SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
COMMISSION FILE NUMBER 0-11963
Iomega Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0385884
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
1821 West Iomega Way, Roy, UT 84067
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (801)778-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 29, 1996.
Common Stock, par value $.03 1/3 126,891,588
(Title of each class) (Number of shares)
<PAGE>
IOMEGA CORPORATION
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at
September 29, 1996 and December 31, 1995 . . . . . . 2
Condensed consolidated statements of operations
for the three months ended September 29, 1996
and October 1, 1995. . . . . . . . . . . . . . . . . 4
Condensed consolidated statements of operations
for the nine months ended September 29, 1996
and October 1, 1995. . . . . . . . . . . . . . . . . 5
Condensed consolidated statements of cash flows
for the nine months ended September 29, 1996
and October 1, 1995. . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial statements 8
Management's discussion and analysis of financial
condition and results of operations. . . . . . . . . 14
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . 21
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . 23
This Quarterly Report on Form 10-Q contains forward-looking
statements, including information with respect to the Company's
plans and strategy for its business. For this purpose, any
statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates",
"plans", "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors
that could cause actual events or the Company's actual results to
differ materially from those indicated by such forwarding-looking
statements. These factors include, without limitation, those set
forth below under the caption "Factors Affecting Future Operating
Results" included under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part I of this
Quarterly Report on Form 10-Q and those identified in the Company's
other filings with the Securities and Exchange Commission.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
September 29, December 31,
1996 1995
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 102,452 $ 1,023
Trade receivables (net) 197,706 105,955
Inventories 178,035 98,703
Deferred income taxes 30,440 2,778
Other current assets 11,219 3,673
--------- ---------
Total current assets 519,852 212,132
PROPERTY AND EQUIPMENT, at cost 192,175 103,149
Less - accumulated depreciation
and amortization (64,611) (49,779)
--------- ---------
Net property and equipment 127,564 53,370
OTHER ASSETS 2,803 725
--------- ---------
$ 650,219 $ 266,227
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
September 29, December 31,
1996 1995
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable $ 30,452 $ 47,640
Accounts payable 143,061 94,782
Other accrued liabilities 99,529 51,164
Income taxes payable 11,319 5,141
Current portion of capitalized
lease obligations 4,035 782
--------- ---------
Total current liabilities 288,396 199,509
CAPITALIZED LEASE OBLIGATIONS,
net of current portion 6,776 1,481
NOTES PAYABLE, net of
current portion 13,754 2,551
CONVERTIBLE SUBORDINATED NOTES,
6.75%, due 2001 45,733 -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized 4,750,000 shares - -
Series C junior participating
preferred stock, authorized
250,000 shares, none issued - -
Common stock, $.03 1/3 par value;
authorized 150,000,000 shares,
126,891,588 and 117,638,670
shares outstanding at September 29,
1996 and December 31, 1995,
respectively 4,236 3,921
Additional paid-in capital 250,219 49,512
Deferred compensation (754) -
Retained earnings 46,222 9,253
--------- ---------
299,923 62,686
Treasury stock (4,363) -
Total stockholders' equity 295,560 62,686
--------- ---------
$ 650,219 $ 266,227
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three Months Ended
September 29, October 1,
1996 1995
(In thousands, except per share data)
<S> <C> <C>
SALES $ 310,085 $ 84,721
COST OF SALES 228,424 63,225
--------- ---------
Gross Margin 81,661 21,496
OPERATING EXPENSES:
Selling, general and administrative 50,323 13,878
Research and development 10,475 4,691
--------- ---------
Total operating expenses 60,798 18,569
--------- ---------
OPERATING INCOME 20,863 2,927
Interest expense (1,790) (360)
Interest income 1,633 67
Other income, net 228 63
--------- ---------
INCOME BEFORE INCOME TAXES 20,934 2,697
Provision for income taxes (8,168) (672)
--------- ---------
NET INCOME $ 12,766 $ 2,025
========= =========
NET INCOME PER COMMON SHARE $ 0.09 $ 0.02
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING Includes effects of
stock splits (see Note 2) 137,027 127,236
========= =========
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these statements.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Nine Months Ended
September 29, October 1,
1996 1995
(In thousands, except per share data)
<S> <C> <C>
SALES $ 815,711 $ 177,427
COST OF SALES 597,955 132,527
--------- ---------
Gross Margin 217,756 44,900
OPERATING EXPENSES:
Selling, general and administrative 122,605 33,389
Research and development 29,008 12,793
--------- ---------
Total operating expenses 151,613 46,182
--------- ---------
OPERATING INCOME (LOSS) 66,143 (1,282)
Interest expense (6,420) (463)
Interest income 2,169 619
Foreign currency loss (250) (1,232)
Other income (expense) (828) 771
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 60,814 (1,587)
Benefit (provision) for income taxes (23,845) 167
--------- ---------
NET INCOME (LOSS) $ 36,969 $ (1,420)
========= =========
NET INCOME (LOSS) PER COMMON SHARE $ 0.28 $ (0.01)
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING Includes effects of
stock splits (see Note 2) 132,089 114,264
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Nine Months Ended
September 29, October 1,
1996 1995
(In thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 36,969 $ (1,420)
Non-cash Revenue and Expense Adjustments:
Depreciation and amortization expense 16,532 6,198
Deferred income tax benefit (27,142) (2,968)
Other 681 (489)
Changes in Assets and Liabilities:
Trade receivables (net) (91,751) (34,627)
Inventories (79,332) (35,363)
Income taxes 6,178 3,696
Other current assets (7,546) (1,980)
Accounts payable 48,279 40,138
Accrued liabilities 48,365 5,058
--------- ---------
Net cash used in operating activities (48,767) (21,757)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,765) (24,221)
Purchase of temporary investments - (2,090)
Sale of temporary investments - 5,022
Net decrease in other assets 271 -
--------- ---------
Net cash used in investing activities (62,494) (21,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of Common Stock 1,825 1,914
Proceeds from issuance of notes payable 745,864 79,222
Payments on notes payable and
capitalized lease obligations (771,668) (56,045)
Purchase of treasury stock (4,363) -
Tax benefit from early dispositions
of employee stock 6,755 244
Conversion of Series A Preferred Stock - (30)
Net proceeds from public offering of
Common Stock 191,146 -
Net proceeds from issuance of
convertible notes 43,131 -
Proceeds from notes receivable
from shareholders - 880
--------- ---------
Net cash provided from
financing activities 212,690 26,185
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 101,429 (16,861)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,023 16,861
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 102,452 $ -
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Sale of Common Stock for a note $ - $ 283
========= =========
Property and equipment financed under
capitalized lease obligations and
note payable $ 28,367 $ -
========= =========
Conversion of Series A Preferred
Stock to Common Stock $ - $ 1,205
========= =========
Conversion of Subordinated Notes
to Common Stock $ 267 $ -
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are
necessary to present fairly the financial position of Iomega
Corporation and subsidiaries (the "Company") as of September
29, 1996 and December 31, 1995, the results of operations for
the three- and nine-month periods ended September 29, 1996 and
October 1, 1995, and cash flows for the nine-month periods
ended September 29, 1996 and October 1, 1995.
The results of operations for the three- and nine-month
periods are not necessarily indicative of the results for the
entire year.
These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes included in or incorporated into the
Company's latest Annual Report on Form 10-K.
Pervasiveness of Estimates -- The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures 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 these estimates.
Principles of Consolidation -- The condensed consolidated
financial statements include the accounts of the Company and
its wholly owned subsidiaries after elimination of all
material intercompany accounts and transactions.
Revenue Recognition -- Revenue is recognized when units are
shipped to customers. However, revenue recognition is
deferred on shipments to customers with right of return
privileges whose inventory is in excess of estimated normal
customers' inventory requirements. The gross margin
associated with the deferral of sales in excess of normal
customers' inventory requirements totaled $11,141,000 and
$3,207,000 at September 29, 1996 and December 31, 1995,
respectively, and is included in other accrued liabilities in
the accompanying condensed consolidated balance sheets.
In addition, the Company records reserves at the time of
shipment for estimated volume and consumer rebates and price
protection credits to be issued to customers. These reserves
totaled $23,271,000 and $1,633,000 at September 29, 1996 and
December 31, 1995, respectively, and are netted against
accounts receivable in the accompanying condensed consolidated
balance sheets.
Price Protection -- The Company has agreements with certain
of its customers which, in the event of a price decrease,
allow those customers (subject to certain limitations) credit
equal to the difference between the price originally paid and
the reduced price on units in the customers' inventories at
the date of a price decrease. When a price decrease is
anticipated, the Company establishes reserves for amounts
estimated to be reimbursed to the qualifying customers.
Foreign Currency Translation -- For purposes of
consolidating foreign operations, the Company has determined
the functional currency for its foreign operations is the U.S.
dollar. Therefore, translation gains and losses are included
in the determination of income.
Inventories -- Inventories include direct materials, direct
labor, manufacturing overhead costs and are recorded at the
lower of cost (first-in, first-out) or market and consist of
the following:
September 29, December 31,
1996 1995
(In thousands)
Raw materials $ 113,561 $ 89,030
Work-in-process 8,300 5,680
Finished goods 56,174 3,993
--------- ---------
$ 178,035 $ 98,703
========= =========
Reclassifications -- Certain reclassifications were made to
the prior periods' condensed consolidated financial statements
to conform with the current presentation.
Net Income (Loss) Per Common Share -- Net income (loss) per
common share is based on the weighted average number of shares
of common stock and dilutive common stock equivalent shares
outstanding during the period. Common Stock equivalent shares
consist primarily of stock options that have a dilutive effect
when applying the treasury stock method. In periods where
losses are recorded, common stock equivalents would decrease
the loss per share and are therefore not added to weighted
average shares outstanding. The outstanding shares and
earnings per share have been restated for all periods
presented to reflect the impact of the stock splits described
in Note 2.
(2) STOCK SPLITS
In December 1995, the Company's Board of Directors declared a
3-for-1 Common Stock split, which was effected in the form of
a 200% Common Stock dividend, paid on January 31, 1996 to
stockholders of record at the close of business on January 15,
1996.
