC, Hutchinson Technology acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between Hutchinson Technology, any of its subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and Liberty Harbor or any of their affiliates, on the other hand, shall terminate. Hutchinson Technology shall not, and shall not permit any of its subsidiaries or its or their respective officers, directors, affiliates, employees and agents, to, provide Liberty Harbor with any material, nonpublic information regarding Hutchinson Technology or any of its subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of Liberty Harbor. If Liberty Harbor has, or reasonably believes it has, received any such material, nonpublic information regarding Hutchinson Technology or any of its subsidiaries from Hutchinson Technology, any of its subsidiaries or any of its or their respective officers, directors, affiliates or agents, it may provide Hutchinson Technology with written notice thereof. Hutchinson Technology shall, within two Business Days of receipt of such notice, make public disclosure of such material, nonpublic information. If Hutchinson Technology breaches its obligation to make such public disclosure as required by the preceding sentence at any time prior to the first anniversary of this Agreement, then Liberty Harbor shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, nonpublic information without the prior approval by Hutchinson Technology, any of its subsidiaries, or any of its or their respective officers, directors, affiliates, employees or agents, and Liberty Harbor shall not have any liability to Hutchinson Technology, any of its subsidiaries, or any of its or their respective officers, directors, affiliates, employees or agents for any such permitted disclosure. Subject to the foregoing, neither Hutchinson Technology or any of its subsidiaries nor Liberty Harbor shall issue any press releases or any other public statements with respect to the transactions contemplated by this Agreement; provided, however, that Hutchinson Technology shall be entitled, without the prior approval of Liberty Harbor, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) Hutchinson Technology shall consult with Liberty Harbor in connection with any such press release or other public disclosure prior to its release and that in the case of clause (ii) Liberty Harbor acknowledges that the transactions contemplated by this Agreement will be publicly disclosed in the documentation related to the issuance of the New Notes). Except as required by applicable law, without the prior written consent of Liberty Harbor, neither Hutchinson Technology, nor any of its subsidiaries or its or their respective officers, directors, affiliates, employees and agents shall publicly disclose the name of Liberty Harbor in any filing, announcement, release or otherwise; provided, that the name of Liberty Harbor will be disclosed in the 8-K Filing as required by applicable law and in subsequent SEC filings solely to the extent such disclosure is required by applicable law. As used in this Agreement, “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

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(c) In consideration of Liberty Harbor’s execution and delivery of this Agreement and acquiring the Warrants and the New Shares hereunder, Hutchinson Technology shall defend, protect, indemnify and hold harmless Liberty Harbor and all of its partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including those retained in connection with the transactions contemplated by this Agreement) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such person is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements, incurred by any such as a result of, or arising out of, or relating to, any breach of Section 4(b).

(d) Hutchinson Technology shall maintain the Common Stock’s authorization for quotation on the Principal Market. Neither Hutchinson Technology nor any of its subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. Hutchinson Technology shall promptly notify Liberty Harbor if, prior to the Closing, trading in the Common Stock on the Principal Market is suspended or otherwise halted for more than 24 hours (a “Trading Suspension”). Hutchinson Technology shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(d).

(e) Hutchinson Technology agrees that it will promptly notify Liberty Harbor of any decrease in the number of authorized or issued shares of Capital Stock from the amounts set forth in Section 3(f).

5. Conditions to the Obligations of Liberty Harbor. The obligations of Liberty Harbor hereunder at the Closing are subject to the satisfaction of each of the following conditions, provided that these conditions are for Liberty Harbor’s sole benefit and may be waived by Liberty Harbor in its sole discretion by providing Hutchinson Technology with prior written notice thereof:

(a) Hutchinson Technology shall have executed this Agreement and the Warrants and delivered the same to Liberty Harbor;

(b) The representations and warranties of Hutchinson Technology in Section 3 shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date);

(c) The Common Stock (i) shall be designated for quotation or listed on the Principal Market and (ii) shall not have been suspended, as of the applicable Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the applicable Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market;

(d) The New Shares (including the Warrant New Shares issuable upon exercise of the Warrants in accordance with the terms thereof) shall have been approved for listing on the Principal Market;

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(e) Hutchinson Technology shall have issued, or shall issue concurrently with the Closing, $37,500,000 of New Notes. Hutchinson Technology shall have caused an amount of cash equal to no less than $35,000,000 to be deposited and held subject to customary escrow arrangements and segregated from any cash intended for any other purpose and restricted solely for the repayment, repurchase, redemption, defeasance or other acquisition for value of 8.50% Convertible Senior Notes due 2026, together with accrued but unpaid interest thereon.