On April 23, 1996, the Company's Board of Directors declared
a 2-for-1 Common Stock split, which was effected in the form
of a 100% Common Stock dividend, paid on May 20, 1996 to
stockholders of record at the close of business on May 6,
1996.
These stock splits have been retroactively reflected in the
accompanying condensed consolidated financial statements.
In connection with each stock split, proportional adjustments
were made to outstanding stock options and other outstanding
obligations of the Company to issue shares of Common Stock.
(3) INCOME TAXES
Income tax expense for the nine months ended September 29,
1996 has been provided at an effective rate of 39% compared to
an effective rate of 27% for the year ended December 31, 1995.
This tax rate is based on the Company's projected domestic and
foreign pre-tax income for 1996. The increase in the
effective tax rate is due to the Company's expected full
utilization of available tax credits and foreign net operating
loss carryforwards during 1996, and because pre-tax income of
certain foreign operations is subject to foreign income taxes
at a rate in excess of the U.S. statutory rate. The higher
tax on foreign operations is expected to offset the benefits
of the tax credits and net operating loss carryforwards which
the Company expects to utilize during 1996.
Cash paid for income taxes was $37,546,000 for the first nine
months of 1996 and $50,000 for the corresponding period in
1995.
(4) DEBT
Line of Credit -- On July 5, 1995, the Company entered into
a loan agreement with the Commercial Finance Division of Wells
Fargo Bank, N.A. ("Wells Fargo Bank").
Effective May 13, 1996, the Company renewed and amended its
loan agreement with Wells Fargo Bank. The amended agreement
permits revolving loans, term loans and letters of credit up
to an aggregate outstanding principal amount equal to the
lesser of $100 million or 80% of eligible accounts receivable.
Amounts outstanding are collateralized by accounts receivable,
inventory, equipment, general intangibles and certain other
assets. The new revolving line bears interest at the bank's
prime rate plus .5% and the term loans bear interest at the
bank's prime rate plus .75%. Total availability under this
agreement was $98.7 million at September 29, 1996, of which no
amount had been drawn. This agreement expires June 30, 1997.
Under this agreement, the Company may also secure financing of
equipment purchases from third parties up to a maximum of $75
million, less term loans outstanding to Wells Fargo Bank.
Among other restrictions, covenants within the agreement
require the Company to maintain minimum levels of working
capital and net worth.
Capital Leases -- From August 1995 to September 1996, the
Company entered into various agreements to provide capital
lease financing for the purchase of certain manufacturing
equipment and office furniture and equipment. The total
amount of capital lease commitments at September 29, 1996 is
$10.8 million.
Other Term Notes -- During 1995, the Company entered into
term notes with financial institutions. The proceeds of the
notes were used to purchase manufacturing equipment. The term
notes have 36-month terms which mature at various dates from
November 1988 to January 1999. Interest rates are fixed and
range from 8.89% to 9.11%. At September 29, 1996, the Company
had $2.8 million outstanding on these notes. The notes are
secured by the equipment purchased. The term notes require
the Company to maintain minimum levels of working capital, net
worth, and quarterly operating income.
Financing of European Accounts Receivable -- In November
1995, a foreign subsidiary of the Company entered into an
agreement with a German commercial bank for up to DM 50
million (approximately $35 million) which involves the sale of
a portion of the foreign subsidiary's accounts receivable to
the bank. The agreement expires in November 1996. The
Company is currently in the process of negotiating the renewal
of this agreement, although there can be no assurance that the
agreement will be renewed. Such sales of receivables are
limited to 90% of eligible accounts receivable subject to
certain credit limits. The Company has retained the bad debt
risk on the receivables up to DM 1 million per customer. At
September 29, 1996, borrowings against the agreement totaled
$23.4 million.
In September 1996, the Company entered into an agreement with
Quantum Corporation to finance a portion of the purchase price
of land, building and equipment associated with a
manufacturing facility in Penang, Malaysia. Even though the
Company is occupying and utilizing the facility, the
promissory note reflecting the portion of the purchase price
being financed will not be signed or finalized until after
receipt of approval of the sale by the Malaysian government,
which the Company anticipates will occur the first quarter of
1997. However, since the Company is utilizing the facilities,
the assets and debt have been reflected in the accompanying
financial statements. The amount financed under this
agreement will be $18.0 million, which will bear interest at
8.5%, and will be payable over a three-year period. Security
under this agreement will be comprised of the land, building
and equipment which was purchased. The agreement will require
the Company to maintain minimum levels of working capital and
net worth.
Cash paid for interest was $6,769,000 during the first nine
months of 1996, including interest on capital leases and
convertible notes. Interest expense in the first nine months
of 1995 was minimal. Included in interest expense for the
nine months ended September 29, 1996 was $759,000 of
amortization of deferred charges associated with obtaining the
debt.
(5) CONVERTIBLE SUBORDINATED NOTES
In March 1996, the Company issued $46,000,000 in convertible
subordinated notes. The net proceeds from the issuance of the
notes totaled $43.1 million and were used to pay down other
debts and for operating requirements. The notes bear interest
at 6.75% per year and interest payments are payable semi-
annually on March 15 and September 15 of each year commencing
on September 15, 1996. The notes mature on March 15, 2001.
The notes are unsecured and subordinated to all existing and
future senior indebtedness of the Company and are effectively
subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries.
The notes are convertible into Common Stock of the Company at
the option of the holder at any time and at or before
maturity, unless previously redeemed or repurchased, at a
conversion price of $9.875 per share (equivalent to a
conversion rate of approximately 101.27 shares per $1,000
principal amount of notes), subject to adjustment in certain
events. At September 29, 1996, holders have converted
$267,000 of convertible subordinated notes into 27,034 shares
of Common Stock.
The notes are redeemable at any time on or after March 15,
1999, in whole or in part, at the option of the Company, at
declining redemption prices, 102.7% for 1999 and 101.35% for
2000, together with accrued interest, if any, to the
redemption date.
In the event any repurchase event, as defined in the indenture
agreement, occurs, each holder of notes may require the
Company to repurchase all or any part of such holder's notes
at 100% of the principal amount thereof plus accrued interest
to the repurchase date.
(6) OTHER MATTERS
Significant Customers -- During the fiscal quarter and nine
months ended September 29, 1996, sales to a single customer
accounted for 20% and 17%, respectively, of consolidated
sales. During the fiscal quarter and nine months ended
October 1, 1995, sales to a single customer accounted for 11%
and 10%, respectively, of consolidated sales. No other single
customer accounted for more than 10% of the Company's sales
for these periods.
Forward Exchange Contracts -- The Company has commitments to
sell and purchase foreign currencies relating to forward
exchange contracts in order to hedge against future currency
fluctuations. In addition, the Company purchases components
denominated in Yen and has purchased forward contracts to buy
Yen.
The outstanding forward exchange sales and (purchase)
contracts at September 29, 1996 are as follows. The contracts
mature in December of 1996.
Contracted
Currency Amount Forward Rate
---------------------- --------------- ---------------
German Mark (3,600,000) 1.5037
British Pound 4,500,000 1.56306
French Franc 29,000,000 5.0851
Spanish Peseta 252,000,000 127.73
Italian Lira 4,750,000,000 1,525.7
Japanese Yen (2,141,200,000) 108.8
Gains and losses on foreign currency contracts intended to be
used to hedge operating requirements are reported currently in
income. Gains and losses on foreign currency contracts
intended to meet firm commitments are deferred and recognized
as part of the cost of the underlying transaction being
hedged. At September 29, 1996 and December 31, 1995, all of
the Company's foreign currency contracts are being used to
hedge operating requirements. The Company's theoretical risk
in these transactions is the cost of replacing, at current
market rates, these contracts in the event of default by the
counterparty.
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported sales of $310.1 million and net income of $12.8
million, or $0.09 per share, in the third quarter of 1996. This
compares to sales of $84.7 million and net income of $2.0 million,
or $0.02 per share, in the third quarter of 1995. For the nine-month
period ended September 29, 1996, sales were $815.7 million and
net income was $37.0 million, or $0.28 per share, compared to sales
of $177.4 million and net loss of $1.4 million, or $0.01 per share,
in the same period of 1995.
SALES
Sales for the three- and nine-month periods ended September 29, 1996
increased by $225.4 million, or 266%, and $638.3 million, or 360%,
respectively, when compared to the corresponding periods of 1995.
The primary reasons for the increases were sales of Zip and Jaz
products, which began shipping in March 1995 and December 1995,
respectively. Increased sales of Ditto products also contributed
to the increased sales.
In the third quarter of 1996, sales of Zip and Jaz products
accounted for $269.0 million, or 87%, of total sales, sales of Ditto
products accounted for $32.5 million, or 10%, of total sales, and
sales of Bernoulli products accounted for $8.6 million, or 3%, of
total sales. Compared to the third quarter of 1995, Zip and Jaz
sales increased by $217.0 million, Ditto sales increased by $13.0
million, and Bernoulli sales declined by $5.4 million. For the
nine-month period ended September, 1996, Zip and Jaz sales totaled
$700.8 million, or 86%, of total sales, Ditto product sales totaled
$88.5 million, or 11%, of total sales, and Bernoulli sales were
$26.4 million, or 3%, of total sales. When compared to the first
nine months of 1995, Zip and Jaz sales increased by $628.3 million,
Ditto sales increased by $34.7 million, and Bernoulli sales declined
by $24.7 million.
Sales outside of the United States in the third quarter of 1996 were
$80.3 million, or 26% of total sales, as compared to $15.4 million,
or 18% of total sales in the third quarter of 1995. For the first
nine months of 1996, sales outside of the United States were $256.0
million, or 31% of total sales, as compared to $44.7 million, or 25%
of total sales for the comparable period of 1995.
GROSS MARGIN
The Company's gross margin percentage for the three- and nine-month
periods ended September 29, 1996 were 26.3% and 26.7%, respectively,
compared to 25.4% reported in the third quarter of 1995 and 25.3%
in the first nine months of 1995. The gross margin percentage is
slightly higher in the third quarter of 1996, as compared to the
third quarter of 1995, due primarily to a higher margin percentage
achieved on Zip products as a result of a higher ratio of sales of
disks versus drives. These higher margins were partially offset by
price reductions on Jaz and Ditto products and a rebate program on
Zip products. For the first nine months of 1996, the gross margin
percentage is slightly higher than the same period of 1995, again
due to higher margin percentage achieved on Zip products due to a
higher ratio of sales of disks versus drives and also due to
manufacturing start up costs associated with Zip products
experienced in 1995. Gross margins in the first nine months of
1996, as compared to 1995, were negatively impacted by a shift in
product mix away from higher margin Bernoulli products to lower
margin Zip, Jaz and Ditto products.