(f) Hutchinson Technology shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the issuance of the New Shares, including, without limitation, any approvals or notifications required by the Principal Market;

(g) No suit, action or other proceeding shall be pending before any court or governmental or regulatory official, body or authority or threatened in writing seeking to restrain or prohibit (or seeking damages in connection with) the transactions contemplated by this Agreement or the Warrants or that could have a Material Adverse Effect on Hutchinson Technology, and no injunction, judgment, order, decree or ruling with respect thereto shall be in effect; and

(h) No default or event of default under any of Hutchinson Technology’s credit facilities (including the Exchanged Notes) shall exist nor shall the transactions contemplated by this Agreement or the Warrants cause such a default or event of default to occur.

6. Conditions to the Obligations of Hutchinson Technology. The obligations of Hutchinson Technology hereunder at the Closing are subject to the satisfaction of each of the following conditions, provided that these conditions are for Hutchinson Technology’s sole benefit and may be waived by Hutchinson Technology in its sole discretion by providing Liberty Harbor with prior written notice thereof:

(a) Liberty Harbor shall have executed this Agreement and delivered the same to Hutchinson Technology; and

(b) The representations and warranties of Liberty Harbor in Section 2 shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date).

7. Termination.

(a) If at any time prior to the Closing Date, there is a Trading Suspension with respect to the Common Stock, then in any such case, Hutchinson Technology shall deliver notice thereof promptly to Liberty Harbor and Liberty Harbor shall have the unilateral right to terminate this Agreement by giving written notice to that effect to Hutchinson Technology.

(b) In the event of a breach at any time prior to the Closing Date by Liberty Harbor, on the one hand, or Hutchinson Technology, on the other hand, of their respective representations, warranties, covenants, agreements or obligations, the breaching party shall give prompt written notice to the other party of such breach and if such breach is (i) not cured within five Business Days following delivery or required delivery of written notice of such breach from the non-breaching party (the “Terminating Party”) to the other of them, or (ii) not capable of being cured within such five Business Day period, then in each case, the Terminating Party shall have the unilateral right, prior to the Closing Date, to terminate this Agreement by giving written notice to that effect to the other party and without liability of the Terminating Party to the other party; provided that the Terminating Party is not in material breach of their representations, warranties, covenants, agreements or obligations at the time of such termination. If this Agreement is terminated pursuant to this Section 7(b), such termination shall not relieve any party of any liability for such breach hereunder or be deemed to constitute a waiver of any right or remedy for such breach.

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(c) In the event the Closing has not occurred by 5:00 p.m., New York City time (the “Outside Time”), on the third Business Day following the date hereof, Liberty Harbor shall have the unilateral right to terminate this Agreement following the Outside Time by giving written notice to that effect to Hutchinson Technology.

(d) In the event of a termination of this Agreement in accordance with Section 7(a), Section 7(b), or Section 7(c), this Agreement shall become void as of the date of the such termination and shall have no effect other than the provisions of Section 8.

8. Miscellaneous.

(a) Survival. The representations and warranties contained in Section 2 and Section 3 of this Agreement shall survive the Closing and the Exchange.

(b) Expenses. Hutchinson Technology hereby agrees to reimburse Liberty Harbor or its designee(s) for all reasonable costs and expenses incurred in connection with the transactions contemplated by this Agreement (including all reasonable legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by this Agreement).