Gross margins for the remainder of 1996 will depend in large part
on sales of Zip and Jaz disks, which generate significantly higher
gross margins than the corresponding drives, and on the sales mix
between disks and drives, and between Zip, Ditto and Jaz products.
Although the Company expects the costs of Zip, Jaz and Ditto
products to decline in the future as production increases and the
start up costs associated with Jaz products decrease, the gross
margin percentages will depend on the Company's ability to achieve
planned cost reductions, as well as on recent and any future pricing
actions. Also, future gross margin percentages will be impacted by
the mix between OEM sales, which generally provide lower gross
margins than sales to other channels, and retail sales, as well as
other factors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses represented 16% of
sales for the third quarter of 1996, and 15% for the first nine
months of 1996, compared to 16% and 19% for the third quarter and
first nine months of 1995, respectively. The decline in these
percentages for the comparable nine-month periods is primarily due
to increased sales volumes in 1996. The actual selling, general and
administrative expenses increased by $36.4 million in the third
quarter and $89.2 million for the first nine months when compared
to the corresponding periods of 1995. The increased expenses are
primarily the result of advertising expenses incurred to increase
the market awareness of Zip, Jaz and Ditto, variable selling
expenses, and increased salaries and wages resulting from increased
headcount in all areas of sales, marketing and administration.
Management expects selling, general and administrative expenses, in
absolute dollars, to increase further during the remainder of 1996,
due to planned additional advertising and promotional expenses,
trade show expenses, and variable selling expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were 3% of sales in the third
quarter of 1996, and 4% of sales for the first nine months of 1996.
In 1995, research and development expenses were 6% of sales in the
third quarter and 7% of sales for the first nine months. The
decline in the percentages from 1995 to 1996 is due to increased
sales volumes. The actual research and development expenses
increased by $5.7 million for the third quarter and $16.2 million
for the first nine months of 1996 when compared to the same periods
of 1995. The increased expenses are primarily the result of
expenditures related to continued development of Zip, Jaz and Ditto
products. Management expects continued increases in research and
development expenses, in absolute dollars, during the remainder of
1996, due to planned increases in resources dedicated to future
product development.
OTHER
Interest expense increased by $1.4 million in the third quarter and
$6.0 million in the first nine months of 1996 compared to the same
periods in 1995. The increases, on a year-to-date basis, are
primarily due to interest expense associated with the Wells Fargo
Bank line of credit, financing of European accounts receivable,
capital leases, other term notes and the convertible subordinated
notes.
Interest income increased by $1.6 million in the third quarter and
$1.6 million in the first nine months of 1996 compared to comparable
periods in 1995. The increases are due to higher levels of
available cash balances.
During the first quarter of 1995, the Company recorded a net foreign
currency loss of $1.0 million as a result of the U.S. dollar
weakening against European currencies.
INCOME TAXES
For the nine-month period ended September 29, 1996, the Company
recorded a tax provision of $23.8 million, representing an effective
income tax rate of 39%. The tax rate has increased from the rate
of 27% recorded in 1995 due to the Company's expected full
utilization of available tax credits and foreign net operating loss
carryforwards in 1996. The Company anticipates that the effective
income tax rate will remain at 39% for the remainder of 1996.
However, differences between the currently anticipated mix of
foreign income versus domestic income, and the actual mix, will have
an impact on the income tax rate that is recorded in future
quarters.
SEASONALITY
The retail market to which the Company's products are targeted is
seasonal with a substantial portion of total sales typically
occurring in the fourth quarter, and sales slow downs commonly
occurring during the summer months, particularly in Europe.
LIQUIDITY AND CAPITAL RESOURCES
At September 29, 1996, the Company had cash and cash equivalents of
$102.4 million, working capital of $231.5 million, and a ratio of
current assets to current liabilities of 1.8 to 1. During the first
nine months of 1996, the Company's cash and cash equivalents
increased by $101.4 million, comprised of $212.7 million provided
from financing activities offset by $62.5 million used in investing
activities and $48.8 million used in operating activities.
Included in cash and cash equivalents provided from financing
activities is $43.1 million in net proceeds from the issuance of
convertible notes which were issued in March 1996 and $191.2 million
in net proceeds from a secondary offering of common stock which was
completed in June 1996. These proceeds were offset by $25.8 million
of net payments against notes payable and capital lease obligations,
and $4.4 million used to repurchase 300,000 shares of the Company's
common stock. The primary component of cash and cash equivalents
used in investing activities is $62.8 million used for the purchase
of property and equipment. Net cash used in operating activities
includes an increase of $91.8 million in net accounts receivable and
an increase of $79.3 million in inventories. These uses of cash and
cash equivalents were offset by an increase of $96.6 million in
accounts payable and accrued liabilities.
On July 5, 1995, the Company entered into a loan agreement with
Wells Fargo Bank. Effective May 13, 1996, the Company renewed and
amended its loan agreement with Wells Fargo Bank. The amended
agreement permits revolving loans, term loans and letters of credit
up to an aggregate outstanding principal amount equal to the lesser
of $100 million or 80% of eligible accounts receivable. Amounts
outstanding are collateralized by accounts receivable, inventory,
equipment, general intangibles and certain other assets. The new
revolving line bears interest at the bank's prime rate plus 0.5% and
the term loans bear interest at the bank's prime rate plus 0.75%.
This agreement expires June 30, 1997. Under this agreement, the
Company may also secure financing of equipment purchases from third
parties up to a maximum of $75 million, less term loans outstanding
to Wells Fargo Bank. Among other restrictions, covenants within the
agreement require the Company to maintain minimum levels of working
capital and net worth.
In November 1995, a foreign subsidiary of the Company entered into
an agreement with a German commercial bank for up to DM 50 million
(approximately $35 million), which involves the sale of a portion
of the foreign subsidiary's accounts receivable to the bank. The
agreement expires in November 1996. The Company is currently in the
process of negotiating the renewal of this agreement, although there
can be no assurance that the agreement will be renewed. In
addition, the Company has entered into various agreements to provide
capital lease financing and other term loans for the purchase of
certain manufacturing equipment.
The Company's balance sheet at September 29, 1996 reflected short-term
borrowings of $34.5 million, consisting of borrowings under the
German loan agreement of $23.4 million, term loans of $1.1 million,
the short-term portion of financing to be entered into in connection
with the purchase of a manufacturing facility in Penang, Malaysia
of $6.0 million, and the short-term portion of capitalized lease
obligations of $4.0 million. At September 29, 1996, the Company's
long-term borrowings were $66.3 million, consisting of $45.7 million
of convertible notes, $6.8 million of capitalized lease obligations,
$12.0 million representing the long-term portion of the financing
related to the facility in Malaysia, and $1.8 million of other term
notes. The borrowings have been used to finance working capital
needs, including increases in accounts receivable and inventories
and capital expenditures related to production volume increases, in
addition to the purchase of the manufacturing facility in Malaysia
mentioned above.
Net accounts receivable increased by $91.8 million at September 29,
1996 when compared to December 31, 1995, due primarily to increased
sales. Inventory increased by $79.3 million. The increase in
inventory was primarily in finished goods (which increased by $52.1
million from December 31, 1995 to September 29, 1996). The majority
of finished goods inventory at September 29, 1996 relates to the Zip
and Jaz product lines. Start up of the facility in Malaysia, a
change in the distribution vendor in Europe, and anticipation of
fourth quarter demand were the primary reasons for the increased
inventory balance. The increases in accounts receivable and
inventory were offset by increases in accounts payable and accrued
liabilities of $48.3 million and $48.4 million, respectively.
Additions to property and equipment for the first nine months of
1996 totaled $91.1 million, offset by $10.4 million in proceeds from
capital leases and $18.0 million in seller financing for the
manufacturing facility in Malaysia. These additions were primarily
related to increased manufacturing capacity for Zip, Jaz and Ditto
products, including $28.0 million for the manufacturing facility in
Malaysia. The Company expects property and equipment additions to
be less significant in future quarters.
The Company expects that its balance of cash and cash equivalents,
together with current sources of available financing will be
sufficient to fund the Company's operations during 1997.
Thereafter, the Company may require additional funds to finance its
operations. The precise amount and timing of the Company's future
financing needs cannot be determined at this time, and will depend
on a number of factors, including the market demand for the
Company's products, the success of the Company's strategy to
transfer manfacturing capacity to its new facility in Malaysia, the
availability of critical components, the Company's strategic
alliances for the manufacture of its products, the progress of the
Company's product development efforts, the success of the Company
in improving its inventory management, the Company's management of
its cash and accounts payable, and the Company's ability to
refinance its currently available debt.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Because the Company is relying on its Zip and Jaz products for the
substantial majority of its sales in 1996, the Company's future
operating results will depend in large part on the ability of those
products to attain widespread market acceptance. Although the
Company believes there is a market demand for new personal computer
data storage solutions, there can be no assurance that the Company
will be successful in establishing Zip and Jaz as accepted solutions
for that market need. The extent to which Zip and Jaz achieve a
significant market presence will depend upon a number of factors,
including the price, performance and other characteristics of
competing solutions introduced by other vendors, including the LS-120
and Syquest Technology, Inc.'s EZ Flyer 230 and SyJet 1.3 GB,
the timing of the introduction of such solutions, the success of the
Company in establishing OEM arrangements for Zip and Jaz with
leading personal computer manufacturers, the success of the Company
in educating consumers about the existence and possible uses of Zip
and Jaz products as storage devices. In addition, component
shortages or other factors affecting the supply of the Company's
products, including any difficulties encountered during the transfer
of manufacturing capacity to the Company's new facility in Malaysia,
could limit the Company's sales and provide an opportunity for
competing products to achieve market acceptance. Also, the success
of the Company's efforts to restructure its European operations will
have an impact on future operating results.
The Company's business strategy is substantially dependent on
maximizing sales of its proprietary Zip and Jaz disks, which
generate significantly higher margins than its disk drives. If this
strategy is not successful, either because the Company does not
establish a sufficiently large installed base of Zip and Jaz drives,
because the sales mix between disks and drives is below levels
anticipated by the Company, because another party succeeds in
producing disks that are compatible with Zip and Jaz drives without
infringing the Company's proprietary rights, or for any other
reason, the Company's sales would be adversely affected, and its net
income would be disproportionately adversely affected.
Future market demand for the Company's products cannot be predicted
with certainty. Sales of Zip products in 1995, and Zip and Jaz
products in the first nine months of 1996, were the primary reasons
for the Company's revenue growth in these periods, however, these
sales may not be indicative of the long-term demand for such
products. Accordingly, the sales growth experienced by the Company
in 1995 and the first nine months of 1996 should not be assumed to
be an indication of future sales. Moreover, in light of the
Company's revenue growth in 1995 and the first nine months of 1996,
and the change in the nature of its business over the past year, the
Company believes that period-to-period comparisons of its financial
results are not necessarily meaningful. In addition, the Company
has experienced and may experience significant fluctuations in its
quarterly operating results.
The Company's European sales are predominantly denominated in
foreign currencies. In addition, the Company purchases certain
components in foreign currencies. The Company enters into forward
exchange contracts to sell and purchase foreign currencies as a
means of hedging its foreign operating cash flows. Fluctuations in
the value of foreign currencies relative to the U.S. dollar could
result in foreign currency gains and losses.
PART II - OTHER INFORMATION
IOMEGA CORPORATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits listed on the
Exhibit Index filed as a part of this Quarterly
Report on Form 10-Q are incorporated herein by
reference.
(b) Reports on Form 8-K. No reports on Form
8-K were filed during the quarter for which this
report on Form 10-Q is filed.
<PAGE>
SIGNATURE
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.
IOMEGA CORPORATION
(Registrant)
/s/ Kim B. Edwards
Dated: November 12, 1996 Kim B. Edwards
President and Chief Executive Officer
/s/ Leonard C. Purkis
Dated: November 12, 1996 Leonard C. Purkis
Senior Vice President, Finance
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
The following exhibit is filed as part of this Quarterly Report on
Form 10-Q:
Exhibit No. Description
10.26 (i) Seventh Amendment to Loan Agreement dated July 31,
1996 between the Company and Wells Fargo Bank,
N.A., Commercial Finance Division.
10.34 Agreement for the Sale and Purchase of Assets in
Malaysia, dated September 13, 1996 between the
Company and Quantum Corporation.
10.34 (a) Exhibit A to the Agreement for the Sale and
Purchase of Assets in Malaysia, dated September 13,
1996 between the Company and Quantum Corporation -
Preliminary Form of Secured Promissory Note.
10.34 (b) Exhibit B to the Agreement for the Sale and
Purchase of Assets in Malaysia, dated September 13,
1996 between the Company and Quantum Corporation -
The Indemnification Agreement.
EXHIBIT 10.26 (i)
SEVENTH AMENDMENT TO LOAN AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AGREEMENT (this
"Amendment") is entered into as of July 31, 1996, by and
between IOMEGA CORPORATION, a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Lender").
RECITALS
WHEREAS, Borrower is currently indebted to Lender
pursuant to the terms and conditions of that certain Loan
Agreement between Borrower and Lender dated as of July 5,
1995, as amended ("the Loan Agreement").
WHEREAS, Lender and Borrower have agreed to certain
changes in the terms and conditions set forth in the Loan
Agreement and have agreed to amend the Loan Agreement to
reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the
parties hereto agree that the Loan Agreement shall be
amended as follows:
1. Section 2.2(d) of the Loan Agreement is hereby
deleted in its entirety, and the following substituted
therefor:
"Section 2.2(d). Third Party Term Lender. At
Borrower's option, Borrower may obtain term loan
financing not to exceed $75,000,000.00 from one or
more parties other than Lender, which loans may be
secured only by purchase money liens on new
equipment and/or by liens on the real estate and
equipment to be acquired by Borrower in Malaysia
and which loans, in the aggregate with all loans
outstanding under Facility B, do not exceed
$75,000,000.00. Borrower shall provide to Lender
executed copies of all documentation evidencing
the term loan financing permitted hereunder not
later than ten (10) days after the funding of the
loan(s) evidenced thereby."
2. Section 9.5 of the Loan Agreement is amended by
adding thereto a new sentence which reads as follows:
"In addition to the foregoing, Borrower may
purchase up to 2,000,000 shares of its issued and
outstanding common stock for an aggregate price
not to exceed $50,000,000.00."
3. Except as specifically provided herein, all terms
and conditions of the Loan Agreement remain in full force
and effect, without waiver or modification. All terms
defined in the Loan Agreement shall have the same meaning
when used in this Amendment. This Amendment and the Loan
Agreement shall be read together, as one document.
4. Borrower hereby remakes all representations and
warranties contained in the Loan Agreement and reaffirms all
covenants set forth therein. Borrower further certifies
that as of the date of this Amendment there exists no Event
of Default as defined in the Loan Agreement, nor any
condition, act or event which with the giving of notice or
the passage of time or both would constitute any such Event
of Default.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first
written above.
WELLS FARGO BANK
IOMEGA CORPORATION NATIONAL ASSOCIATION
By: /s/ Robert J. Simmons By: /s/ Michael P. Baranowski
Title: Treasurer Title: Vice President
EXHIBIT 10.34
Effective September 13, 1996
BETWEEN
QUANTUM CORPORATION
AND
QUANTUM STORAGE (MALAYSIA) SDN.BHD.
AND
IOMEGA CORPORATION
AND
IOMEGA (MALAYSIA) SDN.BHD.
__________________________________________________
AGREEMENT FOR THE SALE AND PURCHASE
OF ASSETS IN MALAYSIA
__________________________________________________
<PAGE>
CONTENTS
Clause Heading Page
1. Interpretation. . . . . . . . . . . . . . . 3
2. Sale of Assets. . . . . . . . . . . . . . . 4
3. Consideration . . . . . . . . . . . . . . . 5
4. Pre-Closing . . . . . . . . . . . . . . . . 5
5. Closing . . . . . . . . . . . . . . . . . . 6
6. Obligations of QSM. . . . . . . . . . . . . 8
7. Obligations of Iomega . . . . . . . . . . . 8
8. Employees . . . . . . . . . . . . . . . . . 8
9. Periodic Payments . . . . . . . . . . . . . 8
10. Representations, Warranties and Undertakings of QSM 9
11. Representations, Warranties and Undertakings ofIomega 10
12. Representations, Warranties and Undertakings of Both
Parties. . . . . . . . . . . . . . . . . . 11
13. Limitation of Liabilities . . . . . . . . . 11
14. Access to Information . . . . . . . . . . . 13
15. Environmental Indemnity . . . . . . . . . . 13
16. Termination . . . . . . . . . . . . . . . . 13
17. Miscellaneous . . . . . . . . . . . . . . . 14
Schedule and Exhibits
Schedule The Assets . . . . . . . . . . . . . . 16
Exhibit A Secured Promissory Note. . . . . . . . . 17
Exhibit B The Indemnification Agreement. . . . . . 21
Exhibit C Agreement as to Certain Employees of Quantum
Peripherals Malaysia Sdn.Bhd . . . . . . 23
Exhibit D Mutual Non-Disclosure Agreement. . . . . 24
Exhibit E Non-Exclusive List of Equipment Turned Over
to Iomega. . . . . . . . . . . . . . . . . 25
THIS AMENDED AND RESTATED AGREEMENT is effective as of September 13, 1996.
BETWEEN:
(1) Quantum Corporation, a Delaware Corporation whose
principal place of business is at 500 McCarthy Blvd.,
Milpitas, California 95035, ("Quantum U.S.") and
Quantum Storage (Malaysia) Sdn.Bhd., a private limited
company incorporated in Malaysia whose registered
office is Ground Floor, Wisma Pen-Group, No. 37 Jalan
Anson 10460 Penang, Malaysia ("QSM"), (collectively
"Quantum"):
AND
(2) Iomega Corporation, a Delaware Corporation whose
principal place of business is at 1821 West Iomega Way,
Roy, Utah 84067 ("Iomega U.S.") and Iomega Malaysia
Sdn.Bhd., a private limited company incorporated in
Malaysia whose [registered office] will be (is) Suite
13-03, 13th Floor, Menara, Tan & Tan 207 Jalan Razak
50400, Kuala Lumpur, Malaysia, ("Iomega Malaysia")
(collectively "Iomega));
WHEREAS, Quantum U.S. and Iomega U.S. have entered into a
Letter Agreement dated July 15, 1996 (the "Letter
Agreement") for the sale by QSM and purchase by Iomega
Malaysia of the Assets (as hereinafter defined); and
WHEREAS, the Parties now wish to enter into a more
definitive agreement as herein stated.
NOW THEREFORE, THE PARTIES HEREBY AGREE:
1. INTERPRETATION
1.1 In this Agreement, unless the context requires otherwise:
"Agreement to
Charge" means the agreement by Iomega Malaysia to execute
the Charge;
"Assets" means the Property and the Equipment;
"Charge" means the legal charge over the Property by Iomega
Malaysia in favor of QSM;
"Closing" means closing of the sale and purchase of the Assets
as specified in Section 5.
"Closing Date" means a date not later than five months (150 days)
after the filing of a joint application to the PSA
for its approval, but not later than six months
after execution of this agreement or such other
date as the parties may agree in writing.
"Consideration" means the consideration for the sale and purchase
of the Assets being the sum specified in Section 3.l;
"Equipment" means the plan equipment and other items set out
in paragraph (3) of the Schedule and the list
attached thereto.
"Good and
Marketable
Title" means title that is saleable, unencumbered and valid
under Malaysian Law.
"Guaranty" means that guaranty delivered at Preclosing by Iomega
U.S. in favor of QSM.
"Parties" means Quantum and Iomega, collectively;
"Party" means either Quantum or Iomega singularly;
"Preclosing" means preclosing of the sale and purchase of the
Assets as specified in Section 4.
"Pre-Closing
Date" means Friday, September 27, 1996 or such other date
as the Quantum U.S. and Iomega may agree in writing.