(c) Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when (i) delivered personally to the recipient (ii) one Business Day after being delivered to a nationally recognized overnight courier, with written confirmation of acceptance of delivery or (iii) when telecopied or emailed (with a confirmation of transmission received by the sender) to the parties at the following addresses (or at such other address as shall be specified by like notice):

if to Hutchinson Technology, to:

Hutchinson Technology Incorporated

40 West Highland Park Drive N.E.

Hutchinson, Minnesota 55350

Attention: David Radloff, Vice President and Chief Financial Officer

Facsimile No.: 1-320-587-1810

Email: david.radloff@hti.htch.com

if to Liberty Harbor, to:

Liberty Harbor Master Fund I, L.P.

c/o Goldman Sachs Asset Management

1 American Lane

2nd Floor

Greenwich, CT 06831

Attention: Brendan McGovern

Facsimile No.: 1-646-835-3510

Email: Brendan.McGovern@gs.com

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(d) Confidentiality. Each of Hutchinson Technology and Liberty Harbor represent that they have not disclosed any information regarding discussions relating to this Agreement other than to (i) their respective representatives and (ii) such other persons to whom such disclosure is necessary or advisable as agreed to by Hutchinson Technology and Liberty Harbor (such representatives or persons, “Covered Persons”). Each of Hutchinson Technology and Liberty Harbor have directed any Covered Persons receiving such disclosure not to disclose any such information to the same extent as if such Covered Persons were bound by this Section 8(d). Except as required by law, as described in the prospectus supplement dated as of the date hereof with respect to the New Notes, or as set forth in Section 4(b), neither Hutchinson Technology nor Liberty Harbor shall disclose the existence of this Agreement or any of the provisions contained herein without the prior written consent of the other until the filing of the 8-K Filing with the SEC.

(e) Governing Law; Forum.

(i) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PRINCIPLE OR LAW THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION.

(ii) EACH PARTY TO THIS AGREEMENT AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE EXCHANGE SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES LOCATED IN NEW YORK COUNTY, NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY TO THIS AGREEMENT IRREVOCABLY AGREES TO THE JURISDICTION OF THOSE COURTS AND WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH COURTS IN RESPECT OF THIS AGREEMENT OR THE EXCHANGE. EACH PARTY TO THIS AGREEMENT WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.

(f) Severability. If any provision hereof shall hereafter be held to be invalid, unenforceable or illegal, in whole or in part, in any jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits to the parties provided by such provision, or (ii) if such provision cannot be so reformed, such provision shall be severed from this Agreement and an equitable adjustment shall be made to this Agreement (including addition of necessary further provisions to this Agreement) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect or impair the legality, validity or enforceability of any other provision hereof.

(g) Amendment; Waiver.

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(i) Any amendment to this Agreement must be set forth in a written instrument which is executed and delivered on behalf of all parties to this Agreement by an officer of, or authorized representative for, such party. Such amendment shall be effective only to the extent specifically set forth in such written instrument.

(ii) No waiver of any provision hereof shall be binding upon a party to this Agreement unless such waiver is expressly set forth in a written instrument which is executed and delivered on behalf of such party by an officer of, or authorized representative for, such party. Such waiver shall be effective only to the extent specifically set forth in such written instrument. Neither the exercise (from time to time and at any time) of, nor the delay or failure (at any time or for any period of time) to exercise, any right or remedy shall constitute a waiver of the right to exercise, or impair, limit or restrict the exercise of, such right or remedy or any other right or remedy at any time and from time to time thereafter. No waiver of any right or remedy shall be deemed to be a waiver of any other right or remedy or shall, except to the extent so waived, impair, limit or restrict the exercise of such right or remedy.

(h) Counterparts. This Agreement may be executed simultaneously in counterparts (including by means of facsimile or email delivery of signature pages), any one of which need not contain the signatures of more than one party to this Agreement, but all such counterparts taken together shall constitute one and the same Agreement.

(i) Descriptive Headings; Interpretation. The headings and captions used in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized terms used in Schedule I attached hereto and not otherwise defined therein shall have the meanings set forth in this Agreement. The use of the word “including” herein shall mean “including without limitation.” The parties to this Agreement intend that each representation, warranty and covenant contained herein shall have independent significance. If any party to this Agreement has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the applicable party to this Agreement has not breached shall not detract from or mitigate the fact that the applicable party to this Agreement is in breach of the first representation, warranty or covenant.

(j) Entire Agreement. This Agreement and the agreements and documents referred to herein contain the entire agreement and understanding between the parties to this Agreement with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter in any way.

[Remainder of page intentionally blank]

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If the foregoing is in accordance with your understanding of our agreement, please sign where indicated below and deliver a copy of this Agreement as provided for herein, whereupon this Agreement shall represent a binding agreement between us.

Very truly yours,

LIBERTY HARBOR MASTER FUND I, L.P.

By: Liberty Harbor I GP, LLC,

its general partner

By: /s/ Brendan McGovern

Name: Brendan McGovern

Title: President

AGREED AND ACCEPTED:

HUTCHINSON TECHNOLOGY INCORPORATED

By: /s/ David P. Radloff

Name: David P. Radloff

Title: CFO

Schedule I

The surrender of Exchanged Notes shall be made by delivery of such note(s) to:

FAEGRE BAKER DANIELS LLP

2200 Wells Fargo Center

90 S. 7th Street

Minneapolis, MN 55402

Attn: Dawn Holicky Pruitt

Email: dawn.pruitt@FaegreBD.com

Fax: 1-612-766-1600

The Warrants and the replacement note issued pursuant to Section 1(b)(iii) shall be delivered in a PDF copy via email on the Closing Date with the original version physically delivered as promptly as practicable thereafter, to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Attn: Lawrence P. Natke

Email: lawrence.natke@srz.com

Fax: 1- 212-593-5955

Name(s) and account(s) into which the New Shares will be issued:

Liberty Harbor Master Fund I, L.P. (DTC # 355) for further credit to Liberty Harbor Master Fund I, L.P. (Account # *****).

Wire instructions for payment of accrued interest in respect of the Exchanged Notes:

Liberty Harbor Master Fund I, L.P.

Bank: JPMorgan Chase

ABA: *****

Acct: *****

FFC: *****

Exhibit A

[attached]

HUTCHINSON TECHNOLOGY INCORPORATED

Warrant To Purchase Common Stock

Warrant No.: [●]

Number of Shares of Common Stock: 2,500,000

Date of Issuance: October 23, 2014 ("Issuance Date")

Hutchinson Technology Incorporated, a Minnesota corporation (the "Company"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, LIBERTY HARBOR MASTER FUND I, L.P., the registered holder hereof or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as defined below), two million five hundred thousand (2,500,000) fully paid nonassessable shares of Common Stock, subject to adjustment as provided herein (the "Warrant Shares"). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, this "Warrant"), shall have the meanings set forth in Section 18. This Warrant is the warrant to purchase Common Stock) issued pursuant to Section 1 of that certain Exchange Agreement, dated as of October 20, 2014, by and among the Company and the Holder (the "Exchange Agreement"). Capitalized terms used herein and not otherwise defined shall have the definitions ascribed to such terms in the Exchange Agreement.

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may only be exercised by the Holder pursuant to a Cashless Exercise as set forth in Section 1(d) on any time or times on or after the Issuance Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of the Holder's election to exercise this Warrant (the date the Holder so exercises this Warrant, the "Exercise Date"). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st) Trading Day following the date on which the Company has received the Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the third (3rd) Trading Day following the date on which the Company has received the Exercise Notice (the "Share Delivery Date"), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder's DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 8(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number (if below 0.5 shares, round down and if 0.5 shares or above, round up). The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means $0.01, subject to adjustment as provided herein.

(c) Company's Failure to Timely Deliver Securities. If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Share Delivery Date, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company's share register or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant, and, if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three (3) Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions and other reasonable out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Holder's balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the date of exercise. Nothing shall limit the Holder's right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant to the terms hereof.

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(d) Cashless Exercise. Upon exercise of this Warrant, the Holder shall receive the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):

Net Number = (A x B) - (A x C)

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised.

B= the Current Market Value.

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the date hereof, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Exchange Agreement.