"Property" means all the leasehold estate in and to the real
property as set out in the attached Schedule and
any building thereon or other improvements thereto
subject to any and all express or implied conditions
listed on the title;
"Iomega's
Lawyers" means Francis Tan of the Azman Davidson law offices
in Kuala Lumpur; and Eugene Lim of Donaldson and
Burkinshaw in Singapore.
"Quantum's
Lawyers" means Baker & McKenzie of 1 Temasek Avenue, #27-01
Millennia Tower, Singapore 039192;
1.2 References to statutory provisions shall be construed
as references to those provisions as amended or re-enacted
or as their application is modified by other
provisions (whether before or after the date hereof)
from time to time and shall include any provisions of
which they are re-enactments (whether with or without
modification).
1.3 References herein to Sections and the attached Schedule
are to Sections in and the attached Schedule to this
Agreement unless the context requires otherwise and the
attached Schedule to this Agreement shall be deemed to
form part of this Agreement.
1.4 The expressions "Quantum U.S.", "QSM", "Iomega U.S."
and "Iomega Malaysia" shall, where the context permits,
include their respective successors and permitted
assigns.
1.5 The headings are inserted for convenience only and
shall not affect the construction of this Agreement.
1.6 Unless the context requires otherwise, words importing
the singular include the plural and vice versa and
words importing a gender include every gender.
2. SALE OF ASSETS
2.1 Subject to the terms of this Agreement, Quantum U.S.
shall cause, and QSM shall sell as legal and beneficial
owner and Iomega U.S. shall cause Iomega Malaysia to
purchase the Assets.
2.2 Iomega U.S. undertakes that it shall guarantee
fulfillment the performance of Iomega Malaysia's
obligations under the Note and the Agreement to Charge
and the performance of all the obligations of Iomega
Malaysia pursuant to this Agreement, the Note and the
Agreement to Charge and, for such purpose shall be
jointly and severally liable hereunder.
3. CONSIDERATION
3.1 The Consideration shall be U.S. Dollars Twenty Eight
Million (U.S. $28,000,000) to be paid to Quantum by
Iomega as follows:
(a) U.S. Dollars Two Million Eight Hundred
Thousand (U.S. $2,800,000) due, as earnest money,
upon and with execution of this Agreement. This
payment will be offset against the $28,000,000
purchase price. Such initial payment is non-
refundable and forfeit to Quantum U.S. if the
parties fail to proceed to Closing due to a
material breach of this Agreement by Iomega. If
Closing does not take place as contemplated
hereunder due to reasons other than any material
breach by Iomega, Quantum U.S. shall thereupon
refund to Iomega such initial payment.
(b) At Pre-Closing the sum of U.S. Dollars Seven
Million Two Hundred Thousand (U.S. $7,200,000) to
be paid by wire transfer as specified by Quantum
U.S. in favor of Quantum U.S. (whose receipt shall
be an absolute discharge therefore). If Closing
does not take place as contemplated hereunder due
to reasons other than any material breach by
Iomega, Quantum U.S. shall thereupon refund to
Iomega such initial payment.
(c) The sum of U.S. Dollars Eighteen Million
(U.S. $18,000,000) in accordance with the method
of payment described in the note (the format of
which is attached to this Agreement as Exhibit "A"
(the "Note"). The Note shall be executed and
delivered by Iomega Malaysia in favor of QSM upon
Closing.
3.2 The Consideration shall be allocated to the Assets in
the manner as stated in the attached Schedule.
3.3 QSM owes to Quantum U.S. a sum of U.S. Dollars in
excess of Twenty-Eight Million. QSM hereby directs
Iomega U.S., to pay directly to Quantum U.S., the
Consideration in Section 3.1(a) and (b) and such of the
Consideration in Section 3.2(c) as is properly required
under the Note, in satisfaction of Iomega's payment
obligations to QSM under this Agreement.
3.4 The Parties agree that in the event any payment of the
Consideration or any part thereof shall be effected by
Iomega Malaysia to QSM, the payment of such
Consideration shall be in Ringgit Malaysia (the
currency of Malaysia) equivalent to the sum to be paid
in U.S. Dollars. The rate of exchange will be the spot
rate obtained by Iomega Malaysia in effecting its
payments hereunder in Ringgits, if applicable.
3.5 To the extent that it becomes necessary to obtain
exchange control approval by local Malaysian
authorities or local law requires up to a five (5%)
withholding that is not satisfied by the Note, the
Parties agree to comply with such regulations. Any
amount withheld in excess of taxes subsequently
determined payable will be returned with interest
earned, if any.
4. PRE-CLOSING
4.1 Pre-Closing shall take place in Singapore at the
offices of Quantum's Lawyers or at such other place and
time as shall be mutually agreed.
4.2 At Pre-Closing:
(a) QSM shall deliver to Iomega Malaysia:
(i) the document of title to the
Property which is evidence of Good and
Marketable title to the Property under
Malaysian law together with the transfer form
(Form 14A) of the National Land Code No. 56
of 1965 duly executed by QSM for the transfer
of the Property from QSM to Iomega Malaysia;
(ii) any designs and drawings, plans,
technical and sales publications, advertising
material, brochures, catalogues held by QSM
in relation to the Assets,
(iii) copies of all receipts in respect
of quit rent and assessment in respect of the
Property;
(iv) title to the Equipment by way of
delivery of possession of the Equipment, as
well as any title documents thereto (if any);
(v) and any other documents necessary
and in the possession of QSM to the transfer
of the Assets and requested by Iomega;
(vi) any warranty documents as to the
Property or Equipment, if any.
(vii) Quantum will obtain or deliver to
Iomega a copy of the resolutions of the
shareholders an the board of directors of
Quantum Malaysia authorizing the sale of the
property.
4.3 Iomega to deliver to QSM:
(i) the executed Guaranty;
(ii) such payment of the Consideration
as specified in Section 3.1(b).
5. CLOSING
5.1 The following shall be obtained, or delivered to
Quantum, as the case may be on or before Closing by
Iomega:
(a) approval of the Penang Development
Corporation ("PDC") to the transfer of the
Property to Iomega Malaysia;
(b) the approval of the Penang State Authority
("PSA") to the transfer of the Property to Iomega
Malaysia;
(c) the adjudication of the stamp duty payable on
the transfer of the Property by the relevant Stamp
Office;
(d) the approvals required for the registration
of the Charge (the "Charge Approvals" as defined
in the Agreement to Charge;
(e) charter documents of Iomega Malaysia and
certificates from appropriate Malaysian
governmental agencies certifying that Iomega
Malaysia is in good standing under the law of
Malaysia;
(f) certificates from the Secretaries of State
for the States of Delaware and Utah certifying
that Iomega U.S. in good standing in such state;
(g) a certificate dated as of the Closing of the
Secretary or Assistant Secretary of Iomega U.S.
certifying (i) the incumbency and specimen
signatures of the persons authorized to execute
and deliver this Agreement and the Guaranty on
behalf of Iomega U.S., (ii) a copy of the
resolutions of the board of directors of Iomega
U.S. authorizing the transactions contemplated
hereby including the issuance of the Guaranty; and
(iii) a copy of the Certificate of Incorporation
and By-Laws of Iomega U.S., together with all
amendments and supplements thereto as in effect on
the Closing Date; and
(h) a legal opinion of counsel to Iomega U.S. as
to the due authorization, execution and delivery
by Iomega U.S. of this Agreement and the Guaranty,
that this Agreement and the Guaranty are
enforceable against Iomega U.S. in accordance with
their terms and that the execution and delivery of
this Agreement and the Guaranty by Iomega U.S.
will not violate any relevant U.S. law or any
material agreement of Iomega U.S.
5.2 The approvals and the adjudication referred to in
Section 5.1 or any of them shall be deemed not to have
been obtained if they are obtained with conditions
deemed to be prejudicial to Iomega Malaysia. For the
purpose of this section, a condition shall only be
deemed to be prejudicial if it involves a payment by
Iomega Malaysia of an aggregate sum exceeding U.S.
Dollars One Hundred Thousand (U.S. $100,000) or if such
condition materially and adversely affects the
commercial viability of the Property.
5.3 Iomega may waive all or any of the approvals and the
adjudication, or any conditions of the approvals or
adjudication deemed to be prejudicial to Iomega
Malaysia.
5.4 Iomega Malaysia agrees that none of the payment of the
stamp duty payable in respect of the transfer of the
Property, and the administrative fees chargeable by PDC
and the PSA in giving their approvals, referred to in
5.1, shall be deemed to be a condition which is
prejudicial to Iomega referred to in Section 5.2 above.
5.5 Iomega Malaysia hereby agrees to execute the Agreement
in Charge and all documents and do all things as shall
be necessary to give effect to the Charge.
5.6 Iomega hereby undertakes that it shall present the
Transfer for registration at the relevant Land Office,
on the same day the last of the approvals referred to
in Section 5.1 are obtained and, simultaneously
therewith, also present the Charge for registration.
5.7 If, due to failure to obtain the Approvals, for other
reason than material breach, the Parties fail to Close,
on or before Closing Date, Iomega shall either waive
the preconditions to Closing or vacate the Property
within ninety (90) days. If Iomega chooses to vacate,
it shall restore the Property to its original
condition, less reasonable wear and tear, and Quantum
shall deduct from the ten million dollars ($10,000,000)
Consideration to be refunded to Iomega pursuant to
Section 3.1 of this Agreement, a sum equal to the
accrued interest on the Note from the date of this
Agreement (i.e. September 13, 1996) until such time as
Iomega vacates and restores the premises.
5.8 At Closing, Iomega Malaysia shall execute and deliver
to QSM the Note, a copy of which is attached to this
Agreement as Exhibit "A".
5.9 Quantum U.S. shall execute and deliver to Iomega a
Board of Directors Resolution authorizing the sale of
the Property.
6. OBLIGATIONS OF QSM
6.1 Prior to Pre-Closing, QSM shall pay, satisfy and
discharge all the debts, liabilities and obligations as
might encumber the Assets.
6.2 QSM shall assist Iomega in obtaining any necessary
consents granted by any third parties and the approval
of the Penang State Authority and the Penang
Development Corporation to the transfer of the Property
to Iomega Malaysia.