(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

(f) Limitations on Exercises. The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person's affiliates) would beneficially own in excess of 9.99% (the "Maximum Percentage") of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Warrants, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

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(g) Insufficient Authorized Shares. If at any time while this Warrant remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number of shares of Common Stock equal to the number of shares of Common Stock (the "Required Reserve Amount") as shall from time to time be necessary to effect the exercise of all of this Warrant then outstanding (an "Authorized Share Failure"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant then outstanding.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. In the event that at any time and from time to time the Company shall (i) pay a dividend or make a distribution on the Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock issuable upon exercise of the Warrant immediately after the happening of such event shall be adjusted so that, after giving effect to such adjustment, the Holder shall be entitled to receive the number of shares of Common Stock upon exercise of the Warrant that the Holder would have owned or would have been entitled to receive had the Warrant been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 2 shall become effective immediately after the distribution date, retroactive to the record date therefor in the case of a dividend or distribution in shares of Common Stock or other shares of Capital Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Board will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder.

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3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant (other than a dividend or distribution covered by Section 2), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

4. PURCHASE RIGHTS. In addition to any adjustments pursuant to Section 2 above, if at any time during such time as this Warrant is outstanding, the Company offers, grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (including pursuant to the Rights Plan) (the "Purchase Rights"), then the Holder will be entitled to acquire, subject to and upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage, at which time the Holder shall be granted such right to the same extent as if there had been no such limitation). Notwithstanding anything to the contrary in the Rights Plan, the issuance of the Warrants shall not cause the applicability in any way or shall not put into effect in any way any provisions of the Rights Plan.

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5. FUNDAMENTAL TRANSACTIONS.

(a) Except as provided in Section 5(b), in the event of a Change of Control, the Warrants outstanding immediately prior to the time of consummation of the Change of Control shall be deemed exercised immediately prior to such time and each Holder shall receive upon such deemed exercise of the Warrants, on pro rata basis with the holders of Common Stock assuming the full exercise immediately prior to the consummation of the Change of Control of all then outstanding Warrants (without taking into account any limitation on exercise, including the Maximum Percentage), the kind and amount of consideration given to the holders of Common Stock upon the consummation of the Change of Control.

(b) Notwithstanding the foregoing, to the extent that after giving effect to such exercise or deemed exercise, the Holder (together with such Holder's Affiliates) would beneficially own in excess of 9.99% of the total number of issued and outstanding shares of Capital Stock of the surviving or acquiring Person in a Change of Control (the "Successor Company") (including for such purpose the shares of common stock of the Successor Company issuable upon such exercise), then (i) the Holder's Warrant shall not be deemed to be so exercised upon such Change of Control to such extent (the "Unexercised Warrant"); (ii) the Company shall provide that the Successor Company will, and such Successor Company shall, assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 5(b) (with respect to the Unexercised Warrant) and such Unexercised Warrant to be performed and observed by the Company and all of the obligations and liabilities hereunder (with respect to the Unexercised Warrant) and confirming the Holder's rights pursuant to this Warrant (with respect to the Unexercised Warrant) with respect to the Successor Company and, for the purposes of this Warrant, the definition of Company shall include any Successor Company (provided, however, that such modification shall be made to this Section 5 as shall be necessary to provide for adjustments of Warrant Shares for which the Warrants are exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Warrant in respect of the Company's Common Stock); and (iii) the Holder shall have the right to receive upon exercise of the Unexercised Warrant the kind and amount of shares of Capital Stock or other securities or property of the Successor Company in such Change of Control which the Holder would have been entitled to receive upon completion of or as a result of such Change of Control had such Unexercised Warrant been exercised immediately prior to such event (without taking into account any limitation on exercise, including the Maximum Percentage), subject to any adjustments pursuant to Section 2. The provisions of this Warrant shall similarly apply to successive Change of Controls involving any Successor Company.

(c) In the event of any Change of Control described in this Section 5, the Successor Company and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall deliver to the Holder, simultaneously with the distribution of cash, shares of stock or other securities or property, if any, to the holders of Common Stock in connection with such event, the cash, shares of stock or other securities or property, if any, necessary to pay or deliver to the Holder the amounts to which they are entitled as described above.

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(d) In the event of the dissolution, liquidation or winding-up of the Company, the Holder shall be entitled to receive, such distributions of cash, shares of stock or other securities or property on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrant, as if the Warrant had been exercised immediately prior to such event, less the Exercise Price (provided, however, to the extent that the Holder's right to participate in any such distribution would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such distribution to such extent) and the portion of such distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

(e) The Company shall not enter into or be party to a Fundamental Transaction that is not a Change of Control unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Holder. Upon the occurrence of any Fundamental Transaction that is not a Change of Control, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

6. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of this Warrant (without regard to any limitations on exercise).

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7. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 7, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

8. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 8(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 8(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 8(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 8(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

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(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a) or Section 8(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

9. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 8(c) of the Exchange Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. In addition, the Company shall deliver to the Holder any notice sent to the Company's holders of Common Stock contemporaneously therewith. It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address it set forth on the signature page hereto and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and all the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. The party whose determination or calculation is further from the final determination or calculation of the investment bank or accountant, as applicable, shall pay the fees and expenses of such investment bank or accountant. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

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15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

16. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

17. DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

18. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

(a) "1933 Act" means the Securities Act of 1933, as amended.

(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.

(c) "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For the purposes of this definition, the terms "controlling," "controlled by" and "under common control" shall have correlative meanings.

(d) "Bloomberg" means Bloomberg Financial Markets.

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(e) "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors.

(f) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York or Minneapolis, Minnesota are authorized or required by law to remain closed.

(g) "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

(h) "Change of Control" means any Fundamental Transaction other than (i) a Fundamental Transaction in which holders of the Company's voting power immediately prior to the Fundamental Transaction continue after the Fundamental Transaction to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

(i) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 13. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

(j) "Common Stock" means (i) the Company's shares of Common Stock, par value $0.01 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

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(k) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(l) "Current Market Value" per share of Common Stock or any other security at any date means (i) if the security is not registered under the 1934 Act, (a) the value of the security, determined in good faith by the Board and certified in a board resolution, based on the most recently completed arm's-length transaction between the Company and a Person other than an Affiliate of the Company, the closing of which shall have occurred on such date or within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the value of the security as determined by an independent financial expert or (ii) if the security is registered under the Exchange Act, the arithmetic average of the Weighted Average Prices of the shares of Common Stock for the 5 consecutive Trading Days ending on the Trading Day immediately preceding the Exercise Date.

(m) "Eligible Market" means the Principal Market, The NASDAQ Global Market, The NASDAQ Capital Market, The New York Stock Exchange, Inc. or the NYSE Amex Equities.

(n) "Expiration Date" means the date ten (10) years after the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a "Holiday"), the next day that is not a Holiday.

(o) "Fundamental Transaction" means that (A) the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) have its shares subject to a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or Persons whereby such other Person or Persons acquire(s) more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such share purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify its shares of Common Stock in a manner that does not otherwise result in an adjustment pursuant to Section 2 hereof or (B) any "person" or "group" (as these terms are used for purposes of Section 13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock.

(p) "Options" means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

-13-

(q) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

(r) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(s) "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the payment of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

(t) "Principal Market" means The NASDAQ Global Select Market.

(u) "Rights Plan" means the Rights Plan Agreement, dated as of July 29, 2010, between the Company and Wells Fargo Bank, N.A., as Rights Agent, as amended or otherwise modified from time to time.

(v) "Successor Entity" means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

(w) "Trading Day" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

-14-

(x) "Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.) If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 13 with the term "Weighted Average Price" being substituted for the term "Exercise Price." All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

HUTCHINSON TECHNOLOGY INCORPORATED

By: ________________________________________

Name:

Title:

EXHIBIT 31.1

CERTIFICATIONS

I, Richard J. Penn, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Hutchinson Technology Incorporated;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 4, 2015		/s/ Richard J. Penn
		Richard J. Penn
		President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, David P. Radloff, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Hutchinson Technology Incorporated;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 4, 2015		/s/ David P. Radloff
		David P. Radloff
		Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATIONS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officers, Richard J. Penn, Chief Executive Officer of Hutchinson Technology Incorporated, a Minnesota corporation (the “Company”), and David P. Radloff, Chief Financial Officer of the Company, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended December 28, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 4, 2015		/s/ Richard J. Penn
		Richard J. Penn
		Chief Executive Officer

Date: February 4, 2015		/s/ David P. Radloff
		David P. Radloff
		Chief Financial Officer

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