6.3 QSM shall duly submit such notifications and execute
all documents and do all acts and things on its part to
be executed and done under the Real Property Gains Tax
Act, 1976.
6.4 QSM shall do and execute or procure to be done and
executed all such further acts, deeds, things, and
documents as may be necessary to give effect to the
terms of this Agreement.
7. OBLIGATIONS OF IOMEGA
7.1 Iomega Malaysia shall obtain a manufacturing license
sufficient to operate the Assets and take possession of
the Property as soon as possible.
7.2 Iomega Malaysia shall duly submit such notifications
and execute all documents and do all acts and things on
its part to be executed and done under the Real
Property Gains Tax Act, 1976.
7.3 Iomega shall do and execute or procure to be done and
executed all such further acts, deeds, things, and
documents as may be necessary to give effect to the
terms of this Agreement.
8. EMPLOYEES
8.1 At Iomega's request, QSM retained a number of employees
on behalf of Iomega for the purpose of facilitating
Iomega's timely operation of the Assets. Iomega has
agreed to indemnify Quantum U.S. and QSM for any and
all liability incurred pursuant to this accommodation.
See Indemnification Agreement, a copy of which is
attached to this Agreement as Exhibit "B" and
incorporated by this reference.
8.2 As part of the consideration for QSM selling the
Property and temporarily hiring the employees (See
Section 8.1 above), Iomega further agrees that for a
six month period, expiring January 31, 1997 it will not
recruit or hire certain employees of Quantum
Peripherals Malaysia as listed in Exhibit "C".
9. PERIODIC PAYMENTS
9.1 Any amounts paid or receivable in respect of the Assets
which are of a periodical nature (such as deposits,
rents, quit rents, assessments, rates, insurance
premiums, gas, water, electricity, telephone charges,
license fees, commissions, royalties and other
outgoings or receipts) shall, unless otherwise agreed,
be prorated between QSM and Iomega Malaysia according
to the portion of the period remaining for the above
expense as of July 15, 1996.
9.2 Any salaries, wages and other emoluments and all
statutory contributions and salaries tax for which QSM
is accountable after July 15, 1996 in respect of QSM
employees retained by Iomega Malaysia pursuant to
Section 8.1 shall be reimbursed to QSM by Iomega.
10. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF QSM
Quantum U.S. and QSM hereby represent, warrant and
undertake to Iomega that:
10.1 The representations, warranties and undertakings set
out in each paragraph of this Section 10 shall remain
true as at Closing as a condition of the parties
obligation to complete the Closing.
10.2 Organization and Existence. Quantum U.S. is a
corporation duly incorporated, validly existing and in
good standing under the laws of Delaware and has all
corporate powers and all material governmental
licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
10.3 QSM is a wholly owned subsidiary of Quantum U.S. and
has been duly incorporated and is validly existing
under the laws of Malaysia and has full power,
authority and legal right to own its Assets and carry
on its business and is not in receivership or
liquidation, it has taken no steps to enter liquidation
and no petition has been presented for any winding up
QSM and there are no grounds on which a petition or
application could be based for the winding up or
appointment of a receiver of QSM.
QSM hereby represents, warrants and undertakes to
Iomega that:
10.4 To the best of QSM's knowledge, it is the sole
beneficial owner of and has a Good and Marketable title
to the Property.
10.5 To the best of QSM's knowledge, there are no options or
other agreements outstanding which provide for the sale
or transfer to any person of or the right to require
the creation of any mortgage, charge, pledge, lien or
other security or encumbrance over the Assets or any
part thereof.
10.6 To the best of QSM's knowledge, there is no unsatisfied
judgment, court order or tribunal or arbitral award
outstanding against QSM and no distress, execution or
process has been levied on any part of the Assets.
10.7 To the best of QSM's knowledge, it is not in default
under any agreement relating to the Equipment to which
it is a part or by which it is bound.
10.8 Without limiting the foregoing, to the best of QSM's
knowledge, there are no loans, guarantees, pledges,
mortgages, given, made or incurred by or on behalf of
QSM in relation to the Assets.
10.9 To the best of QSM's knowledge, it is not involved
whether as plaintiff or defendant or otherwise in any
civil criminal or arbitration proceedings in relation
to the Assets which might affect the Assets (apart from
debt collection in the ordinary course of business) or
in any proceedings before any tribunal and no such
proceedings are threatened or pending, and no claim,
dispute, adverse tax, acquisition or other notice by
any governmental authorities or creditors relating to
the Assets has been presented against or is being
engaged by Quantum.
10.10 There are no material facts or circumstances
currently known to QSM which are likely to result in
any such proceedings being brought by or against QSM or
against any person for whose acts or defaults QSM may
be vicariously liable.
10.11 To the best of QSM's knowledge, all information
contained in this Agreement (including the recitals) is
true and accurate.
10.12 To the best of QSM's knowledge, all information
given to Iomega and its professional advisors by QSM,
its officers and employees and QSM's professional
advisors in writing during the negotiations prior to
this Agreement was when given, and is at the date
hereof true and accurate and there is no fact, matter
or circumstance which has not been disclosed in writing
to Iomega or its professional advisors which renders
any such information untrue, inaccurate or misleading
or which might reasonably affect the willingness of
Iomega to proceed with the purchase of the Assets on
the terms of this Agreement.
10.13 QSM represents and warrants to Iomega that there
are no outstanding employee contracts or obligations
between QSM and any of its former employees that have
been hired by Iomega Malaysia.
11. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF IOMEGA
Iomega hereby represents, warrants, and undertakes to
Quantum that:
11.1 Organization and Existence. Iomega U.S. is a
corporation duly incorporated, validly existing and in
good standing under the laws of Delaware and has all
corporate powers and all material governmental
licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
Iomega Malaysia is a wholly owned subsidiary of Iomega
U.S. and has been duly incorporated and is validly
existing under the laws of Malaysia and has full power,
authority and legal right to enter into this Agreement
and carry out the obligations assumed hereunder.
11.2 Financing. Iomega has sufficient funds in bank
accounts, commitments for funds or currently available
lines of credit to pay the Consideration.
11.3 Iomega acknowledges and agrees that having been given
the opportunity to inspect the Property and review
information and documentation affecting the Property,
buyer is relying solely on its own investigation of the
Property and review of such information and
documentation, and not on any information provided or
to be provided by QSM. Iomega further acknowledges and
agrees that any information made available to Iomega or
provided or to be provided by or on behalf of Quantum
with respect to the Property was obtained from a
variety of sources and that Quantum has not made any
independent investigation or verification of such
information and makes no representations as to the
accuracy or completeness of such information or
documentation. Quantum is not liable or bound in any
manner by any representations or information pertaining
to the Property, or the operation thereof, furnished by
any real estate broker, agent, employee, servant or
other person.
11.4 Iomega further acknowledges and agrees that to the
maximum extent permitted by law, the sale of the
Property as provided for herein is made on an "as is"
condition and basis with all faults, and that Quantum
has no obligations to make repairs, replacements or
improvements except as may otherwise be expressly
stated herein.
11.5 To the best of Iomega's knowledge, all information
given to Quantum and its professional advisors by
Iomega, its officers and employees and Iomega's
professional advisors in writing during the
negotiations prior to this Agreement was when given,
and is at the date hereof true and accurate and there
is no fact, matter or circumstance which has not been
disclosed in writing to Iomega or its professional
advisors which renders any such information untrue,
inaccurate or misleading or which might reasonably
affect the willingness of QSM to proceed with the sale
of the Assets on the terms of this Agreement.
12. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF BOTH PARTIES
12.1 Non-Contravention. The execution, delivery and
performance of this Agreement and the Note do not and
will not contravene or conflict with any certificates
of incorporation or bylaws of either Party or
contravene or conflict with any provision of any law,
regulation, judgment, injunction, order or decree
binding upon or applicable to either party.
12.2 Finders' Fees. There is no investment banker, broker,
finder or other intermediary that has been retained by
or is authorized to act on behalf of either Party who
might be entitled to any fee or commission from either
Party or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
12.3 Litigation. There is no claim or any third party nor
any action, suit, investigation or proceedings pending
against or to the knowledge of either Party, threatened
against or affecting either Party before any court or
arbitrator or any governmental body, agency or official
that in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the transactions
contemplated hereby.
12.4 Both parties have the full power, authority and legal
right to enter into this Agreement. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the
breach or cancellation or termination of any of the
terms or conditions of or constitute a default under
any agreement, commitment or other instrument to which
either is a Party.
13. LIMITATION OF LIABILITIES
13.1 (a) Neither Party shall be liable for any breach of
representations, warranties or undertakings:
(i) which would not have arisen but for
a voluntary act, omission or transaction by
the other Party after the date hereof which
could reasonably have been avoided or carried
out and/or which on the part of the other
Party was not in the ordinary course of
business;
(ii) which arise as a result of the
other Party's failure to cooperate, or arises
as a result of the Other Party failing to act
in accordance with any reasonable request to
avoid, resist or compromise any claim after
being given a reasonable time in which to
comply with any such request; and/or
(b) The liability of QSM in respect of any claims
for breach of representations, warranties or
undertakings made hereunder shall be limited as
follows:
(i) the maximum aggregate liability of
QSM in respect of all claims for breach of
representations warranties or undertakings
shall not exceed U.S. $2,000,000.
(ii) no claims may be brought against
QSM in respect of a breach of
representations, warranties or undertakings
after the expiry of three years from the date
hereof.
(c) It is a condition of any claim for breach of
representations, warranties or undertakings
hereunder either Party shall, upon any claim,
action, demand or assessment being made or issued
against it which could lead to a claim by it for
breach of representations, warranties or
undertakings under this Agreement, promptly give
notice thereof to the other Party.
(d) The amount of any compensation or damages
payable by QSM in respect of any claims for breach
of representations, warranties or undertakings or
under the indemnities shall be computed after
taking into account and giving full credit for
Assets realized, if any, at the date of any
relevant claim within two (2) years from the date
hereof (less any realization costs and expenses);
(e) If any claim for breach of representations,
warranties or undertakings is brought under this
Agreement in relation to any liability of either
Party which is contingent only, the other Party
shall not be liable to make any payment in respect
thereof until such contingent liability becomes an
actual liability and liquidated as to amount.
(f) In no event shall either Party be liable to
the other for any remote, punitive or
consequential damages.
13.2 Iomega acknowledges and agrees that QSM has not made,
does not make and specifically negates and disclaims
any representations, warranties, promises, covenants,
agreements or guaranties of any kind or character
whatsoever, whether express or implied, oral or
written, past, present or future, of, as to, concerning
or with respect to:
(a) value;
(b) the income to be derived from the Property;
(c) the suitability of the Property for any and
all activities and uses which Iomega may conduct
thereon, including the possibilities for future
development of the Property;
(d) the habitability, merchantability,
profitability or fitness for a particular purpose
of the Property;
(e) the manner, quality, state of repair or lack
of repair of the Property;
(f) the nature, quality or condition of the
Property, including, without limitation, the
water, soil and geology;
(g) the manner or quality of the construction or
materials if any, incorporated into the Property;
(h) the conformity of the Property to applicable
zoning or building requirements after Closing.
14. ACCESS TO INFORMATION
14.1 At the Pre-Closing, QSM shall make available to Iomega
and any persons authorized by it all such information
relating to the Assets and such access to the Assets
and all title deeds, and of relating to the Assets.
14.2 Both Parties hereby undertake that they will not, save
as required by law, divulge any confidential
information obtained from the other as a result of the
transaction memorialized in this Agreement to any
person other than its own officers, employees,
professional advisors and/or local government
authorities who "need to know". For the purposes of
implementing this section the parties agree to execute
the mutual non-disclosure Agreement, attached to this
Agreement as Exhibit "D".
14.3 In the event this Agreement is terminated (pursuant to
Section 16), both Parties undertake to return to each
other, all information and documents concerning the
Assets which have been provided in connection with this
Agreement. Each Party also agrees not to use any such
information gained by it to further itself in its trade
or to the detriment of the other Party unless such
information had already been known to it or had become
or subsequently becomes public knowledge otherwise than
by reason of any act or default of the recipient Party,
its advisors or employees.
15. ENVIRONMENTAL INDEMNITY
15.1 Quantum Indemnification: QSM agrees to indemnify, hold
harmless and defend Iomega from and against any
liabilities, claims, demands, damages (including,
without limitation, attorneys', experts' and
consultants' fees), fines, penalties, and monetary
sanctions arising out of any liability related to
contamination of the Property as a result of Hazardous
Material Activities conducted by Quantum before July
15, 1996.
15.2 Iomega Indemnification: Iomega shall indemnify, hold
harmless and defend Quantum from and against any
liabilities, claims, demands, damages (including,
without limitation, attorneys', experts' and
consultants' fees), fines, penalties, and monetary
sanctions arising out of any liability related to
contamination of the Property as a result of Hazardous
Materials Activities which occur during Iomega's
possession or operation of the Property which for
purposes of this section shall be deemed to have begun
on July 16, 1996.
15.3 For purposes of this Section 15, Environmental
Indemnity, "Hazardous Material" shall mean oil,
petroleum (or any fraction thereof), explosives,
asbestos, radioactive materials and any such other
substances as are defined as "hazardous substances," or
"hazardous materials" or "hazardous wastes" under
applicable laws, regulations, ordinances, rules, codes,
permits, and/or restrictions relating to the protection
of human health and safety and the indoor and outdoor
environment ("Environmental Requirements").
15.4 For purposes of this Section 15, Environmental
Indemnity, "Hazardous Material Activity" shall mean the
use, processing, distribution, manufacture, handling,
storage, transportation, treatment, disposal, emission,
discharge, release (as defined by applicable
Environmental Requirements), or threatened release of
any Hazardous Material.
15.5 The provisions of these indemnities shall survive to
the Closing and to the extent necessary to give effect
to such provisions.
16. TERMINATION
16.1 In the event the approvals referred to in Section 5 are
not obtained or not obtained on or before Closing or
obtained with conditions deemed to be prejudicial (as
defined in Section 5.2) to Iomega Malaysia, then the
following shall occur:
(a) all sums forming part of the Consideration,
if paid to QSM, shall be refunded free of interest
by QSM to Iomega;
(b) Good and Marketable Title to the Property
under Malaysian law shall be redelivered to QSM or
its designee;
(c) all the Equipment shall be re-delivered by
possession to QSM, or its designee at the
Property; and
(d) all other documents delivered by QSM pursuant
to Section 4.2 of this Agreement shall be
re-delivered to QSM, or its designee
and this Agreement, the Charge and Agreement to
Charge as well as the Letter Agreement (other than
sections concerned with the parties post
termination responsibilities and allocation of
costs and the mutual Non-Disclosure Agreement
attached to this Agreement as Exhibit D), subject
to any antecedent breach by either Party, shall
terminate and be null and void and of no effect.
17. MISCELLANEOUS
17.1 Each party shall pay its own legal costs and
disbursements of, and incidental to, this Agreement,
Iomega shall, however, bear all stamp duties and
registration fees with such other disbursements of, and
incidental to the transactions in this Agreement.
However, the Parties hereby agree that the stamp duties
and registration fees with such other disbursements of,
or incidental to, the registration of the Charge shall
be borne by QSM and Iomega Malaysia in equal
proportions.
17.2 Each notice, demand or other communication given or
made under this Agreement shall be in writing and
delivered or sent to the relevant party at its address
or fax number as the addressee has by five (5) days'
prior written notice specified to the other parties:
To Quantum U.S. and QSM: Attention: Andrew Kryder
Vice President, General Counsel
Quantum Corporation
500 McCarthy Boulevard
Milpitas, California 95035
Phone Number: (408) 894-4031
Fax Number: (408) 324-7005
To Iomega U.S. and Attention: Donald Sterling
Iomega Malaysia: Vice President, Corporate
Counsel and Secretary
Iomega Corporation
1821 West Iomega Way
Roy, Utah 84067
Phone Number: (801) 778-3188
Fax Number: (801) 778-3871
Any notice, demand or other communication so addressed
to the relevant party shall be deemed to have been
delivered (a) if given or made by letter, when actually
delivered to the relevant address; (b) if given or made
by telex, when dispatched with confirmed answer back
and (c) if given or made by fax, when dispatched.
17.3 No waiver by either party of any breach by the other
party of any provision hereof shall be deemed to be a
waiver of any subsequent breach of that or any other
provision hereof. If at any time any provision of this
Agreement is or becomes illegal, invalid or
unenforceable in any respect, the legality, validity,
and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby.
17.4 This Agreement is a fully integrated Agreement and
constitutes the whole Agreement between the Parties and
it is expressly declared that no variations hereof
shall be effective unless mutually agreed upon in
writing.
17.5 This Agreement shall be governed by and construed in
accordance with the laws of California, taking into
account the extent to which the Agreement contains
terms designed to address the unique circumstances of
Malaysia. To the extent that the resolution of a
particular action requires the jurisdiction of the
courts of Malaysia, both Parties hereby agree to bring
the action in said courts of Malaysia.
IN WITNESS WHEREOF this Agreement has been executed on the
day and year first above written.
SIGNED by: /s/ Michael Brown
Signature
for and on behalf of Michael A. Brown
Name
QUANTUM CORPORATION President and CEO
Title
SIGNED by: /s/ Kenneth Lee
Signature
for and on behalf of Kenneth Lee
Name
QUANTUM STORAGE (MALAYSIA)
SDN.BHD. President and General Manager
Title
SIGNED by: /s/ Donald R. Sterling
Signature
for and on behalf of Donald R. Sterling
Name
IOMEGA CORPORATION Vice President, Corporate Counsel
Title
SIGNED by: /s/ Donald R. Sterling
Signature
for and on behalf of Donald R. Sterling
Name
IOMEGA (MALAYSIA) SDN.BHD. Director
Title
EXHIBIT 10.34 (a)
EXHIBIT A
AGREEMENT FOR THE SALE AND PURCHASE OF ASSETS
SECURED PROMISSORY NOTE
OF
IOMEGA (MALAYSIA) SDN.BHD.
$18,000,000.00 Milpitas, California Dated _______ ___, 199__
FOR VALUE RECEIVED, AND SUBJECT TO THE TERMS OF THIS
SECURED PROMISSORY NOTE (this "Note") AND CLOSING OF THE REAL
PROPERTY TRANSACTION MEMORIALIZED IN THE ATTACHED SALE AND
PURCHASE AGREEMENT DATED SEPTEMBER 13, 1996, IOMEGA (MALAYSIA)
SDN.BHD., with a principal place of business at Plot 44, Bayan
Lepas Industrial Park IV, 11900 Penang, Malaysia (the
"Company"), unconditionally promises to pay to the order of
QUANTUM STORAGE (MALAYSIA) SDN.BHD., a wholly owned Malaysian
subsidiary of Quantum Corporation, a Delaware corporation,
having its principal place of business at 500 McCarthy
Boulevard, Milpitas, California 95035, together with its
successors and assigns, (the "Note Holder"), or at such other
place as the Note Holder may from time to time designate in
writing, in lawful money of the United States of America and
in immediately available funds, the principal sum of Eighteen
Million Dollars ($18,000,000) together with interest thereof
from September 12, 1996 on the unpaid balance of principal
from time to time outstanding at the rate of 8.5% per annum
until this note is paid in full according to the following
terms and conditions:
Principal and Interest Repayment. The outstanding
principal amount of $18,000,000 shall be due and payable in
installments at the Note Holder's principal office or such
other place as may be designated from time to time by the Note
Holder as follows:
(a) The first payment of $7,530,000 ($6,000,000)
plus one year interest on $18,000,000 @ 8.5% equaling
$1,530,000) shall be due on September 13, 1997.
(b) The second payment of $7,020,000 ($6,000,000
plus one year interest on $12,000,000 @ 8.5% equaling
$1,020,000) shall be due on September 13, 1998.
(c) A final payment of $6,510,000 ($6,000,000 plus
one year of interest on $6,000,000 @ 8.5% equaling $510,000)
shall be due by September 13, 1999.
The Company shall be allowed, at any time to prepay in
the amount(s) it desires without penalty. Prepayments shall
be applied first to fees and expenses, second to accrued
interest and last to principal.
The obligations of the Company under this Note are
secured by that charge referred to in the attached S&P
Agreement ("the Charge") by the Company in favor of the Note
Holder.
If any day on which a payment is due pursuant to the
terms of this Note is not a day on which banks in California
are generally open (a "Business Day"), such payment shall be
due on the next Business Day following.
Events of Default. The occurrence of any of the
following shall constitute an "Event of Default" under this
Note:
(a) The Company shall fail to pay when due or upon
maturity any principal, interest, fees or other amounts
payable under this Note or Iomega Corporation shall fail to
pay when due or upon maturity any principal, interest, fees or
other amounts payable under the Guaranty to be executed at
Pre-Closing.
(b) Any financial statement or certificate
furnished to Note Holder in connection with this Note or any
representation or warranty made by the Company or Iomega
Corporation hereunder or under the Charge, the Agreement for
the Sale and Purchase of Assets in Malaysia dated as of
September 13, 1996 (the "Purchase Agreement") among Company,
Note Holder, Quantum Corporation and Iomega Corporation
("Iomega"), or the Guaranty and together with this Note, the
Charge and the Purchase Agreement (the "Purchase Documents")
by Iomega in favor of Note Holder by the Company under the
Note shall prove to be false, incorrect or incomplete in any
material respect when furnished or made.
(c) Any default in the payment or performance of
any obligation, or any defined event of default, under the
terms of any contract or instrument, evidencing aggregate
obligations in excess of $5,000,000 (other than this Note or
the Guaranty) pursuant to which Iomega, the Company and
Iomega's direct or indirect subsidiaries has incurred any debt
for borrowed money and as a result of which maturity thereof
has been accelerated.
(d) The filing of a notice of judgment lien against
Iomega or the Company; or the recording of any abstract of
judgment against Iomega or the Company in any country in which
Iomega or the Company has an interest in real property; or the
service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of Iomega
or the Company; or the entry of a judgment against Iomega or
the Company; and with respect to any of the foregoing, the
judgment in excess of $5,000,000 and has not been stayed or
bonded within thirty (30) days provided that as to a levy,
writ of attachment, execution or other like process.
(e) Either Iomega or the Company shall become
insolvent, or shall suffer or consent to or apply for the
appointment of a receiver, trustee, custodian or liquidator of
itself of any of its property, or shall generally fail to pay
its debts as they become due, or shall make a general
assignment for the benefit of creditors; Iomega or the Company
shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement
with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any
state or federal or foreign law granting relief to debtors,
whether now or hereafter in effect; or any involuntary
petition or proceeding pursuant to said Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or
commended against Iomega or the Company, or Iomega or the
Company shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary
petition; or Iomega or the Company shall be adjudicated a
bankruptcy, or an order for relief shall be entered by any
court of competent jurisdiction under said Bankruptcy Code or
any other applicable state or federal or foreign law relating
to bankruptcy, reorganization or other relief for debtors.
(f) The dissolution or liquidation of Iomega or the
Company; or if any of their respective directors, stockholders
or members, shall take action seeking to affect the
dissolution or liquidation of Iomega or the Company.
The Company waives presentment and demand for payment,
protest or notice of protest, notice of dishonor, and notice
of nonpayment of this Note and all other notices or demands in
connection with the delivery, acceptance, performance, default
or enforcement of this Note. The Company hereby waives to the
full extent permitted by law, the right to plead any and all
statutes of limitations as a defense to any demands hereunder.
The Company further covenants and agrees as follows:
1. The Company agrees to pay the Note Holder all costs and
expenses incurred by such Note Holder, including without
limitation, reasonable attorneys' fees and expenses, and court
costs (including any costs of appeal) in enforcing and
collecting this Note.
2. The Company shall not and shall not permit any of its
Subsidiaries to, create, incur, or otherwise cause or suffer
to exist or become effective any consensual Lien(s) [except as
provided in Section 13 of the Charge (entitled "Leasing and
Possession"))], upon Plot 44, Bayan Lepas Industrial Park IV,
also known as P.T. 3217, held under Suratan Hakmilik,
Sementara No. H-S (D) 8712, Daerah Barat Daya, Palau, Penang
(the "Property").
3. The Company shall not hypothecate or encumber its
interest in the Property or any interest therein or suffer or
permit the Property or any interest therein to be hypothecated
or encumbered by operation of law. [Except as provided in
Section 13 of the Charge (entitled "Leasing and Possession")],
the Company shall not assign, sell, convey, or otherwise
transfer or dispose of the Property or any interest therein.
The Company may lease the Property subject to exercise of the
Charge thereon. Such lease agreements must be prior approved
in writing, by the Note Holder which shall not refuse any
lease properly subject to the Charge.
4. The Company shall not consolidate or merge with or into
any other Person or entity, or permit any other Person or
entity to consolidate or merge with or into the Company, nor
shall the Company sell, lease, convey or otherwise dispose of
all or substantially all of its assets unless (i) the entity
formed by or surviving any such consolidation or merger, or to
which such sale, lease, conveyance or other sale shall have
been made (the "Surviving Entity"), is a corporation organized
and existing under the laws of the United States, any state
thereof, the District of Columbia, or Malaysia; (ii) the
Surviving Entity assumes all of the obligations of the Company
under this Note; (iii) immediately after giving effect to such
transaction, no Event of Default nor event that with the
passage of time or the giving of notice would lead to an Event
of Default, shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction, the
Consolidated Tangible Net Worth of the Company or the
Surviving Entity, as the case may be, would be at least equal
to the Consolidated Tangible Net Worth of the Company
immediately prior to such transaction; and (v) such
consolidation or merger should not have a material adverse
effect on the Company's business or on the ability of Note
Holder to enforce any Charge.
This Note is the Secured Promissory Note referred to in,
and is executed and delivered in connection with the Charge.
The full amount of this Note is secured by the Charge. The
Company shall not, directly or indirectly, suffer or permit to
be created or to remain, and shall promptly discharge, any
lien on or in the Property or any equipment or property
maintained on such Property, or in any portion thereof, except
as permitted pursuant to the Charge. In addition, the Company
shall not suffer any other matter whereby an interest of the
Note Holder under the Charge in the Property or in any lien
pursuant to the Charge or any part of the foregoing might be
impaired, except as permitted pursuant to such Charge.
Upon the occurrence and during the continuance of any
Event of Default, Note Holder may, by written notice to the
Company, declare all outstanding amounts payable by Company
hereunder to be immediately due and payable without
presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived. Upon the occurrence
and during the continuance of any Event of Default described
in clauses (f) or (g) of the definition of "Events of
Default", immediately and without notice, all outstanding
amounts payable by Company hereunder shall automatically
become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which
are hereby expressly waived. In addition to the foregoing
remedies, upon the occurrence and during the continuance of
any Event of Default, Note Holder may exercise any other
right, power or remedy permitted to it by law, either by suit
in equity or by action at law, or both.
This Note shall be governed by, and construed, enforced
and interpreted in accordance with the laws of the State of
California, excluding conflict of laws principles that would
cause the application of laws of any other jurisdiction. If
any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
The provisions of this Note shall inure to the benefit of
and be binding on any successor to the Company and shall
extend to any assignee of Note Holder.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed and issued as of the day and year first written
above.
IOMEGA (MALAYSIA) SDN.BHD.
By: ____________________________
EXHIBIT 10.34 (b)
Exhibit B
Indemnification Agreement
QUANTUM CORPORATION, a Delaware corporation, with its
primary business location at 500 McCarthy Boulevard,
Milpitas, California 95035 and Quantum Storage Malaysia
("QSM") (M) Sdn. Bhd. Malaysia (collectively "Quantum") and
IOMEGA CORPORATION, a Delaware Corporation with its primary
business location at 1821 West Iomega Way, Roy, UT 84067
and any future Malaysian subsidiary (collectively "Iomega")
execute the following indemnification agreement
("Agreement").
Agreement
Whereas, Quantum has agreed to cause its wholly owned
subsidiary, QSM to sell its facility located at Plot 44,
Phase IV, Bayan Free Trade Zone, Penang, Malaysia ("the
Facility") and Iomgea has agreed to purchase the Facility,
and
Whereas, Iomega intends to operate the Facility but has not
received the necessary business permits ("Permits") from the
Malaysian government to do so,
and
Whereas, Quantum is in the process of shutting down the
Facility, and had scheduled the termination of the
employment of the majority of its employees,
and
Whereas, Iomega has issued offers of employment to
approximately 350 of Quantum's employees who were originally
scheduled for termination effective July 15, 1996 ("the
Iomega Employees"), and
Whereas, Iomega has requested Quantum to continue employment
of the Iomega employees until such time as Iomega has
received the Permits to allow it to employ the Iomega
Employees.
Whereas, Quantum has agreed to so act, provided that Iomega
indemnifies Quantum for any adverse consequence it might
suffer as a result of so acting.
Now therefore,
The parties hereby agree that Iomega will release, indemnify
and hold harmless Quantum, and all of its officers,
directors, employees, agents or successors in interests from
any and all expenses and/or costs, including but not limited
to, any legal expenses, claims, proceedings, and/or other
adverse monetary consequences associated with, or arising
out of, Quantum's continued employment of the Iomega
employees and/or the enforcement of this Agreement.
Quantum Corporation Iomega Corporation
By: /s/ Andy Kryder By: /s/ Donald R. Sterling
Andy Kryder Donald R. Sterling
Title: V.P., General Counsel Title:
Date: 7/12/96 Date: 7/15/96
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 102452
<SECURITIES> 0
<RECEIVABLES> 228671
<ALLOWANCES> 30965
<INVENTORY> 178035
<CURRENT-ASSETS> 41659
<PP&E> 192175
<DEPRECIATION> 64611
<TOTAL-ASSETS> 650219
<CURRENT-LIABILITIES> 288396
<BONDS> 0
<COMMON> 4236
0
0
<OTHER-SE> 249465
<TOTAL-LIABILITY-AND-EQUITY> 650219
<SALES> 815711
<TOTAL-REVENUES> 815711
<CGS> 597955
<TOTAL-COSTS> 749568
<OTHER-EXPENSES> 1078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4251
<INCOME-PRETAX> 60814
<INCOME-TAX> 23845
<INCOME-CONTINUING> 36969
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<NET-INCOME> 36969
<EPS-PRIMARY> 0.28
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</TABLE>
